Adding Value to the New Mexico Beef

Industry

New Mexico State University

Prepared By

Terry L. Crawford, Ph.D. Department Head

Jerry M. Hawkes, Ph.D. Assistant Professor

Anil Rupasingha, Ph.D. Assistant Professor

Ryan D. McConnaughey Research Assistant

i

TABLE OF CONTENTS

List of Tables ......................................................................................................................... ii

List of Figures ........................................................................................................................ iii

Introduction............................................................................................................................ 1

State of the Industry............................................................................................................... 2

United States .................................................................................................................... 2

New Mexico..................................................................................................................... 4

Feedlot Sector .................................................................................................................. 7

Meat Packing Sector ........................................................................................................ 8

Demand Profile ...................................................................................................................... 11

Markets .................................................................................................................................. 16

Scenarios ................................................................................................................................ 22

Branding Program.................................................................................................................. 23

State Promotion Programs ............................................................................................... 24

Regional Promotion Programs......................................................................................... 25

Marketing Channels ......................................................................................................... 28

Slaughter Facility ................................................................................................................... 30

Transportation .................................................................................................................. 33

Regulation ........................................................................................................................ 33

Grass Fed Beef....................................................................................................................... 34

Economic Development......................................................................................................... 36

Conclusion and Recommendations........................................................................................ 42

Appendix................................................................................................................................ 46

Literature Cited ...................................................................................................................... 51

ii

LIST OF TABLES

Table Page 1 2006 Beef Cow Operation Estimates................................................................ 2 2 Land Composition of New Mexico................................................................... 5 3 Slaughter Facility Cost per Head ...................................................................... 32 4 Slaughter Facility Head per Year...................................................................... 32 5 Beef Cattle Economic Impact .......................................................................... 40

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LIST OF FIGURES

Figure Page 1 New Mexico Beef Cow Numbers, 1970-2006.................................................. 6

2 New Mexico Cattle Prices Received, 2000-2007 ............................................. 7

3 The Beef Marketing Channel............................................................................ 12

4 Average Annual Meat Consumption in the U.S., 1980-2007........................... 15

5 Nominal and Real Calf Prices........................................................................... 16

6 Average Monthly Calf Prices: Percentage Change to October......................... 17

7 Average Annual per Capita Meat Expenditures, 1980-2007............................ 19

8 Map of New Mexico ......................................................................................... 31

9 Slaughter Facility Costs: Shift Effect ............................................................... 33

10 Beef Production Cycle ...................................................................................... 36

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EXECUTIVE SUMMARY

New Mexico beef producers have long tried to add value to their products; attempting to

shift their products away from the commodity market and into a market defined by quality

attributes desired by the end consumer. This report is a result of several entities in the state of

New Mexico coming together to discuss the opportunities that are available to add value to the

New Mexico beef industry. Factors that can affect such value include the state of the beef

industry, consumer trends, and the recognition of those various qualities as they may contribute

to the aggregate value of the industry.

This study looks at the current state of the beef industry in both the U.S. and NM.

Included are profiles on producers, consumers, the feedlot sector, and meat packers, as well as

trends in meat consumption and consumer expenditures on food. It also gives an in-depth

analysis of three different options for adding value to the beef industry including 1) branded beef

programs, 2) a slaughter facility, and 3) a grass fed beef program. The report investigates the

feasibility of a slaughter facility through the use of a cost analyzer developed by the USDA

Economic Research Service, which estimates the cost of various sizes of slaughter facilities.

Results of the study show that the feasibility of slaughter facility is unlikely due to a lack of

sufficient slaughter animals in the state as well as the competition the facility would face from

larger, more efficient facilities located in Texas. A grass fed program is feasible, however it

would required significant changes in either the number of mother cows produced or the level of

supplemental feeding producers employ in their management practices. The option with the

most potential seems to be a cooperative branding program which would market NM beef based

on characteristics such as being locally grown and fresh, as well as consumers willingness to

support local producers.

1

Introduction

This study is the result of an increasing desire to increase market access and value in the

New Mexico beef industry. Since the majority of New Mexico cattle are shipped out of the state

for finishing and processing, NM cattle producers have long struggled to differentiate their

products as anything other than commodity beef, making it difficult to command a premium

price from consumers. Further hindering the industry is the lack of a commercial slaughterhouse

and packing plant of any significant size, as well as a lack of capacity on current feedlot

operations within the state.

Although milk production has over taken beef production in terms of income, 6,200

operators still produce 460,000 head of beef cattle. The droughts that have persisted in the West

for nearly a decade have made feed sources scarce and many factors including the increased

production of ethanol have caused feed prices to soar in recent years.

In response to the growing concerns among beef producers in the state over these issues,

the New Mexico Beef Council, New Mexico Economic Development Department, Cooperative

Extension Service, McCune Foundation, SYSCO, and others, along with the Agriculture

Economics and Agriculture Business Department at New Mexico State University have come

together to investigate various options for increasing the value in production of beef cattle. This

report outlines in detail the current state of the beef industry including size, trends, costs of

production, and overall food and beef demand trends. The study also includes the feasibility of

the use of a local or regional beef branding program, a slaughter facility within the state, and the

implementation of a grass fed beef program.

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State of the Industry United States: According to the Economic Research Service of the United States Department of

Agriculture, beef production is the largest segment of the U.S. agricultural economy. The USDA

estimates that there were 762,880 U.S. beef cattle producers operating in 2006 with an estimated

inventory of 32.9 million head. Over three-quarters (77.41%) of those operations are estimated

to have between 1 and 49 head of beef cattle and hold 27.6% of the total inventory. By contrast,

those operations with at least 500 head make up just 0.72% of the total operations, but account

for 15.1% of the inventory of beef cows in the United States (Table 1) (Farms, Land in Farms,

and Livestock Operations, February 2007). The fact that there are many small operations in

existences and that there is little happening in the way of producer consolidation is due, in part,

to the “absence of significant economies of scale,” (Lamb, 1998). In other words, there is little

cost benefit in having larger operations.

Table 1: 2006 Beef Cow Estimates

Head

Number of

Operations

Percent

of Total

Inventory on

Operations

1-49 590,550 77.41% 27.6%

50-99 93,750 12.29% 18.6%

100-499 73,055 9.58% 38.7%

500+ 5,525 0.72% 15.1%

Total 762,880 100.00% 100.0%

Source: USDA NASS: Farms, Land in Farms and

Livestock Operations: 2006 summary

Nationwide, beef consumption totaled 28.1 billion pounds in 2007. Beef produced in the

U.S. in 2007 totaled 26.42 billion pounds with 1.431 billion pounds being exported at a value of

$2.175 billion. Ninety percent of all U.S. exports go to four markets around the world including

Japan, Mexico, South Korea, and Canada. Furthermore, the U.S. imported 3.052 billion pounds

of beef in 2007 (Mathews, 2008). While beef imports are often seen as a possible threat to the

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domestic beef industry, imports, on an aggregate beef demand level, are a relatively small

percent of all U.S. consumption and most imports are not high quality products, resulting in a

negligible impact on the value-added beef market (Katz & Boland, 2000).

The operating costs of a cow-calf production operation in the United States increased by

almost 10 percent, rising from $530.48 per bred cow to $583.42 per bred cow between 2005 and

2006. Much of the increase can be attributed to a 14 percent increase in the cost of feed over the

same period. Due to the increases in operation costs, the value of production less operating costs

shrunk from $108.71 per bred cow in 2005 to just $27.15 in 2006 (Cow-calf production costs and

returns per bred cow, 2005-2006). With oil prices being record highs in 2008, this value could

be even lower.

The price of feed grains often employed in the process of feeding and finishing beef

animals for consumption have hit all time high levels during the early part of 2008. The method

of finishing beef cattle using feed grains in a feedlot facility has been the most cost effective

manner used over the past 50 years (Brokken, O'Connor, & Nordblom, 1980). The New Mexico

Ranch to Rail program has estimated the average cost of gain for finishing cattle to be $0.77 per

pound, The consumer’s tastes and preferences have continued to evolve to the point that

consumers demand a marbled, tender beef product the idea of pasture finishing has continued to

become less realistic. A pasture finished beef product will not have the same characteristics that

are recognized in the feedlot finished animal. Consumers currently demand a product which will

grade good at the minimum but most prefer the products that grade choice. Beef cattle raised

and finished on native grasses typically will not meet these criteria and therefore not be as

desirable on a large scale.

4

New Mexico: Beef production is a significant contributor to New Mexico agriculture production

as well. According to the costs and return estimates prepared for New Mexico livestock

production, the value of production less operation costs were $274.10 in 2007 (Hawkes &

Libbin). In 2007, the production of cattle and calves contributed $951 million in cash receipts to

the state’s economy and ranked as the second largest contributor to the value of NM

commodities, following only the expansive dairy industry. Most cattle in the state are raised on

operations based in pasture or range production and shipped to one of the few feedlots in New

Mexico or to a feedlot in another state for finishing. Due to the prevalence of range based

production, New Mexico producers are heavily dependent on vegetation available during the

growing season; an input that is highly variable based on numerous factors including weather

patterns, management practices, and previous usage rates.

