Mobile abattoirs - viability and sustainability: report

10.0 Potential Operational Models And Cost Benefit Analysis (CBA)

Box 7. Key Findings from the Cost Benefit Analysis

The CBA and sensitivity analysis has indicated that the options for an MSU service which are most viable are those where the avoided costs associated with haulage of animals are the highest, and where there is the potential to add value through sales of meat which have a premium associated with local provenance and animal welfare.

An important part of developing potential operational models for consideration in cost benefit analyses (CBA) involves unpicking in detail what the challenges are and providing cost estimates where there are a range of issues/practicalities to be considered which may not be defined based on evidence and formal quotes. A number of factors are considered in the CBAs of the models:

10.1 Overview

• Discussions with industry have indicated that MSUs can vary significantly in price range, with indicative prices of up to £1 million. A consideration of how this could be financed is considered in the CBA.
• The practical and cost considerations of ensuring regulatory compliance and the need for veterinary supervision is costed for.
• Lairage, disposal and refrigeration issues, in addition to potential biosecurity issues.
• The potential to generate value with all of the products/by-products and waste (including offal, gut content, 5th Quarter etc.). This could also be viewed as a positive from the perspective of decreasing waste and contributing to the Scottish Government’s commitment to the Circular Economy.
• The potential premiums that can be generated through sales of niche meat products (e.g. as organic, local, improved animal welfare).

A number of operational models have been identified for detailed assessment, following the review of international case studies and stakeholder engagement responses. The costs are based on MSUs using a docking station approach, which could for example, involve a unit driving to the following types of location, which already have much of the required infrastructure in place (lairage, drainage, power, water):

• An auction mart
• An industrial unit
• A farm

The cost benefit analysis is based on waste streams being owned by the MSU operator, but left in secure containers for subsequent collection, without undue delay (e.g. using similar timescales as those in place for fallen stock^[32]). In terms of the MSU authorisation, the docking stations are costed on the basis of being part of the MSU operation and would therefore be regulated by FSS as such (discussed with the FSS as a reasonable way forward). The APHA would therefore view this as being one site for authorisation from an ABP/waste management perspective. The CBA is costed on the basis of this approach.

There are challenges associated with providing a service for pigs (principally dehairing and, potentially, the need for trichinella testing in many cases), and therefore the scenarios below only focus on cattle and sheep/lambs. It should be noted that cattle also provide a challenge because of the high capital costs involved in designing and building the MSUs.

The operational models/scenarios considered in this cost benefit analysis describe the added value benefits offered by an MSU service. It should be noted that for all of these scenarios the carcases are hung in local chill facilities, at the docking stations, with a percentage of the MSU kill income paid to the host site (e.g. an auction mart).

Scenarios 1a, 1b & 2 - MSU service provided to butchers/farmers

This scenario has the MSU operating as a stand-alone business. The income streams are based on:

(i) The charge for slaughter – based on current kill prices being charged.

(ii) Sale of carcases (e.g. quarters or sides for cattle), based on being able to charge a price which is comparable with what butchers/farmers are currently paying i.e. in the CBA this includes avoided haulage costs to and from the abattoir.

Scenarios 1 and 2 are different only with respect to the geographical areas covered. The very special case of Orkney, with a high density of cattle and no abattoir is considered in Scenario 1a) describing a weekly service which will provide the local demand for meat. Scenario 1b) for Orkney only meets half of the local demand, with more slaughtering days on the mainland (e.g. Caithness and Sutherland). The purpose in considering both is to identify whether the ferry costs associated with a weekly service make this unviable.

Scenario 2 is a service provided exclusively on the mainland. Again, Caithness & Sutherland is used, but this is only for indicative purposes and there is the potential for many other parts of the country to also be considered for the service on the same basis e.g. Argyll and Bute, the Borders, Angus, etc.

