R&D Tax Credit Aspects of Meat Science



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        The meat industry has been in the news lately mostly for the newest acquisition actions and rising prices. However, the industry has been increasing its innovation investments related to products, processes, practices, and safety.

The Federal Research and Development Tax Credit

        Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation
        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for 2012 and 2013 tax years.

Meat Companies Investing in R&D

        With the ever growing population it is becoming more and more important to improve techniques for food production while maintaining high quality product. Listed below are the R&D investments made by some of the largest meat processing companies. As you can see, meat processors are putting forth a lot of investment into research and development so they can have the best product available on the market.

R&D
            Expenses table


Integration of Smart Sensor Technology

        Weber Power Control, a meat processing robotics company in November, 2013 showcased a new machine that scans the meat that is currently being processed in order to measure the exact density of the meat and how much fat is on the bone, so to speak. It does this by shooting x-rays at the product and then makes the necessary cuts in order to get the most meat product as possible. The machine also has a user friendly touch screen interface for controlling operations, as well as a relatively compact size to decrease space that it would take up, while increasing productivity.

University Research:


Pennsylvania State University at University Park

        Researchers at Penn State developed a transparent edible film that is sprayed on the meat products during the final stages of processing, and kills any harmful bacteria that is present. This film could revolutionize the packaging process in the modern meat industry, and keep consumers from getting sick. Research results have been conclusive that the film does provide a barrier against microbials. Further testing needs be done in order to improve the longevity of the film.


University of Minnesota at Saint Paul

        The University of Minnesota as a leader in the agriculture science research, has been working on bettering the nutrition for their cattle in order to produce the best quality of beef possible. Research also includes improving the pre/post weaning process in order to increase beef quality as well. Research is also done on the selection process of heifers in order to capitalize on traits that are high in quality for beef reproduction.


Kansas State University

        Food science professor at Kansas State, James Marsden, has been working on and developing aids that can eliminate E.coli from meat products. The FDA has a zero tolerance for seven strains of E.coli that are all very hard to kill. But one thing that helps is the use of these aids that Marsden in working on. These aids cannot change the taste of appearance of the product and cannot negatively impact food safety or public health.


University of Arkansas

        Researchers at the University of Arkansas, are studying the methods currently used and developmental methods of Salmonella control in the meat processing industry. Salmonella infestation can either create a colony of Salmonella in your gastrointestinal tract or can spread to your body's hot tissues which can result in life threatening septicemia and fever. Luckily the most common form of salmonella is the first result and can be treated. Researchers at the University of Arkansas are exploring the effectiveness of the currently used methods as well as searching for new and improved methods.

Emerging Markets for Meat Substitutes

        Meat processing companies like Hormel are beginning to buy companies that will allow them to expand their operations into other meat substitute markets. Hormel acquired CytoSport Holdings, Inc. the maker of Muscle Milk and a global leader in Protein workout powders. By the end of the fiscal year in 2013, sales of products with protein on their labels rose 50%, spiking a craze of companies trying to add protein products to their lines. In 2013 Hormel also purchased Skippy peanut butter for $700 million from Unilever. Post Holdings, Inc. in April of 2014, purchased Michael Foods Group, a producer of dairy and eggs products for $2.5 Billion in an effort to expand its protein products line.

Meat Packaging

        Legislation is pending in Congress that will ban the use of the chemical bisphenol a (BPA) in all food packaging materials. BPA is the essential building block for polycarbonate plastic and use in the epoxy resin linings of metal food and beverage cans. Some research has shown that consumption of BPA that has been leaked into the foods that are contained in BPA products may cause some effects on the brain, behavior and prostate gland of fetuses, infants, and children. The FDA recommends avoiding any food packaged with the use of BPA. More and more BPA-Free products are coming out to help combat this still controversial issue.

Improvements to Tracking of Meat Products

        Improvements in the process of meat product tracking from starting at slaughtering and ending with consumer consumption at the supermarket or restaurant are constantly improving. It is very important to keep track of the animal slaughtering in order to avoid meat product related illnesses such as Mad Cow Disease. Even though there has not been a reported case of mad cow disease reported since 2006, it is always a looming threat to the population unless constant tracking of beef is not maintaned. The same can be applied to Salmonella for chicken and to trichinosis, which is a parasite caused by eating raw or uncooked pork. Innovations in this field are important so that the people consuming meat can avoid these diseases and parasites.

Safety Improvements to the Industry

        In general, workers in meat processing facilities are at 50% higher risk to get injured or sick at work, then if they worked in another industry. The FDA as well as OSHA requires certain procedures in order to keep operations safe and sanitary. However, there are mishaps and slip-ups on the procedures and a reported 28 fatalities and 227 injuries were reported in 2012 by the US Department of Labor's Occupational Safety and Health Administration's (OSHA). The American Meat Institute reports that since 1990 illness and injury rates in the meat industry are down 80%. Meat packaging plants since 1992, when the data began to be recorded, have always had the highest injury and illness rates. As of 2012, the incidents of sick and injured workers at packaging plants are 8.7 workers out of every 100 workers. This means that there is a major market need for products and resources that enhance worker safety and protect the process from employee illnesses.

The Use of Robots in the Industry

        Roughly 1 out of every 6 Americans will get sick this year from a foodborne illness, contracted from a tainted food or beverage. By using robots instead of people on the food processing line, not only does it cut costs, but it also allows companies to avoid the possibility for a worker to get sick, not follow standards, cross-contaminate, and mislabel the products. If a company has to recall a product due to cross-contamination or mislabeling a product, it can cost them millions or even billions of dollars in lost revenue and possible lawsuits from consumers that got sick from consuming the mishandled product. Industry robot use can also increase yield due to increased efficiency. Over the past 10 years, the CDC reports that there has been a reduction in illness caused by food borne pathogens by 20%. This is believed to be due to the increased use of robots in the food processing industry. Fanuc Robotics specializes in making robots that can be programmed to make cuts that would be difficult for a human to perform quickly, but easy to repeat quickly with a robotic arm.  Click here to see an example of an active robot.


Conclusion

        The meat processing industry has seen many changes in the last several decades, in order to cope with the growing population, food related illnesses, employee safety, and efficiency. More changes can be made and are being made in order to deal with these stresses. The Research and Development Tax Credit is available to those make those innovative changes.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Raymond Kumar is a CPA and Tax Manager with R&D Tax Savers.

Patrick Zalesky is a Tax Analyst with R&D Tax Savers.


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