Currently the New Mexico beef industry has primarily a cow-calf foundation to its

production. This production basis is established due to both traditions as well as land

composition throughout the state. Table 2 provides the demographic profile of the land

ownership pattern throughout New Mexico.

Of the approximately 78 million acres that comprise New Mexico about 66 million of

these acres may potentially be grazed. A more accurate value of the number of acres actually

being employed in a grazing program is difficult to measure. The consensus of land owners and

land managers is that of the 66 million potential acres only a portion of those are currently

supporting beef cows. Although this value is unknown, it is estimated by the New Mexico

Department of Agriculture that the current number of beef cattle, 460,000, provides the level of

grazing that maintains long-term ecological health for native rangelands.

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Table 2: Land Composition of New Mexico Land Class Acres Private 34,831,346 State State Trust Lands 9,413,017 NM Game and Fish 165,000 State Park Service 8,720 Federal BLM 12,837,042 USFS 9,079,262 Native American 7,962,742 Military 3,099,068 National Park Service 247,961 Bureau of Reclamation 179,839 Corp of Engineers 26,476 US Fish and Wildlife 15,767 Total 77,866,240

Stuckey and Henderson (1969) provided the most recent grazing data for New Mexico in

an aggregate sense currently available. This grazing capacity study estimated that the state wide

average is approximately 11 cows per section year-long. This value may be lower in today’s

environment than it was 40 years ago. Variables that may reduce a rangelands carrying capacity

include; woody species encroachment, increased wildlife populations, policy changes, political

pressures and environmental conditions. Four decades of changes to the New Mexico landscape

certainly have altered the aggregate carrying capacity but by what exact value is currently

unknown. Holechek et al (2006) estimated that an appropriate forage use level for comprised

New Mexico rangelands would be approximately 40%. This value allows for the continued

success of rangeland health and monitoring for ranges employed in grazing systems.

Implementing the 40% use factor and an average of 650 pounds of forage being grown per acre

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provides a basis for the beef herd base. These use values may be greater on private lands that

often have a greater forage base to work with. This assumption is inclusive of all grazed lands

throughout the state regardless of ownership pattern.

The New Mexico beef cow herd reached a peak level at 714,000 in 1974 and a minimum

number of beef cows in 2004. Range conditions and availability grazing lands continually

change thus forcing producers to adjust their operations. Figure 1 provides a detailed trend of

the changes that have existed in the New Mexico beef cow inventory since 1970.

New Mexico beef cattle prices are cyclical and beef producers are price takers as

is the case throughout agricultural products. The prices shown in Figure 2 provide a necessary

look at the cyclical nature of beef animal prices received. Agricultural producers may have the

opportunity to enhance the price received through marketing alternatives such as; branding the

product, value added calf programs, and other marketing alternatives.

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Feedlot Sector

New Mexico has a small feedlot sector with a one time capacity of less than 100,000

head. The Texas Cattle Feeders Association, which includes feeders in New Mexico, Texas, and

Oklahoma, represents the largest cattle feeding area in the U.S., feeding approximately 6.7

million head of cattle in 2006 most of which is in the panhandle of Texas and Oklahoma – 200

miles from NM. Producers often finish their cattle in feedlots to produce animals with the

characteristics that consumers find most desirable such as tenderness, marbling, and taste. This

includes cuts with a USDA grade of Choice that are marbled and tender; characteristics that are

difficult to achieve with range or grass fed cattle.

Within the feedlot sector there is a wide variety of types of animals fed as well as a wide

variety of rations used. Animals vary in age, sex, breed, weight, physical conformation and

health. The amount of time the animals are fed in the feedlot and the rations they receive

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typically vary according to the type of animal being fed. However, the range in weight and

condition of animals leaving the feedlot for slaughter is much more homogenous.

The three primary types of animals that could be anticipated to be included in a feedlot

program may be broadly defined as; beef steers, beef heifers, and dairy steers. The weights of

these animals may vary by class, age and breed. A ration will be developed that enhances the

ability of the animal to perform to the level that is anticipated and desired by the end user. These

rations will vary and have continued to evolve through research and development programs

applied at developing the consumer demanded products. The economic profile for feeder grains

recently placed added pressure to price margins for the beef products. This process will continue

to be evaluated for the balance of profit and consumer tastes and preferences.

The outputs from the cattle sector are weaned calves and non-fed beef from cows, heifers,

and bulls culled from the beef breeding herd. Weaned calves are used as inputs in other

production processes that involved growing them to various intermediate states for use in further

production processes such as feedlots or for slaughter or for use as replacements in the beef cow

breeding herd. The dairy outputs besides milk included non-fed beef from the cows and heifers

culled from the breeding and milking herd as well as baby calves. The baby calves could be

employed as veal could become replacements in the milk cow herd or could become feeder

calves.

Meat Packing Sector

The meatpacking industry continues to become more centralized with few expansion

opportunities being presented globally. Rural regions of the United States have long considered

the idea that a packing facility in their community could be beneficial for income. The benefits

they often consider are increased employment, increased livestock production for the region and

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feedstuff production. Many rural communities through time have considered the problems of

chronic unemployment, and population declines as a cause and effect scenario. These

communities seek economic development in their region in areas that currently they hold some

level of expertise and raw resources needed for the development process.

A concern that has persisted in the beef industry is the willingness and acceptance of a

packing facility as a potential area for profit gains. The beef packing industry must realize real

rates of return on their investment in order for the firm to consider the capital outlay that must

accompany such an investment. Risk assessment must be managed on financial, environmental

and policy levels. Each criterion must be established and met prior to extensive capital outlay

processes to begin. The firm will typically employ a feasibility study to determine the benefits

and costs associated with the proposed idea.

A prime requirement for establishing a rural beef packing plant is an ample supply of

slaughter cattle dependable available on a year-round basis. These animals must be reasonably

near the plant and relatively uniform in quality, weight and finish. To establish a profitable new

plant, the local supply of such cattle must exceed the slaughter capacity of the existing local

plants. Before the adequacy of the supply can be evaluated it is necessary to determine the size

of the proposed plant in terms of an hourly kill. This kill capacity is then related to an annual

livestock procurement requirement. The size operation to plan on depends on the purposes of the

market outlets being considered. Local planners may wish to consult with the evaluations about

what might be the most effective and practical slaughter plant capacity to consider.

The plant size is defined as the kill capacity. A small plant will typically have a kill

capacity of 1 to 20 cattle per hour. The medium sized plant will have the capacity to kill 60 to

120 head per hour while a large facility will have a capacity reaching 250 to 300 head per hour.

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Most packers will operate approximately 252 days per year with just over 7 hours of production

daily. These values encompass the typical work schedule and plant times that the facility is

inoperable due to various situations.

To provide an estimate of available livestock this study uses a 120 mile radius of the

community to estimate availability. The focal point should be the community where the

proposed development will take place. The cost of transportation with recent fuel costs makes

this an integral part of the equation. Smalley (1976) determined that hauling livestock on excess

of a 50 mile radius is not economical in a commercial setting. This value remains constant in the

economic situation that exists today. It is realized that cattle are often hauled much further

distances to such facilities as sale barns and feedlots, but it is an individual market and can better

absorb such costs. In addition to the basic transportation costs the firm must consider death

losses, injuries to cattle causing bruising, and excessive shrinkage. Each of the factors presents a

financial consideration that should be evaluated.

To support a facility in an area that contains both cattle-feeding and cow-calf production

the regions should have a beef-animal inventory that is approximately four times the plants

proposed annual kill volume. Ideally the grain-fed market will be about 25 percent of the current

beef-cattle inventory. This ratio is not constant for all regions particularly where non grain fed-

cattle are marketed for slaughter. Estimates must be adjusted for local factors and recent

marketing conditions. The local calving rate, timing of production and growth in herd numbers

are important factors to evaluate. The local demographics and cultural practices will also be an

important factor to consider in this process.

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Demand Profile

According to a report by the Federal Reserve Bank of Kansas City, even though per

capita meat consumption has been on the rise, per capita beef consumption has steadily fallen.

One study estimates that the decline in beef consumption from 1982 to 1998 was almost 10 lbs.

per capita; dropping from 77 lbs. to 68 lbs (Barkema, Drabenstott, & Novack, 2001). In addition

to consumption declining, inflation-adjusted beef prices fell by 32 percent over the same period.

Decreases in demand have been attributed to both price and non price factors. Even though the

real price of beef has fallen in recent years, both poultry and pork prices have fallen even further,

making beef the relatively more expensive meat in stores. The beef industry has also partially

failed to innovate as quickly as pork and poultry in the face of changing consumer demands

(Schroeder T. M., 2000).

As previously mentioned the demand for meat on American’s tables has been increasing

for the past twenty years. This increase has been noticeable as the consumption of white meats

such as poultry and pork has shown an increase in demand, but beef and red meats have

indicated a reduction in demand. What are some of the mitigating factors that have spurred this

trend for the past two decades? Some areas of possible exploration are; vertical integration,

consumer health concerns, and consumer taste and preference; affecting industry demographics,

real prices.

Vertical integration, expanding into other levels of the marketing channel (Figure 3), has

played a role in this trend as is witnessed by both the poultry and pork industries today. Each of

these industries delivers the concept of taking their product from conception to the table. Would

this be a valuable endeavor for the beef industry? What limitations would exist should the beef

producer consider such a change in production perceptions?