Scenario 3 - MSU owned by a butchers/meat processor, with premium meat sales

Having purchased an animal for slaughter, the avoided costs shown are those that would be derived from an MSU service, with this effectively part of the butcher’s/meat processor’s business now. The full list of benefits covered by the CBA are provided below:

(i) Avoided charge for slaughter

(ii) Avoided purchase cost of carcases from an abattoir

(iii) Avoided haulage costs of animal to abattoir

(iv) Avoided haulage cost of carcase coming from the abattoir

(v) A premium for the sale of high quality, high animal welfare and local provenance meat.

In terms of the final benefit above, this value is based on the sales of different cuts from a carcase, with the additional value being the premium that a butcher/meat processor may be able to sell the products for, on the basis of marketing this as having local provenance, high welfare standards etc- 5% of the sales value of the is included as an additional benefit of owning and running an MSU.

Scenario 4 - MSU owned by a butchers/meat processor, with premium meat and offal sales

The scenario and financial benefits are the same as Scenario 3, but with an additional income stream associated with the sale of offal. This results in a corresponding (small, circa 2.5%) reduction in the quantity of waste being disposed of.

10.2 Operational Model Used for the CBA of MSUs for Cattle and Sheep

The following table provides an overview of the logistics and geographical coverage considered in the operational model and scenarios for MSU providing slaughtering services for cattle and sheep.

A further model that could be considered is the “Buy-a-Cow” approach being run by “Crowdbutching Ltd” which markets ethically sourced meat for a niche market, with meat boxes sold online using innovative marketing and communications approaches. More information is available at: https://www.buyacow.uk/large-meat-box/.

In terms of the number of slaughter days used for the operational models, and how these vary, depending on location, the following table provides a description of the values used in the CBA. For emphasis, the mainland service is being described as Caithness & Sutherland, one of the reasons for which is its proximity to Orkney, which is described as being in Scenario 1 for the reasons described previously.

10.4 Debt Financing and Funding of an MSU

The CBAs assess the costs and benefits associated with the different scenarios, on the basis of the following:

• 70% debt financing of the capex.
• 40% grant support for capex and 70% debt finance for the remaining capex.

The debt is assumed to be paid off after 5 years, with an interest rate of 5% used. Scottish Enterprise (the Scottish Investment Bank) were asked if they could provide information on the rates used for loans, and this was confirmed to be in the range of 4 - 11% . Lower end rates would typically be applied to companies with a strong historic performance and track record.

40% grant funding is used because this is a level of support currently provided through a number of schemes (e.g. the Scottish Rural Development Programme).

10.5 Results

The following tables are provided to summarise the results of the CBA carried out on the operational models and scenarios described in Section 10.1. It should be noted that the Excel spreadsheet used for this data accompanies this report separately.

10.4 Cost Benefit Analysis – Sensitivity Analyses

The following table summarises impacts to the CBA on the basis of changing:

• Avoided costs associated with the transport of animals.
• Capital costs.
• The approach to waste management, in particular removing stomach/gut^[33] content (circa 25% of waste) and applying this to land.
• Debt financing interest rates.

The key for the colours used in the table below is as follows:

(G) Positive impact on payback period (improved by one year or more)

(Y) Marginal, negative impact on payback period (1 year)

(R) Significant negative impact on payback period (more than one year)

10.5 Cost Benefit Analysis and MSU Viability

The CBA and sensitivity analysis has indicated that the options for an MSU service which are most viable are those where there is the potential to add value through sales of meat which have a premium associated with local provenance and animal welfare. Payback periods of 9 and 15 years are shown to be the case, with and without 40% grant funding respectively. This reduces to 7 and 11 years when the scenario including sales of offal are considered.

The potential to reduce costs by managing waste streams at the source of their generation is also highlighted in the sensitivity analysis, for example by applying stomache contents to land rather than hauling these with the other waste streams. Depending on the scenario, reduced payback periods of 1 to 3 years are possible on the basis of waste being reduced by 25%.

In the case of an Orkney service, a regular, weekly and fortnightly service was considered, to understand the benefits realised by avoiding the costs of animals to a mainland abattoir and the return cost of hauling carcases. No viable outcomes were demonstrated in the CBA on the basis of avoiding such costs alone.