Answers to Five Questions Can Help Determine Whether Rendering is Worth Investment
by David R. Stone
After a beef or pork carcass is broken into quarters, the most valuable part often isn't in the forequarters or the hindquarters-but the fifth quarter.
The big question is: What is the best way to make money from the parts that remain after all four quarters of meat are taken? Everything that's left-all the trimmings, fat, bone, blood drippings, and even the grease in the wastewater-can be rendered into profitable products, but what's the best way to make money from rendering? Is it better for a meat company to sell this fifth quarter material to an outside renderer, or to install its own rendering operation?
Answers to the following five crucial questions can help companies decide whether they should render themselves:
-- Why do some meat companies choose to run their own rendering facilities, rather than sell their scraps to an outside company that specializes in rendering?
-- What meat companies are currently engaged in rendering?
-- How much investment is required to set up a rendering operation?
-- What volume of throughput is necessary to justify the investment in rendering equipment?
-- What is the future market potential for rendered products?
Why go in-house?
Why choose the do-it-yourself approach when there are specialized rendering companies ready to buy renderable materials in the United States? The answer is in the profit margins.
At one packing plant that keeps upgrading its in-house rendering operation, an executive stresses the importance of renderable material.
"You don't want to ship it out to anyone else, period," says John Primm, manager of rendering and wastewater operations at Tolleson, Ariz.-based Sun Land Beef Co.
The reason is that rendering is a "key profit center" in the meat industry, especially for slaughterers because of their ready access to a good supply of renderable material, he explains. More than meat, it's the allied products-hides, offal and rendering-that cover slaughterhouse expenses and determine profit, according to Primm.
He adds that allied products can be especially important to smaller companies competing with the industry giants.
"Profit margins on fresh meat are very narrow," he points out. "A smaller packer has to use every available resource to turn a profit and compete" against companies with extremely high sales volumes, such as ConAgra, IBP and Cargill.
Taking the opposite point of view, Sara Lee Corp.'s meat division sells most of its trimmings to outside contractors, rather than on-site rendering.
"Renderers are efficient and conveniently located," says Ron Brockman, vice president of sourcing and materials management at Chicago-based Sara Lee.
The only rendering Sara Lee does utilizes "dated" technology that's in place at its West Point, Miss., plant and some additional rendering at its Zealand, Mich. plant, Brockman adds.
Who renders?
Although rendering is a highly important profit center for some smaller meat companies, on-site rendering facilities are commonly found at large firms. There are about 150 packing plants that do their own rendering, and some of the largest companies may run as many as 15 packer-renderer plants, says Jerome J. Breiter, president of the U.S. Hide, Skin & Leather Association.
Small plants generally don't render, Breiter points out. "Beyond the first tier of companies, they don't have sufficient production to do their own rendering."
In addition to packers and processors that render, there are about 300 specialized rendering companies in the United States, according to Bruce Blanton, executive director of the National Renderers Association.
The investment
Why are only a few small packers rendering their own scraps? One reason is the investment required to become a renderer. The cost of a complete "turn-key" installation of a new rendering facility at a meat plant could range from $1.5 million to $2.5 million, says Frank Burnham, editor of Render magazine.
Burnham believes a new rendering operation would probably need to include a continuous cooker, which requires a heftier investment than a batch-type system.
"You can't do all batch-processing today because you need to keep your overhead [operating expenses] down," Burnham says.
Sara Lee's Brockman agrees that for a new rendering installation to be cost effective, it must use low-temperature, continuous-processing technology.
This is the type of equipment used at Sun Land, which is rebuilding part of its rendering operation following a fire. Primm says rendering has been part of the business ever since the company began in 1982. The firm's rendering equipment has been upgraded and expanded several times since then, and Sun Land's investment in rendering and wastewater recovery now totals more than $5 million, he says.
Sun Land had used a Dupps Equacookor prior to the fire, which might be upgraded to a Dupps Supercookor.
Other equipment at Sun Land includes a Hayes grease system for mechanical recovery of grease, tallow, etc., from wastewater; a three-stage separating system, with a Krofta dissolved air flotation system in the final tank (which helps to coagulate the fats, oils and suspended solids); and a blood recovery/processing system that includes a Buske blood drying system that was installed within the past two years.
One reason for continuously upgrading the equipment is to meet clients' demands for higher-quality rendered products, Primm explains.