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A key factor when considering vertical integration is the size of the operation. Beef cattle

across the nation require an average of 6.5 acres per head per year (Census of Agriculture, 2002)

to meet their forage demands. This value would be larger in a rangeland situation in the western

United States such as New Mexico, where 90 acres per animal is not unusual. The overall

physical characteristics of poultry and swine operations are much less than those required for a

beef producer when one considers the physical base required. Secondly, the sheer number of

producers growing beef cattle today is greater in comparison to the number of poultry or pork

producers. The ability to organize a horizontally integrated industry is hampered with the

volume of growers and geographical diversity in the beef industry when compared to the lower

number of growers directly involved in the pork and poultry industries. It is much easier as one

13

would imagine coordinating fewer individuals and directing them in a specific direction. The

relative lack of a corporate structure in the beef industry is apparent. As the independence levels

expand in an industry the willingness of an industry to follow a certain set of guidelines for the

common good is certainly reduced. The remoteness, business structure and independence of

beef cattle producers are some of the reasons that it is difficult to better organize this industry

and move forward with one voice and production objectives. Without strong organizational ties

the ability to vertically integrate is virtually non-existent.

The USDA Grain Inspection Packers and Stockyards Administration (GIPSA) released a

series of publications in January of 2006 concerning the effect of concentration in the meat

industry. These include topics such as cattle procurement markets, price determination, captive

supply, and the effects of concentration on cattle prices. A brief synopsis of each topic follows

(Concentration Study Technical Reports, 2006):

Cattle Procurement Markets

Market definitions are important for measuring concentration and assessing its effects on competition. For example, there is potential for local price manipulation by one or a few buyers if markets are local and cattle cannot be transported easily and cheaply to take advantage of better prices in other regions. Three research teams worked on this project. They used three different approaches and arrived at similar conclusions, that fed cattle procurement markets behave as if cattle are traded nationally.

Price Determination

The researchers used a combination of descriptive data summaries and statistical estimating methods to identify and describe the factors that determine procurement and pricing practices used in purchasing slaughter cattle, and sources of variation in the costs of cattle purchased. The research found that the spot market continues to dominate transactions. Small packers rely on spot markets, while the "big three" are more likely to use the alternative procurement and pricing methods. Large feedlots are also more likely than small feedlots to use the alternative methods. Procurement and pricing method influenced cattle prices. Forward-contracted cattle received lower prices than spot market cattle, while marketing agreements brought higher prices. Cattle prices also significantly reflected quality and other lot characteristics.

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Captive Supplies

Captive supplies are defined in the study as cattle that packers own or contract to purchase two weeks or more prior to slaughter. Captive supplies may serve a useful economic function for participants by improving orderly marketing, which can generally increase market efficiency by smoothing price and quantity variabilities that can disrupt planning and decision making by firms. The greatest concern about the use of captive supply arrangements is the potential to be used in a manner that enhances the ability of packers to use market power.

Effects of Concentration on Cattle Supplies

Growth of firm and plant size in recent years generally is believed to have led to increased efficiency and lower per-unit processing costs. There also is concern that increased firm size and concentration have enabled packers to exercise market power. The researchers who worked on this project tested for the effects of market power on prices paid for cattle using a combination of weekly and monthly plant-level data on inputs, outputs, costs, and revenue.

The full reports for each of the previous topics can be found in the publications section of the

USDA GIPSA website (Concentration Study Technical Reports, 2006).

The typical American today will spend 9.9 percent of their disposable income on food

(Food Expenditures by Families and Individuals as a Share of Personal Disposable Incomes,

2006) with 2 percent for meat. This expenditure is quite low relative average expenditure by the

remainder of the developed world, which averages approximately 26 percent and developing

countries such as Azerbaijan, Nigeria, and Tanzania all spend more than 70 percent (Economic

Research Service 2004). Americans have become accustomed to not spending a great deal of

their disposable income for food. This has become possible through government support for

American grain producers, causing excess supplies. Price support systems have been in place for

agricultural producers since the inception of the 1933 Farm Bill. The depression and post war

legislation were geared more towards production control, rather than price support, but as

subsequent Farm Bills have been established price enhancements have become a more integral

15

part. These same laws, and farmers’ supply response, have played an essential part of keeping

price of food low for the American consumer.

The consumption of meat has increased overall in the United States as we have become

more affluent through time. When one considers the time period of 1980 through 2007 (Figure

4) the overall consumption of red meat has declined from approximately 140 pounds per year

individually to about 123 pounds in 2007. Poultry consumption during the same time period has

risen from less than sixty pounds per person in 1980 to greater than 100 pounds per person in

2007. Poultry consumption has risen by 67 percent since 1980. Beef consumption has decreased

16 percent over the same time period. Chicken comprises greater than 80 percent of the poultry

market place. The other products included in poultry are; turkey, game birds and other raised

fowl. Beef constitutes more than 60 percent of the red meat market today.

The expenditure pattern for consumer’s from1980 through 2007 time period has been

indicative of the relatively strong economic situation we have enjoyed in The United States

during this time period. Disposable income was approximately $8,850 per person in 1980 and

16

$33,697 per individual in 2007 (Regional Economic Accounts Interactive Chart, 2007). The

increase in wealth through this time period has provided the typical American with greater

spending power thus increasing the overall consumption of meat on a per capita basis (Regional

Economic Accounts Interactive Chart, 2004). Meats are considered a normal good which would

correlate with the increase in consumption of the goods available. Approximately $180 of

disposable income per individual was spent on beef in 1980. In 2007, $201 of per capita

disposable income was spent on beef. The overall increase is due to a proportional increase in

retail beef prices.

Markets

Real prices for beef to the producer have dropped slightly from those experienced in 1967

(Figure 5). With recent sharp increases in grain, oil, and transportation costs, the ability to

maintain a strong economic presence under this price structure is difficult at the minimum. The

concept of cost price squeeze certainly is applicable in the beef industry when considering the

nominal versus real prices of beef from 1967 through 2003.

17

The timing of marketing livestock is important to the overall economic equation as well.

The majority of the United States beef producers will ship their calves in the fall of the year.

Making this assumption the price cycle indicates that historically that October and November are

the two months that present the lowest nominal prices for calves throughout the year (Figure 6).

Jan Feb March April May June July Aug Sept Oct Nov Dec

Months

-10123456789

%

20yr 10 yr 5 yrAverage Monthly Calf Prices Percentage Change to October

This raises a question; should producers continue to spring calve? This is not an easy

question to answer as producers have established many criteria for calving in the spring of the

year and shipping calves in the fall of the same year. A producer’s genetic program is in place

and it is not easy to implement a new breeding program in a short amount of time. Time is

money even in the beef industry and this may not be a practical application relative to production

parameters. New Mexico producers, however, would have fewer obstacles to overcome in

converting to a fall calving season than most states located farther north. Mild weather,

especially in the southernmost parts of the state, would allow for year round calving and would

require less capital investment in facilities to protect calves from the elements than farther north.

Another difficult decision will revolve around the current grazing system and weather

considerations will always play a prominent role in a grower’s production management system.

These are just some of the questions which may be presented when considering the adjustment

Figure 6:

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from of fall calving periods. The reason for the change is an obvious one as nominal prices

reach their peak in February and March. Reaching the optimum price with these considerations

would present a daunting task indeed.

Vertical integration was mentioned earlier as a possibility to increase net returns back to

the producer. Poultry and pork industries have been able to make these adjustments in a

successful manner. Currently the market structure of the beef industry is defined as; producer to

feedlot to packer to consumer. The producer, feedlot and packer are in most instances different

entities. Also mentioned previously are the physical requirements of an operating beef ranch.

The ability to vertically integrate will depend on cooperation, volume, financial resources, and

market locations. It is challenging for any group to become organized to the point of vertical

integration. This requires that all considerations be taken into account and applied in a uniform

matter. Poultry and pork growers have established these factions through time, where as, the

beef industry has not successfully established these parameters. However, poultry and pork

producers have lost control of their industries to the feed and packing companies. The variance

in the beef industry is much greater than that in either the pork or poultry industries. The volume

of beef producers is being reduced but still exceeds 762,000 according to estimates provided by

the Economic Research Service in 2006. Combining the group goals and objectives of more than

three-quarters of a million individuals would be challenging. The remote location for many beef

ranches in the United States will further complicate the uniformity needed for successful vertical

integration. The relative distance from feed grain growing regions will also be an obstacle to the

beef industry. It may be cost prohibitive to ship either cattle or feed grains to the point where

they may be simultaneously implemented. An efficient slaughtering facility requires a

tremendous volume of animals each year to meet the desired economic efficiency factors.

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Delivery of the final product relative to the consumer market institutes another hurdle for the

industry to manipulate. Shipping costs could become prohibitive if the market place were

displaced greatly from the processing facilities. The ultimate goal in vertical integration is to tie

the producer, finisher and processor under one umbrella. The realization of this goal is often

times very difficult to manage due to circumstances which may not be easily overcome in a

timely manner.

Many decisions face the beef industry in the future. Marketing their product is one that

will be vital to the overall ability of the industry to survive. There are many questions to be

answered when considering these changes or prospective changes. Should risks be taken? Are

these risks measurable? And finally what is the benefit of change?

