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August 9, 2017
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Agribusiness | Kentucky Wants to Grow Its Ag Manufacturing

Expanding state’s crop of processors will increase yield for a $46 billion sector

By Abby Laub

Much of the corn grown in Western Kentucky, such as this from the significant Jepson Family Farm operation, goes to the Hopkinsville Elevator Co-op and associated Commonwealth Agri-Energy LLC ethanol facility, which is the major supplier of ethanol to the Nashville market.

Much of the corn grown in Western Kentucky, such as this from the significant Jepson Family Farm operation, goes to the Hopkinsville Elevator Co-op and associated Commonwealth Agri-Energy LLC ethanol facility, which is the major supplier of ethanol to the Nashville market.

According to the Kentucky Farm Bureau, Kentucky is home to 76,500 farms, good for No. 6 in the nation in number of farms, which raked in a peak of $2.74 billion in net farm income in 2013 to rank 16th in the United States.

The financial numbers put up by Kentucky’s farmers are impressive – especially considering average farm size is 170 acres compared to national average of 435. Of Kentucky’s 25.4 million acres, 13 million are farmland.

Some of those acres house the state’s agricultural processors and manufacturers that generate products for consumers in Kentucky and around the world. The more processors on Kentucky soil, the more value-add agribusiness revenue generated for the state.

“Kentucky already has numerous processors and manufacturers of agricultural products such as the Commonwealth Agri-Energy ethanol plant in Christian County, the Pilgrim’s Pride poultry processing plant in Graves County, Champion Pet Foods in Logan County, and Prairie Farms Dairy in Somerset, to name just a few,” said Kentucky Agricultural Commissioner Ryan Quarles. “Kentucky boasts the leading bourbon manufacturers in the world, and the industry is in a $1.2 billion construction boom.”

However, a key Department of Agriculture goal, being pursued with public and private partners, is to grow its processor, manufacturer and other agribusinesses sector. The state touts its low energy costs, spectacular logistics – within a day’s drive or two-hour flight from two-thirds of the U.S. population – and status as a right-to-work state. Other new reforms such as fewer regulations are a draw also, Quarles said.

Small producers and processors make up a vast majority of the actual agribusiness operation numbers in Kentucky, but the big ones like bourbon still make the biggest impact. Some 95 percent of the world’s bourbon is processed in the state, and upwards of 20 million bushels of corn are used by Kentucky’s bourbon and spirits industry.

Kentucky has other top national rankings. It’s No. 1 for tobacco and equine sales including stud fees, No. 4 for hay products, No. 7 in broiler poultry production, No. 14 in both corn and soybean production, and has the most beef cattle of any state east of the Mississippi. The commonwealth is the leading producer of hardwood sawlogs in the South and is in the top three in the country.

$46 billion annually – but growing

All of these materials go somewhere, many to Kentucky’s 154 food manufacturers, 50 nonalcoholic beverage manufacturers, 34 distilleries and more. The state Cabinet for Economic Development website ThinkKentucky.com cites more than $7 billion in GDP from food, beverage and related products manufacturing. Overall, agriculture contributes close to $46 billion to Kentucky’s annual economy.

The state’s manufacturing economy has grown at nearly twice the national average since 2008, and this includes agricultural processing. In fact, 14 percent of the state’s manufacturing jobs are in the food and beverage-products industry.

But there are still ways to increase profit and keep more of the various production cycles within the state.

“Extremely important for the future growth of Kentucky agriculture is to capture more of the consumer dollar,” said University of Kentucky agriculture economist William Snell. “Agriculture would like to see economic development focus more on attracting more ag-related processors to not only add more value to farm production but also add jobs in rural areas.”

Snell said some of the key areas where value could be greatly added include beef and hemp, especially the highly profitable hemp cannabinoid oil – but that crop still contains many legal uncertainties and hurdles. Still, an increasing number of hemp processors are popping up around the state to accommodate the rapidly growing market and are following the lead of heavy hitters like Atalo.

Quarles said his department is making it a top priority to link together manufacturers and processors with the agriculture community. In July it hosted several LAND (Linking Agriculture for Networking and Development) conferences to connect farmers to emerging markets.

“We look forward to taking what we talked about there and putting it in action for the state,” he said. “We are also looking at ways to expand the international reach of the Kentucky farmer. International trade presents a great opportunity to increase market access for both farmers and processors.”

The commonwealth has one of the most successful state farm marketing programs in the nation, Kentucky Proud, and is home to global food and beverage companies like Brown-Forman, Papa John’s, Yum! Brands, and Alltech.