Render magazine's Burnham claims that higher quality is required by customers in all product categories. This may be a factor making it harder for meat companies that are just entering the field to compete against established renderers.
Meat plants cannot expect their existing equipment to ease their entry into rendering, Burnham adds. Almost nothing used in meat processing could serve double-duty as part of the rendering operation.
Even the transportation rigs have different requirements, as tankers are needed for transportation of tallow and feed fat, and hopper cars are needed for such products as meat and bone meal. For distant or export markets, the packer might need to lease railcars for the rendered products. It is possible that a meat company could use some of the same tractors in its existing fleet to pull these loads, even though the truck bodies are different.
For a packer or processor diversifying into rendering, about the only other possible equipment savings that Burnham sees would be to take advantage of steam from its boiler, if the boiler isn't already being used at full capacity.
Despite the barriers that must be overcome to enter the rendering field, Burnham says many small- and medium-sized packers agree with a statement one of them told him several years ago: "If you kill more than 500 head of cattle a day, you can't afford not to process your own by-products."
Sun Land kills 1,400 to 1,500 head a day, and hopes to be up to 1,800 to 2,000 head a day within 12 months, according to Primm. However, about one-third of its output goes to a single customer-Ralph's supermarket chain in California-and Ralph's has its own rendering operation.
This somewhat limits Sun Land's rendering, as edible fats are shipped to Ralph's for rendering.
Burnham says pork rendering is quite similar to beef rendering, although pork rendering is a little more difficult. In pork rendering, a plant must be configured with pre-cooking and grinding operations, and there are often two stages of grinding because the particles must be finer than with beef, he explains.
Burnham says he doesn't know how many head of hogs a pork plant must slaughter for its volume to justify investment in on-site rendering equipment.
Brockman at Sara Lee says his company has considered doing its own rendering at the Jimmy Dean facility in Newbern, Tenn. That plant slaughters about 2,000 sows a day and currently uses an outside renderer. Other Sara Lee plants, which process pork but do no slaughtering, produce an insufficient amount of bone and fat trimmings to make it cost-effective to install a modern rendering system.
"We're in the tens of thousands of pounds, not hundreds of thousands," Brockman says
Short-term outlook
For any meat company considering whether or not to invest in on-site rendering equipment, a key question-"Does the future promise good enough sales and profits for rendered products?"-must be answered.
The National Renderers Association compiled predictions from several experts for a "market report" in the April 1994 issue of Render. The analysts that were contacted believed prices for fats, oils and proteins would remain firm through 1994, with demand likely to grow faster than supply.
Blanton sees a growing export market for U.S. renderers, thanks partly to promotional work the industry has done in Asia. Various industry observers point to the North American Free Trade Agreement as another factor likely to boost exports, especially since Mexico is the largest export market for U.S. rendered products.
However, long-term growth may depend on broadening the market even further by developing new products, and a number of new uses are being developed for animal by-products. Dr. Gary Pearl, president of the Fats and Proteins Research Foundation, says there is promise in such new markets as:
-- Bio-diesel fuel, for use in powering urban buses and corporate fleets.
-- Bio-degradable plastic (to compete with plant-based bio-degradable plastics), for use in packaging materials.
-- Concrete, where animal fats can be added as a curing agent.
In addition, research is ongoing to continue the "progressive improvements" in traditional rendered products, such as refined specifications to make meat and blood meal more attractive as ingredients in animal feed, Pearl says. These improvements may help animal products retain market share against competing ingredients from other sources, and may give the rendered products a higher value.
With a strong market and good prices expected, rendering may be an attractive opportunity for those meat companies looking for more than just four quarters of profit.
Big companies have stake in rendering
Although rendering is an important profit center for some smaller meat companies, on-site rendering facilities are more commonly found at large firms.
According to MM&T's Industry Elite, which lists the U.S. meat packers and processors whose sales topped $30 million last year, seven of the 10 largest companies include rendering among their operations. Each of these 10 companies reported total yearly sales of more than $2 billion. However, there is no breakdown for how much of this volume is in rendered products.
Not as many of the smaller companies do their own rendering: Sixteen of the largest 25 firms have such facilities, and each company in this group reports annual sales (of all products) in excess of $477 million a company.
Twenty-five of the top 50 are involved in rendering. The smallest of these had annual sales of $184 million.
Among the top 100, only 30 do rendering themselves. Since this figure includes the 25 renderers already counted in the top 50, this means 10 percent of the companies ranked 51 through 100 are engaged in rendering.