The amount of disposable income spent on chicken during 1980 was less than $51 per

person but more than tripled to $141 by the year 2007 (Figure 7). The upward trend for chicken

expenditures has been steady and increasing at an increasing rate. The increase in overall

expenditure for poultry is a combination of both unit demand and a decreasing real price to the

consumer.

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The growing demand and expenditure pattern on chicken relative to the trend of beef

consumption in the United States is very apparent. Expenditures for poultry are rising as

indicated by per capita consumption values. Per capita beef consumption is falling using the

same criteria

Currently, beef is seen as a commodity that has no distinguishable characteristics from

one carcass to the next. However, as consumers begin to educate themselves about such issues

as cattle disease, healthy eating choices, traceability, and methods of production, including

natural and organic operations, beef products will shift towards a market that is based on these

quality characteristics. “In other words, as consumers are exposed to beef products with a

greater variety of features and attributes that are preferred, they will be willing to pay more for

those characteristics they value,” (Mennecke, Townshend, Hayes, & Lonergan, 2007).

In a 2007 study done at Iowa State University to determine the importance of a variety of

beef characteristics, it was found in repeated studies that the region of origin was the most

important variable in the consumer’s perception of quality. Consumers preferred beef from their

respective states, but when not locally produced consumers preferred beef from Iowa, Texas,

Nebraska, and Kansas. While New Mexico was not labeled as a state that produces the best

steaks, the study still shows that New Mexico consumers would prefer locally produced beef.

The study concluded that “information about the region of origin, [and the additional factors of]

the use or nonuse of growth promoters, guaranteed tenderness, and traceability could all be

critical elements of consumer decision making,” (Mennecke, Townshend, Hayes, & Lonergan,

2007). Additionally, “to benefit from this information, producers (in concert with final retail

sellers) must establish the most propitious method of presenting value-adding information to

consumers,” (Mennecke, Townshend, Hayes, & Lonergan, 2007).

21

Another factor that has been a major driver behind beef demand over the past several

decades has been the idea of wellness. Wellness includes not only foods that will avoid making

consumers ill, but also those that promote healthy and longevity in consumers. Until recently

beef has been viewed by most consumers as the least healthy option among meat products, but

that stigma has begun to change. According to a report done by the Mintel International Group,

the USDA Nutrient Database has recognized 19 different cuts of beef as meeting the

department’s guidelines of being lean, while it has been found that nearly 50% of the fatty acids

found in beef are monounsaturated fatty acids that have been shown to reduce cholesterol

(Knudson & Peterson, 2007).

As consumers shift their demand for meat products that are consistently high in quality

and seen as the healthier alternatives, New Mexico beef producers must adapt to meet this

change in how their product is viewed on the market. Additionally, producers in the state must

continually combat the idea that beef is a homogenous commodity that has no quality

characteristics and therefore cannot be successfully marketed under a market brand system.

Creating a consistent, high quality, safe product that is recognizable to consumers within New

Mexico and the surrounding region could result in positive benefits for the producers in the state.

The fact that beef is still seen as a commodity product makes it difficult for producers to

brand, or label, their beef products in a way that could demand a premium over the competition.

Furthermore, the variation in quality from one animal to the next may prove to negate the power

of branding by failing to establish any discernable attributes for consumers, including tenderness,

color, and fat content (Lusk, 2001). There does, however, seem to be strong evidence that labels

certifying natural or organic production, local production, and humane production practices may

command a premium in today’s marketplace.

22

In a study conducted in Colorado on marketing natural pork, it was found that interest in

organic foods, especially produce, dairy, and meat products, have grown significantly in recent

years, increasing sales from $178 million in 1980 to $7.6 billion in 1999. In fact, it was “found

that 60% of consumers prefer organic produce and 75% of those consumers were willing to pay

at least a 10% premium,” (Misra, Gotegut, & Clem, 1997). This demand has also lead to the

creation of several premium beef products, such as Coleman’s Natural Beef (Grannis &

Thilmany, 2002). This study also cited a Canadian study that found that consumers would be

willing to pay a significant premium for beef produced locally, considering product origin to be

the most important quality attribute (Unterschultz, Quagrainie, & Veeman, 1998).

Since it has been shown that locally produced beef can often command a premium among

consumers, the next logical step for New Mexico cattle producers is to create a quality based,

locally produced brand of beef products for marketing within the state. Under this marketing

brand, New Mexico producers would work in association with one another, rather than as

competitors, in establishing a recognizable brand, known for its positive attributes, that can

command a premium price among consumers. In this system, “what one producer does in the

supply chain directly impact other producers in that supply chain,” (Hughes, 2002).

Scenarios

The following plans are possible options for adding value to the beef industry in the state

of New Mexico. The list is in no way considered to be expansive and it is recognized that other

options may be available to producers. The environment and management practices of producers

vary by individual operators and regions within the state and can have significant impacts on the

overall outcome of any program implemented.

23

Branding Program Introduction: Currently there are numerous opportunities that exist for the specialized

marketing of New Mexico beef products. Producers could differentiate themselves, while adding

value to their products, through the recent attraction by U.S. consumers to specialized production

practices such as all natural, organic, and humanely produced products as well as a willingness to

buy locally or regionally produced beef over that produced further away. More specifically,

New Mexico producers have the unique opportunity to capitalize on other regionally significant

agriculture commodities such as chilies and pecans to create specialty beef products that could be

marketed through various channels.

Differentiated production processes for New Mexico producers would be the most

traditional form of adding value to the production of beef. With the recent increase in demand

for all natural, organic, and humanely produced meat products, New Mexico producers have the

opportunity to benefit by shifting away from being price takers for the commodity beef currently

being produced towards producers of products for which consumers are willing to pay a

premium. While specialized production operations require a great deal of preparation in order to

be successful, all natural and humane production are not as strictly regulated by the federal

government as organic production. Whether this is a benefit or a detriment to marketing efforts

is unknown. Most often, natural beef programs are defined and regulated by the company or

coop that is managing the program and typically ban the use of antibiotics, implants, and feeds

using animal by-products. The USDA requires that producers have a natural label approved

before use, but does not set rigid guidelines for natural production processes. Organic programs,

however, are certified and audited by the USDA and do not allow any type of antibiotics,

24

implants, or other synthetic additives. Additionally, all feeds must be animal protein free and

come from a certified organic source (Troxel).

A study conducted at Iowa State University consistently found that region of origin is the

most important factor for consumers when purchasing beef products, regardless of sex,

education, or knowledge of beef characteristics (Mennecke, Townshend, Hayes, & Lonergan,

2007). It has also been shown that a local or regional branding program is the most effective

way to brand beef products. Additionally, these programs have become a popular source of

value adding among states due to the relatively small amount of money required to fund such a

program.

State Promotion Programs: According to a study done in 2000 in Indiana, 23 states currently

have local agriculture promotion programs with budgets ranging from $80,000.00 to $2 million

per year. These branding programs strive to “expand consumer awareness of state-sourced

products, motivate consumers to buy state-sources products, and establish new markets or

expand existing markets domestically and/or internationally,” (Jekanowski, Williams II, &

Schick, 2000). Well known examples include Idaho potatoes, Washington apples, Florida

orange juice, and more recently California Cheese. The fact that consumers value region of

origin most leads to the additional possibility of adding value to the state’s beef industry by

marketing locally grown beef to consumers within the state of New Mexico or by cooperating

with other states such as Arizona and Texas to produce and market beef from the Southwest

region of the United States.

A solely New Mexico bred and fed program could resonate more and therefore command

a higher premium with consumers in the state. Furthermore, with a population of approximately

2 million people, including a combined population of nearly 1 million living in the greater

25

Albuquerque, Las Cruces, and Santa Fe areas, a New Mexico beef branding program could find a

significant market in which to operate. However, there is a possibility that due to the lack of

feedlot capacity and the practice that the majority of producers calve in the fall it could provide

difficult to maintain a steady supply of high quality beef throughout the year.

In order to develop a beef branding program for the state of New Mexico, a marketing

plan should be developed. This should include a standardized logo and/or slogan that portray the

quality aspects of New Mexico beef to consumers; the most important of which being freshness

or the small amount of time from farm to market. The ultimate goal of the program should be to

shift consumers’ view to the point that price is not the most important factor in the food buying

products and that it is worth the premium price to buy locally produced beef products and state

agriculture branding programs have been shown to accomplish exactly that. A successful

program “induces consumers to build loyalties to particular brands, decreasing demand elasticity

and possibly allowing the seller to receive a price premium over the non-differentiated product,”

(Jekanowski, Williams II, & Schick, 2000).

Regional Promotion Program: Studies, including the Indiana report, have also found that

regional marketing cooperatives have also proven to be successful and possibly more cost

effective than single state programs. Therefore it is a possibility that New Mexico cattle

producers could work with producers in other states to form a Southwest beef cooperative,

creating a much larger consumer base and access to a greater supply of cattle available for

processing.