Making all of the necessary connections from producer to processor and adding more facilities for small farmers is key. While it may not produce billions of dollars like bourbon, or grow to $1.2 billion a year in farm cash receipts like Kentucky’s poultry industry – poultry and eggs are Kentucky’s leading agricultural commodity – it could make the difference of whether or not small niche producers grow their business or not. And the proof is in that Kentucky thrives off of its small farms.

76,000 farms all need processors

The numbers show the significance. A 2015 study by University of Kentucky’s Department of Agricultural Economics put the total impact of agricultural processing in Kentucky at $34.9 billion, employing 124,199 people. Production and processing tips the scales at nearly $46 billion, according to the report.

Kentucky’s agricultural producers fall in line with the national average of receiving 15 to 17 cents of the retail food dollar.

“This stat includes both at-home and away-from-home consumption,” said Snell. “Farmers receives around 25 cents of the retail at-home sales. The USDA does not track this via individual states.”

Snell is co-director of the Kentucky Agricultural Leadership Program and specializes in tobacco economics, agricultural policy, markets and trade, and macroeconomics.

He cited some of Kentucky’s most notable food processors. Names like Tyson, Purdue and Prairie Farms poultry, Jif peanut butter, Yum! Brands fast food chains, Purnell Sausage, Siemer Milling, Alltech animal feed supplements, Atalo Holdings, Marksbury Farm, Little Kentucky Smokehouse, Kenny’s Cheese, Laura’s Hemp Chocolates and dozens of others make a major impact on the state’s economy.

The impact of small operations may seem to be a mere drop in the bucket compared to the tens of billions of dollars generated by agriculture, but managing the processing component for a small farmer can be a major sticking point, and the difference between having resources to put into producing and marketing or not.

For example, Alvina Maynard of River Hill Ranch in Richmond is one of the farmers who contributes to Kentucky’s glowing agricultural numbers. For her niche alpaca operation, having a quality meat processor less than 40 minutes away at Lancaster’s Marksbury Farm has been invaluable to her business.

“Marksbury has been really super accommodating in our scheduling, and they have been able to do things even last minute,” Maynard said. “But Marksbury is a relatively young business as well, and because of their quality standards and their values, they’re running at max capacity. So it’s becoming more difficult as a small producer to get on their schedule.”

The next closest meat processors are almost two hours away.

“Having an increase in processors would be valuable for people doing small batches,” said Maynard, who serves as vice president of the Kentucky Alpaca Association. “It’s harder for Marksbury to do custom because as they grow they’re dealing with bigger clients.”

Less red tape, more opportunity

Smaller producers easily get edged out, and in some cases operations like Kentucky State University’s Mobile Processing Unit can help. Other times, it can’t. More processors are hindered by equipment costs, facility limitations, government permitting and inspections and staffing. For a specialty producer like Maynard, there are more loopholes in the system that leave her constantly seeking processing answers that no one seems to know.

There’s something to those claims.

While the demand for locally sourced animal products has increased, according to the U.S. Department of Agriculture’s 2015 Report to Congress, the number of small, federally inspected cattle slaughter plants declined by 12 percent from 2001 to 2013. Access to meat processors with required inspection processes and the ability to customize orders is key to providing customers with locally produced meat products.

Appreciated by chefs for being lean yet tender, alpaca are in a meat processing “no man’s land,” Maynard said, and she often has to use multiple facilities – sometimes not even in Kentucky – with separate permitting.   

“If I want to do a sausage or pepperoni, it’s a completely separate facility to process that cut of meat,” she said.

River Hill Ranch also produces highly coveted alpaca fiber and currently ships most of its fiber to Gallatin, Tenn., to get high quality processing – which is even more difficult to obtain than meat processing.

The state Department of Agriculture does a great job of helping people at least know where to start, Maynard said.

“At the department, we work closely with local, state and federal agencies to strike a balance between producing safe, high-quality and competitively priced products while also maintaining an environment conducive to business creation and job growth,” Quarles said. “In the future we will be identifying what we think are over-burdensome regulations and eliminating them from the books. I really applaud Gov. Bevin for his Red Tape Reduction initiative. We are committed to doing our part.”

While it took her two years of persistence to be get her alpaca meat permitted to sell, food processing needs regulation for obvious reasons, Maynard said. But there need to be more processors in the marketplace, and the state seems to be supportive.


Abby Laub is a correspondent for The Lane Report. She can be reached at [email protected]

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