Arizona and Texas both provide large populations, including large population centers

near the state of New Mexico, including the metropolitan areas of Phoenix (4.1 million), Tucson

(946,000), and El Paso (736,000) (Population Finder, 2006). In order to capitalize on these

26

markets, New Mexico producers would be better positioned if they were to align themselves with

producers from other states in the Southwest to provide high quality beef products to a

Southwest beef cooperative aimed at marketing to consumers within the respective states. This

cooperation would also have the additional benefit of providing access to a greater number of

producers.

New Mexico and Texas, along with Oklahoma, are part of the Texas Cattle Feeders

Association (TCFA); forming the largest cattle feeding area in the country with more than 7

million cattle fed each year. More than half of the cattle in the TCFA are fed in Texas (Cattle

Feeding Country, 2008). Additionally, the University of Arizona Cooperative Extension Service

estimated that in 2006 there were 940,000 beef cattle and calves in the state of Arizona (Beef

Cattle on Arizona Rangelands, 2007). If a regional cooperative were to be established there

would be many more cattle available for slaughter; allowing greater ease in providing a constant

supply of cattle to the market throughout the year.

Just as with a corporate brand, it is vital to implement strict quality controls for a state

branding program. If a branding program were to include beef products of either marginal or

inconsistent quality, it would be possible that a branding program would actually decrease the

value of all beef in the state by consumers associating the brand with poor quality. “Allowing

quality to fall below that of other states could actually lead to a negative effect from the

promotion campaign – by helping to identify products of lower quality,” (Jekanowski, Williams

II, & Schick, 2000). It is also important to recognize that it is not necessary for a branding

program for the state or region to market beef in general – the national Beef Check-off is already

responsible for that task. A state program should instead work in conjunction with the national

program by focusing on the distinguishing characteristics that the local product possesses.

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Specialty Products: In addition to marketing beef as a locally raised commodity, opportunities

exist to introduce specialty products into a state beef branding program. Consumers are

becoming increasingly interested in the health aspects of food. It is no longer sufficient for food

to be safe to eat – free of potentially harmful additives or bacteria. Now, more than ever, food

must also improve the health of consumers, while being enjoyable at the same time.

Additionally, the market is constantly looking for new products to entice valued loyal customers

as well as draw new customers to the industry. New Mexico producers have the ability to

provide more widely tested products such as lean beef or guaranteed tender cuts of meat. The

state also has a unique opportunity to capitalize on other commodities that play a significant part

in the New Mexico agriculture sector.

Several national brands have seen success in the area of high quality lean beef. These

brands include widely recognized companies such as Laura’s Lean Beef, Triple Creek Farms

Lean Beef, and Omaha Steaks. Most often, the products being sold by these companies have

marketable attributes in addition to being lean, such as being all-natural. By capitalizing on the

consumers trends of trying to reduce the amount of fat and artificial substance intake, providers

of lean all-natural beef have been able to command a premium for their products above that of

traditional commodity beef. In order to benefit from this trend, producers in New Mexico could

incorporate lean beef into a locally or regionally produced product line or become qualified

producers of lean meats for an already established company. Most companies have a set of

criteria that must be met in order to supply them with beef. While lean beef products provide an

opportunity for growth in the New Mexico beef industry, they are not unique the state. Any

producer in the country has the ability to raise lean or all-natural beef. Where there is potential

28

for unique growth in the demand for New Mexico beef is in the area of prepared beef products

specializing in the use of locally grown specialty crops such as chile peppers, onions, and pecans.

As the U.S. workforce spends more time on the job, the demand for convenience food

items continues to rise at a significant rate. According to a study commissioned by the National

Cattlemen’s Beef Association using Beef Checkoff dollars, refrigerated beef entrees grew at a

rate of 9% in dollar sales in 2006 compared to just a 0.3% growth in the dollar sales of all meat

sales (Convenience Section Show Significant Growth, 2007). The significant growth that is

happening in the prepared food market provides an opportunity for New Mexico producers.

New Mexico has the designation of being the second largest producer of both chile peppers and

pecans in the United States (New Mexico Agriculture Statistics, 2005). With a great abundance

and the possibility of pairing well with beef, there stands to be substantial gains made in the area

of prepared foods featuring the commodities of the Southwest. Products including already

prepared beef chile con carne, beef cuts marinated in chile sauces, pecan encrusted tenderloin,

and various other dishes could satisfy the demand by working class families for healthy

convenient foods. Most importantly however is to determine how to delivery these value added

products to the end consumer.

Marketing Channels: There are several marketing channels that may possibly be available to

New Mexico beef producers for the distribution of any number of the previously discussed

value-added beef products. The internet is a relatively inexpensive way to market specialty

products to the entire world. Additionally, the state has a great deal of locally owned retailers

that would possibly be willing to add specialty beef products to their shelves and farmers’

markets have the potential to market specialty beef products as well as beef products that are

being marketed as locally or regionally grown.

29

Marketing food products, particularly beef, over the internet has proven successful for

several companies. Companies such as Allen Brothers, Kansas City Steaks and Omaha Steaks

have all built successful internet companies that cater to consumers looking for direct shipments

of high quality beef products. This form of marketing could prove attractive to New Mexico

producers due to its relatively low capital investment, low transaction costs, and easy of

inventory and customer management. Internet marketing would also allow New Mexico

producers to market their products to customers around the world.

To market specialty beef products to consumers within the state of New Mexico, both

locally owned or operated grocers and farmers markets could be utilized as already well

established marketing channels. Currently, there are four major grocery store chains operating in

New Mexico including Smith’s, Albertson’s, Raley’s, and Wild Oats, as well as Wal-Mart Super

Centers. Most of these chains are willing to carry locally produced products. Additionally most

cities and towns in the state have numbers locally owned grocery stores and natural food markets

that could potentially carry specialty beef products from New Mexico producers. While many

grocers could prove willing to carry local specialty beef products, it can often be a time

consuming process. Another distribution channel that may prove more attractive to producers is

the network of farmers’ markets that operate throughout the state.

According to the New Mexico Farmers’ Markets website there are currently 45 farmers’

markets in operation in the state. Most open for business in early April and continue throughout

the fall harvest season. There are a few, however, that operate year around. The majority of

these events allow producers to sell meat products as long as they are properly licensed by the

New Mexico Department of Agriculture and follow proper food handling regulations. Often

times, these markets require membership in order to participate, which consists of either a small

30

daily or yearly fee (Farmers' Markets Locations, 2008). Farmers’ markets have proven to be

successful venues for those producers looking to market towards consumers interesting in locally

grown high quality herbs, flowers, produce, and other foodstuffs.

Slaughter Facility

A recent trend in agriculture production has been vertical integration as operations at all

levels of production strive to capture a greater percentage of the profits. Establishing a slaughter

facility for producers in the state of New Mexico would be the most capital intensive option

available. In order to see the benefits from a local slaughter facility, producers would have to

invest in land, buildings, equipment, labor, and other supplies; the scope of which could be a

limiting factor.

Since it has been found that hauling cattle more than 50 miles to a slaughter facility is not

cost effective, the most logical place for a processing plant in New Mexico is Clayton. Clayton

has the largest feedlot capacity in the state, which is important in keeping a facility operational.

Just as with creating a state beef branding program, New Mexico producers will find it difficult

to provide a constant supply of cattle to a facility due to the small feedlot capacity statewide and

a strong tradition of spring calving. This is an important issue as slaughter facilities are far more

cost effective when operating a full capacity at all times.

If a large feedlot facility were to be built in the state for the purpose of supplying cattle to

a slaughter facility it the most central location in respect to the NM beef industry would be north

of Interstate 40 and east of Interstate 25 (Figure 8). This takes into account the location of the

majority of the state’s cattle inventory and grain supplies, as well as the proximity to established

slaughter facilities in the Texas panhandle.

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Figure 8: Map of New Mexico

It appears that serious economies of size exist in the meat slaughter industry. There are,

however, significant start-up costs for establishing a facility. The largest cost for all plant is the

purchasing of cattle for slaughter. Much of the equipment is highly specialized and designed to

last for a great deal of time – often making it extremely costly. Another major cost is wages.

Slaughter facilities required both skilled and unskilled labor for various positions in the plant.

Wages could rage from $16,000 a year for stockmen to nearly $70,000 per year for a plant

manager.

Using a cost estimation program developed by the USDA ERS, it was found that the cost

of slaughter plants drop rapidly as the number of head per hour increases, as well as when two

shifts are ran instead of just one. The program used six different plant sizes based on rates for

head per hour including: 10, 47, 75, 120, 210, and 300. It also allowed for one or two shifts per

day and included results for running the plants at various capacities – that is, the number of days

www.zianet.com/ebrown/lascruces.asp

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per year. Table 3 outlines a section of the results. These estimates do not include the cost of

purchasing livestock.

Table 3: Slaughter Facility Cost per Head

1 Shift 2 Shifts

Head

per Hour

Low

Capacity

Average

Capacity

High

Capacity

Low

Capacity

Average

Capacity

High

Capacity

10 $100.54 $85.58 $79.61 $82.14 $70.64 $66.96

47 $57.90 $50.02 $46.89 $48.97 $42.80 $40.90

75 $55.79 $48.16 $44.92 $46.23 $40.45 $38.54

120 $51.76 $44.76 $41.49 $43.32 $37.95 $36.06

210 $49.38 $42.65 $39.56 $37.02 $32.73 $31.51

300 $45.83 $39.73 $37.03 $34.88 $30.94 $29.89

Table 4: Slaughter Facility Head per Year

1 Shift 2 Shifts

Head

per Hour

Low

Capacity

Average

Capacity

High

Capacity

Low

Capacity

Average

Capacity

High

Capacity

10 15,000 18,750 23,437 30,000 37,500 46,874

47 70,500 88,125 110,156 141,000 176,250 220,312

75 112,500 140,625 175,781 225,000 281,250 351,562

120 180,000 225,000 281,250 360,000 450,000 562,500

210 315,000 393,750 492,187 630,000 787,500 984,374

300 450,000 562,500 703,125 900,000 1,125,000 1,406,250

Using the cost estimation program and given what is known about the cattle industry in the state

of New Mexico, it can be ascertained that at average capacity a slaughter facility that could

process 120 head per hour running two shifts or 210 head per hour running one shift would

require every beef animal currently being raised in the state. It is therefore more likely that

the state could support, at most, a 120 head per hour one shift plant running at average capacity,

which would require 225,000 head per year. The more economical choice, however, would be to

operate a 75 head per hour two shift plant if producers could supply the almost 282,000 head of

slaughter cows needed (Figure 9). This would still put a local plant at a severe disadvantage of

33

approximately $10.00 per head relative to the large plants located near the Amarillo, Texas area.

A complete list of all of the cost and revenue estimates is included in Appendix 1.

Transportation: Regardless of whether a slaughter facility is established in the state of New

Mexico or New Mexico beef is slaughtered elsewhere and shipped back to the state,

transportation costs are going to be significant. If producers were to contract with an out of state

facility there would be costs associated with shipping live cattle to the plant and then shipping

boxed beef on to the final destination in refrigerated units. The cost estimation for the round trip,

based on 400 miles and June 2008 prices, would be approximately $71.00 per head of cattle.

Having a facility instate would all but eliminate the cost of shipping cattle to an out of state

facility, but would still require that the processed meat products would need to shipped to the

regional grocery distribution centers most likely located in Denver, Phoenix, or Salt Lake City

and then returned to NM if they were to be sold in larger nationally recognized grocery stores.

Regulation: Due to the potential public health risks, a slaughter facility is subject to a great deal

of regulation both on the state and federal level. This includes meat inspection on either the state

or federal level, or both, as well as strict enforcement of the Hazard Analysis and Critical Control

34

Points (HACCP) program, designed as a prevention program rather than end inspection program,

that is required by the FDA and USDA for food production facilities. These federal inspections

and safety programs, in addition to any required licenses and state requirements, can add

significant costs to the initial setup of a slaughter facility and yearly operational costs as well.

While no slaughter facility can avoid regulation, their effects must be taken into account when

determining whether or not a plant is viable.

Grass Fed Beef The USDA has provided “USDA certified” and “USDA verified” programs since 1978

and 1996 respectively. The certification program is based on visible carcass traits while the

verification program is based on quality traits that cannot be confirmed upon visual inspection of

the product such as certain feeding or other animal husbandry practices. In 2002, it was deemed

necessary to outline specific guidelines to manage various claims of verification by producers.

One of the verification programs outlined was the grass fed beef production process. According

to the USDA, grass fed beef “refers to the feeding regimen for livestock raised on grass, green or

range pasture, or forage throughout their life cycle.” In 2007 it was stated more specifically:

Grass and forage shall be the feed source consumed for the lifetime of the ruminant animal, with the exception of milk consumed prior to weaning. The diet shall be derived solely from forage consisting of grass (annual and perennial), forbs (e.g., legumes, Brassica), browse, or cereal grain crops in the vegetative (pre-grain) state. Animals cannot be fed grain or grain byproducts and must have continuous access to pasture during the growing season. Hay, haylage, baleage, silage, crop residue without grain, and other roughage sources may also be included as acceptable feed sources. Routine mineral and vitamin supplementation may also be included in the feeding regimen (United States Standards for Livestock and Meat marketing Claims, 2007).

This is a much more stringent revision of the 2002 rule that claimed that only 80% of an animal’s

primary energy source had to come from grasses and forage. The change was found to be

35

necessary after it was determined that the 20% variance allowed for a significant amount of time

finishing animals on grain products.

Grass fed, or pasture-finished, beef has been gaining in popularity along with several

other forms of beef being provided to niche markets. Often seen as an inferior product by

commodity beef packers due to the less appealing color of the meat, lack of marbling and

tenderness, and distinct grassy flavor, grass fed beef has long received a lower price than its

grain finished counterpart. However, changes in production practices, as well as a shift in

consumer views of growth promoters and feeding facilities have prompted an increase in the

demand for a more naturally finished meat product. Grass fed beef programs may now be able to

command a premium above commodity beef in certain markets, but face specific challenges that

grain fed programs do not.

In ascertaining whether or not a grass fed beef program is possible for a current cattle

operation, the largest limiting factor that should be taken into account is the amount of forage

available in a given year. “To move to a grass-fed operation a rancher may need to (1) increase

available grazing land, (2) increase efficiency of grazing land or supplemental forage fed, or (3)

decrease the cowherd numbers” (Larson, Thompson, Klonsky, & Livingston, 2004). As

previously mentioned, under current range condition New Mexico producers are operating at a

maximum herd level of 460,000. Therefore, to implement a grass fed program, ranchers within

the state will have to either increase the amount of forage feed or decrease current numbers being

produced. Given the current level of cattle being sustained and the amount of forage being

produced on available land, the size of the cattle herd in the state would have to be reduced by

half to 230,000 in order to implement an all inclusive statewide grass fed program. This is

mainly attributed to the increased time calves spend on range or pasture (Figure 10).

36

Increasing the amount of forage feed may prove difficult as producers will be in direct

competition with the state’s expansive dairy industry for available hay for supplemental feeding,

which averaged $163.00 per ton in the state in 2007 (New Mexico State Agriculture Overview,

2007). Implementing as grass fed program on irrigated pasture land could increase the rate of

gain in cattle by a range of three-quarters of a pound to a pound making the maximum average

daily gain one and three-quarter pounds during the five month growing season of May through

September. This would however, still require significant forage requirements during the winter

months which would be starting at the beginning of the weaning stage in a spring calving

operation.

In many areas, fencing and access to water can be major costs for a grass fed operation

due to the need for rotation grazing. New Mexico, however, currently operates on a continuous

grazing system which would not be changed in a state grass fed program. It is also believe that it

would be most like for a grass fed beef program to be implemented on an existing operation

which would eliminate the costs of fencing the perimeter of most pasture land, as it would

already be established. This would allow producers in the state to avoid the additional costs that

most grass fed programs would face. Additionally, as grain prices continue to remain at near

record highs, grass fed operations may be a more attractive low cost and, given the rise in

demand for specialty food products recently, profitable alternative.

37

Very little research has been done on the market power grass fed beef producers have for

demanding a premium price in today’s niche markets. However, grass fed beef systems are often

combined with all-natural programs which have been found to command a premium of anywhere

from 10% to 30% above that of commodity beef. Much of the premium could be gain through

touting grass fed beef’s health benefits over grain fed beef. These include being higher in beta

carotene, conjugated linoleic acid, and Omega-3 fatty acids, which all have been shown to

reduce cholesterol, diabetes, cancer, high blood pressure, and various other cardiac problems.

Grass fed beef is lower in fat, calories, and cholesterol and has a vastly lower risk of E. coli

contamination risk than grain fed beef (Acevedo, Lawrence, & Smith, 2006). However, the

premium could be degraded by the fact that grass fed beef often lacks the amount of marbling

and tenderness that many consumers have come to expect and prefer.

Economic Development Impacts

Many farmers, government officials, and rural advocates are enthusiastic about the

prospects of value added activities in the cattle and ranch sector (beef industry) for bolstering

farm income and promoting local development in New Mexico. These value added activities

play a role in local development by encouraging a climate of entrepreneurship and innovation,

creating more employment opportunities, identifying alternative income sources, preserving

small farms, and promoting alternative forms of agriculture. Small farms and local communities

in general can benefit from these value-added activities by channeling a larger share of consumer

spending on red meat back to the local communities where cattle is first raised.

38

As described previously in this report, there are several ways that the New Mexico beef

industry can increase its value added activities1 that can have positive economic impacts on rural

communities. For example:

• Increase in slaughter plants

• Increase in processing and packing

• Increase in feedlot industry

• Grass-fed beef

• Organic beef

• NM branded beef

Following analysis will estimate the economic impacts of hypothetical increase in some

of these activities to New Mexico economy in general. This information will be helpful for local

economic development practitioners and policy makers to make informed decisions about the

industry and to identify new areas of economic development opportunities in New Mexico

communities. This study uses the input-output method to estimate the direct and total economic

impact of the New Mexico beef sector in 2006. The IMPLAN system, a computerized input-

output modeling system and associated databases for year 2006, from the Minnesota IMPLAN

Group (MIG), was utilized for estimating the direct, indirect and total economic impact of the

New Mexico beef sector. The multipliers used in this study are type SAM multipliers, which

capture the total economic impact of economic sectors. In the present estimation the model

estimates the flow of money within New Mexico economy between businesses, households,

government, and the outside world. Impacts of the industry on the whole economy can be

1 The term value-added describes the economic value of an agricultural commodity when it leaves the farm and is transformed into a product ready for purchase by consumers.

39

divided into three main components: direct, indirect, and induced. Impacts at the producer level

for a particular sector represent the direct component of the industry with the production inputs

purchased by this sector representing the indirect effects. Induced effects measure the effects of

household spending of wages and salaries throughout the New Mexico economy. Income earned

in producer and input supplying sectors by households is spent in the rest of the economy

stimulating a wide range of sectors. Household spending create a large ripple effect in the state

of New Mexico as they spend at grocery stores, other retail stores, gasoline service stations,

restaurants, and other businesses.

The basic scenario in this analysis looks at the overall importance and contribution of the

beef industry (cattle and ranch sector) to the New Mexico economy based on the current

situation in the New Mexico beef industry. This aspect estimates and describes values associated

with the backwards and forward linkages in the New Mexico beef industry. The results of the

impact analysis are presented in Table 5 with estimates of total output, personal income, value-

added, and employment presented at 8 sector levels of detail.

Total industry output measures total dollars of goods and services produced by an

industry, including government and non-government activity. The New Mexico cattle and ranch

sector produced $2.75 billion of industry output in 2006, $990 million of which was value-

added. These numbers show that an estimated $905 million of gross output from cattle and ranch

production activity supports an additional $1.9 billion of economic output of direct and indirect

economic activity throughout the New Mexico economy. An estimated 7568 direct jobs were

involved in cattle and ranch activities in 2006. These direct jobs at the farm level created an

additional 16,275 workers resulting in a total of 23,843 jobs in the same year. Total personal

income includes wage and salary income and proprietary income. The estimate of $72.9 million

40

of direct personal income to cattle and ranch sector is linked to an additional $515.1 million of

income throughout the New Mexico economy for a total impact of $588 million of personal

income. In terms of tax revenues, State cattle and ranch industry generated $136 million in state

and local taxes.

Table 5. Economic Impacts of the New Mexico Cattle and Ranch Sector

Industry

Total sales (Million $)

Labor income (Million $)

Value-added (Million $)

Jobs

Agriculture 1,425 218 284 11,817 Mining 56 14 36 236 Construction 0 0 0 1 Manufacturing 704 167 329 5,071 Transportation, utilities 47 21 24 456 Trade 59 24 27 862 FIRE 25 10 13 414 Services 436 134 277 4,987 Total 2,753 588 990 23,843

Beef value-added activities in New Mexico including the ones listed above are expected

to further increase employment and economic activities in communities where they are

produced. The multiplier effect occurs as new money brought into the state (the direct effect) by

various beef value-added activities. Expenditures by new value-added activities at other

businesses and with new expansion itself create employment and earnings opportunities for

workers at these workplaces. Likewise, employees spend their income on all the usual types of

household expenditure such as housing, insurance, food, restaurants, apparel, other retail, health

care, and entertainment. The result is additional employment, earnings, and output throughout

the New Mexico economy. We now assess the economic impacts of several specific value added

scenarios related to the cattle and ranch sector in New Mexico.

41

Economic impact of slaughter plants

The New Mexico slaughter plants sector had direct impacts of $17.5 million in output,

employed 48 people, and paid $1.1 million as labor income in 2006. This industry also

contributed $22 million in output, 218 jobs, and $4 million in labor income as indirect impacts.

The total impact of the New Mexico slaughter plants sector including, direct, indirect, and

induced effects added $44 million in output, 306 jobs, and $6.5 million in labor income. In terms

of tax revenues, State slaughter industry generated $1 million in state and local taxes.

Next we investigate impacts of increasing slaughter plants to national average which will

be a sixty six-fold increase from current status of the industry. This will result in additional

directs impacts of $1138 million in output, 3,077 jobs, and $71 million in labor income. The

industry will also contribute $1,462 million in output, 14,119 jobs, and $273 million in labor

income as indirect impacts. The total additional impact on the New Mexico economy from this

expansion is estimated at $2,861 million in output, 19,783 jobs, and $423 million in labor

income. In terms of tax revenues, this expansion will generate an estimated $81 million in state

and local taxes. Many financial hurdles must be evaluated prior to this scenario becoming a

reality.

Economic impact of processing plants

The basic scenario of the beef (carcasses) processing sector indicates that it has a direct

impact of $167 million in output, 387 jobs, and $13 million in labor income on New Mexico

economy in 2006. The indirect economic activities of this sector sum to $104 million in output,

817 jobs, and $25 million in labor income. The total impacts of the sector that include direct,

indirect, and induce impacts amount to $300 million in output, 1485 jobs, and $46 million in

42

labor income. In terms of tax revenues, meat processing sector generated $8 million in state and

local taxes.

A decision by the industry to double the existing processing plans sector output will

result in doubling the labor income and total employment in the sector throughout the state of

New Mexico. The result will be an additional $300 million in output, 1,485 jobs, and $46 million

in labor income in total economic impacts to the state of New Mexico. In terms of tax revenues,

doubling the output in this sector will generate additional $8 million in state and local taxes.

This scenario makes an assumption that the capital investments would be made in order

to establish the capacity to accomplish this endeavor. Additionally, as the aggregate feed sector

throughout the United States continues to contract the probability of this becoming a realistic

venture may be infeasible financially and economically.

Economic impact of feedlot industry

Feedlot industry is another important sub-sector that has the potential to increase the

capacity in New Mexico. This sector had a direct impact of $325 million in output, 733 jobs, and

$74 million in labor income in 1998. Indirect impacts were $137 million in output, 1584 jobs,

and $39 million in labor income. The total impacts on the State that include direct and spin off

effects add $544 million in output, 3511 jobs, and $141 million in labor income. In terms of tax

revenues, State feedlot industry generated 23 million in state and local taxes.

We also looked at a scenario where the feedlot industry is doubled as a value-added

activity in New Mexico beef industry. This will results in additional $544 million in output,

3511 jobs, and $141 million in labor income to the New Mexico economy. The expansion will

add another $23 million in tax revenue for state and local government coffers.

43

In summary, value-added activities in most commodity industries have been shown to

significantly contribute to economic development in their respective states assuming the benefit

cost ratio exceeds one. The beef industry provides good paying jobs, contributes to increased

farm income in New Mexico communities, and generate tax revenues for State and local

governments. Beef production generates additional local jobs in other industries that supply the

beef industry and provide service to its workers. The increased activities in beef production will

result in additional state and local tax revenues, provided that there are no locally-funded tax

incentives and minimal demands on local public goods.

Conclusion and Recommendations

A state or regional beef branding program combined with a certification process would

be the most viable option for adding value to the New Mexico beef market. This is due to the

relatively low cost of implementation and the possibility of gaining lifelong loyal consumers,

within the state. A branding program also lends itself to further growth into the future as the

brand grows. There is potential for the addition of natural, lean, and humanely grown beef

products, as well as specialty products focusing on convenience and other locally produced

agricultural goods. Paired with the national Checkoff program, a local program could create

significant additional value for cattle producers in the state. A few obstacles do exists however.

In order for the branding program to be successful, producers must be capable of supply

their product year-round, while maintaining consistent high quality. This would require a shift

by some producers to a fall calving system. It would also require that producers cooperate with

one another in an a manner that allows all involved to produce a consistent product, make

management decisions for the group, and implement rules and regulations to ensure the quality

of the product. Without significant cooperation, the likes of which is hard to accomplish in the

44

beef industry, a branded program will fail to gain credibility with consumers or the market power

to demand a premium price.

Implementing a grass fed beef program in the state is technically feasible, but unlikely to

have the impact on the value of the beef industry that is desired. There would have to be a

significant decrease in the number of cattle being raised in the state and the cost of forage feed

would severely cut into any premium that could be gained by marketing grass fed beef products.

While grass fed beef has been gaining in popularity over the past several years, producers would

struggle to convince the traditional beef consumer to purchase grass fed beef due to the less

desirable color, lack of marbling and tenderness, and unique taste associated with cattle that are

pasture finished. It may be possible to convince some consumers based on the additional health

aspects of grass fed beef over grain fed beef, but it may not be a large enough market to sustain a

statewide grass fed beef program.

It could be possible to implement a grass fed program on a smaller scale in the state, but

many of the results would be similar to a statewide program. Individual producers would still

have to severely reduce the number of cattle that they run on an operation and increase the

amount of forage feed, due to the increased time calves spend on property. Another way to

implement a grass fed program without converting an entire operation is to funnel a small

portion of replacement heifers into a small grass fed program before they are shipped as they

tend to gain at a faster rate on a solely grass diet. This route would be an ideal way for producers

interested in a grass fed program to test the market without risking the amount of capital that

would be required to implement a full-scale conversion to a grass fed program.

At this time it does not appear that a slaughter facility would be feasible for the state of

New Mexico. The fundamental reasons for this are that the state does not have either the cattle

45

inventory or feedlot capacity to support such a large endeavor and the initial capital investments

appear to be too great to overcome. Smaller facilities would require a substantial price premium

to make up for a higher cost of operation. Exacerbating the problem is the cyclical nature of the

cattle industry which makes it difficult to provide a facility with a year round supply of cattle. It

can be noted that this option is at the center of a Catch-22 where without additional cattle a

slaughter facility will not be able to be built and without access to a facility it would prove

difficult to convince producers to expand output. Additionally, if beef demand continues to

decline as it has done over the past several decades and the meat packing industry continues to

consolidate it will become increasingly difficult for small processing facilities to compete due to

the significant economies of scale that exist in the industry.

46

Appendix 1:

10 Head per Hour and 1 Shift

Capacity in

Head per Year

15,000

16,875

18,750

22,500

23,437

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $1,508,035 $1,528,840 $1,604,663 $1,815,223 $1,865,858

Per Head $100.54 $90.60 $85.58 $80.68 $79.61

Cost of Livestock

Total Annual $12,614,700 $14,191,538 $15,768,375 $18,922,050 $19,710,048

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $12,885,750 $14,496,469 $16,107,188 $19,328,625 $20,133,555

Per Head $859.05 $859.05 $859.05 $859.05 $859.05

Revenue Less Cost

Total Annual ($1,236,985) ($1,223,909) ($1,265,850) ($1,408,648) ($1,442,351)

Per Head ($82.47) ($72.53) ($67.51) ($62.61) ($61.54)

10 Head per Hour and 2 Shifts

Capacity in

Head per Year

30,000

33,750

37,500

45,000

46,874

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual 2,464,093 2,505,902 2,648,871 3,041,564 3,138,726

Per Head $82.14 $74.25 $70.64 $67.59 $66.96

Cost of Livestock

Total Annual 25,229,400 28,383,075 31,536,750 37,844,100 39,420,097

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual 25,771,500 28,992,938 32,214,375 38,657,250 40,267,110

Per Head $859.05 $859.05 $859.05 $859.05 $859.05

Revenue Less Cost

Total Annual ($1,921,993) ($1,896,039) ($1,971,246) ($2,228,414) ($2,291,713)

Per Head ($64.07) ($56.18) ($52.57) ($49.52) ($48.89)

47

47 Head per Hour and 1 Shift

Capacity in

Head per Year

70,500

79,312

88,125

105,750

110,156

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $4,081,936 $4,178,370 $4,407,540 $5,016,740 $5,165,038

Per Head $57.90 $52.68 $50.02 $47.44 $46.89

Cost of Livestock

Total Annual $59,289,090 $66,699,806 $74,111,363 $88,933,635 $92,638,993

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $60,563,025 $68,132,974 $75,703,781 $90,844,538 $94,629,512

Per Head $859.05 $859.05 $859.05 $859.05 $859.05

Revenue Less Cost

Total Annual ($2,808,001) ($2,745,202) ($2,815,121) ($3,105,837) ($3,174,519)

Per Head ($39.83) ($34.61) ($31.95) ($29.37) ($28.82)

47 Head per Hour and 2 Shifts

Capacity in

Head per Year

141,000

158,624

176,250

211,500

220,312

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $6,905,000 $7,098,266 $7,544,006 $8,719,804 $9,011,748

Per Head $48.97 $44.75 $42.80 $41.23 $40.90

Cost of Livestock

Total Annual $118,578,180 $133,399,612 $148,222,725 $177,867,270 $185,277,986

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $121,126,050 $136,265,947 $151,407,563 $181,689,075 $189,259,024

Per Head $859.05 $859.05 $859.05 $859.05 $859.05

Revenue Less Cost

Total Annual ($4,357,130) ($4,231,931) ($4,359,169) ($4,897,999) ($5,030,710)

Per Head ($30.90) ($26.68) ($24.73) ($23.16) ($22.83)

48

75 Head per Hour and 1 Shift

Capacity in

Head per Year

112,500

126,562

140,625

168,750

175,781

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $6,275,974 $6,432,023 $6,771,970 $7,674,588 $7,896,240

Per Head $55.79 $50.82 $48.16 $45.48 $44.92

Cost of Livestock

Total Annual $94,610,250 $10,643,611 $118,262,813 $141,915,375 $147,828,305

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $98,038,125 $110,292,455 $122,547,656 $147,057,188 $153,184,352

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($2,848,099) ($2,575,679) ($2,487,127) ($2,532,775) ($2,540,193)

Per Head ($25.32) ($20.35) ($17.69) ($15.01) ($14.45)

75 Head per Hour and 2 Shifts

Capacity in

Head per Year

225,000

253,124

281,250

337,500

351,562

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $10,402,759 $10,715,258 $11,375,504 $13,116,993 $13,550,360

Per Head $46.23 $42.33 $40.45 $38.87 $38.54

Cost of Livestock

Total Annual $189,220,500 $212,872,222 $236,525,625 $283,830,750 $295,656,611

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $196,076,250 $220,584,910 $245,095,313 $294,114,375 $306,368,705

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($3,547,009) ($3,002,570) ($2,805,816) ($2,833,368) ($2,838,266)

Per Head ($15.76) ($11.86) ($9.98) ($8.40) ($8.07)

49

120 Head per Hour and 1 Shift

Capacity in

Head per Year

180,000

202,500

225,000

270,000

281,250

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $9,316,447 $9,556,110 $10,070,239 $11,383,502 $11,668,318

Per Head $51.76 $47.19 $44.76 $42.16 $41.49

Cost of Livestock

Total Annual $151,376,400 $170,298,450 $189,220,500 $227,064,600 $236,525,625

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $156,861,000 $176,468,625 $196,076,250 $235,291,500 $245,095,313

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($3,831,847) ($3,385,935) ($3,214,489) ($315,662) ($3,098,631)

Per Head ($21.29) ($16.72) ($14.29) ($11.69) ($11.02)

120 Head per Hour and 2 Shifts

Capacity in

Head per Year

360,000

405,000

450,000

540,000

562,500

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $15,593,393 $16,073,519 $17,076,575 $19,674,700 $20,284,731

Per Head $43.32 $39.69 $37.95 $36.44 $36.06

Cost of Livestock

Total Annual $302,752,800 $340,596,900 $378,441,000 $454,129,200 $473,051,250

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $313,722,000 $352,937,250 $392,152,500 $470,583,000 $490,190,625

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($4,624,193) ($3,733,169) ($3,365,075) ($3,220,900) ($3,145,356)

Per Head ($12.85) ($9.22) ($7.48) ($5.97) ($5.59)

50

210 Head per Hour and 1 Shift

Capacity in

Head per Year

315,000

354,375

393,750

472,500

492,187

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $15,553,178 $15,969,906 $16,794,375 $18,946,893 $19,473,020

Per Head $49.38 $45.07 $42.65 $40.10 $39.56

Cost of Livestock

Total Annual $264,908,700 $298,022,288 $331,135,875 $397,363,050 $413,919,423

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $274,506,750 $308,820,094 $343,133,438 $411,760,125 $428,916,361

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($5,955,128) ($5,172,099) ($4,796,812) ($4,549,818) ($4,476,083)

Per Head ($18.91) ($14.60) ($12.18) ($9.63) ($9.09)

210 Head per Hour and 2 Shifts

Capacity in

Head per Year

630,000

708,750

787,500

945,000

984,374

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $23,319,893 $24,154,547 $25,772,940 $29,971,944 $31,015,686

Per Head $37.02 $34.08 $32.73 $31.72 $31.51

Cost of Livestock

Total Annual $529,817,400 $596,044,575 $662,271,750 $794,726,100 $827,838,847

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $549,013,500 $617,640,188 $686,266,875 $823,520,250 $857,832,722

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($4,123,793) ($2,558,935) ($1,777,815) ($1,177,794) ($1,021,810)

Per Head ($6.55) ($3.61) ($2.26) ($1.25) ($1.04)

51

300 Head per Hour and 1 Shift

Capacity in

Head per Year

450,000

506,250

562,500

675,000

703,125

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $20,623,270 $21,214,761 $22,349,711 $25,310,669 $26,038,911

Per Head $45.83 $41.91 $39.73 $37.50 $37.03

Cost of Livestock

Total Annual $378,441,000 $425,746,125 $473,051,250 $567,661,500 $591,314,063

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $392,152,500 $441,171,563 $490,190,625 $588,228,750 $612,738,281

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($6,911,770) ($5,789,323) ($5,210,336) ($4,743,419) ($4,614,693)

Per Head ($15.36) ($11.44) ($9.26) ($7.03) ($6.56)

300 Head per Hour and 2 Shifts

Capacity in

Head per Year

900,000

1,012,500

1,125,000

1,350,000

1,406,250

Total Fixed and Variable Costs (Excluding Livestock)

Total Annual $31,389,829 $32,574,012 $34,803,970 $40,591,661 $42,032,585

Per Head $34.88 $32.17 $30.94 $30.07 $29.89

Cost of Livestock

Total Annual $756,882,000 $851,492,250 $946,102,500 $1,135,323,000 $1,182,628,125

Per Head $840.98 $840.98 $840.98 $840.98 $840.98

Gross Revenue

Total Annual $784,305,000 $882,343,125 $980,381,250 $1,176,457,500 $1,225,476,563

Per Head $871.45 $871.45 $871.45 $871.45 $871.45

Revenue Less Cost

Total Annual ($3,966,829) ($1,723,137) ($525,220) $542,839 $815,852

Per Head ($4.41) ($1.70) ($0.47) $0.40 $0.58

52

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