imageThe sheep industry in the United States has been on a long decline. Sheep were popular here since the Pilgrims landed, but post World War II, the inventory started to tank. And has been ever since. In recent years, components of the Farm Bill have invested in figuring out why, and how to reverse the trend. This National Academy of Sciences consensus report, written in 2008, outlines an analysis of the problem and indicators of where things look to head in the future.

The Lamb Board was established in 2002, and has been investing significant effort in branding lamb (not the hot iron kind, but rather the marketing kind) to help it make a comeback. Given the beef industry’s powerful Beef, it’s what’s for dinner campaign, at some point, somebody must have realized lamb needs the same marketing oomph. Plus some, because it’s so far off the radar of most Americans, we can’t just encourage them to eat more of it; we really need to re-introduce Americans to the meat to get them to start eating it.

Of course this initiative needs to be paid for. So a law was introduced to tax sheep at the time of slaughter. It’s called the Lamb Checkoff. The beef industry also has a Checkoff program.

I think I had some vague awareness of this, but being a small producer and not that long in the lamb industry, it wasn’t really on my radar screen. Until last week, that is, when I received a letter from the Lamb Board Compliance Department in the mail personally addressed to me, reminding me of my responsibilities as a “First Handler.” Winking smile I’m not sure how they even knew little ol’ me existed; except perhaps that since I’d joined the American Sheep Industry Association, they may cross- reference members of that against those who are paying the Checkoff.

I had to call the Compliance Department because I found the literature a little confusing, and I also wanted to know how it applies to small producers. The documentation is written with the assumption that the reader is handling hundreds or thousands of sheep, so it’s hard to see how it applies for people selling less than a dozen sheep at a crack. Here’s what I learned.

How It Works

It’s an interesting tax in that everyone who handles a lamb or sheep is required to “pay forward” some of the tax to the next handler (buyer). The final assessment is always due to the Lamb Board at the time the animal is slaughtered. So, each time we sell a sheep, we are supposed to pay forward to the buyer a fee of $.005 per pound. If that buyer were to later sell the sheep to someone else, he also, in turn, would pay this same tax to his buyer. And you can see how, if any of these handlers had added weight to the sheep while it was in their possession, their tax would go up a little bit from whatever was paid to them when they bought it. Thus each person who is making money on the sheep and “adding value” has to pay a small fee, which will eventually go to the Lamb Board.

The collection from all sellers “passes through” all buyers. When the animal is finally slaughtered, the $.005/pound fee is due, along with a flat fee of 30 cents per head. For most sheep and lambs, the fee will be a little less than a dollar. “First Handlers” are defined as people who buy sheep for slaughter, or a sheep producer who markets sheep directly to consumers. First Handlers are the ones who will submit the Lamb Checkoff payment, since they own the sheep at time of slaughter. First Handlers are required to remit Checkoff fees monthly. If they are late, a 2% late payment is compounded monthly.

Seems simple when you consider the role of large scale producers and meat packers. But I had some questions about how this applies to my situation.

LittleLambSeed Stock Application

The fee applies to all sheep, whether they are butcher lambs or seed stock which is culled later in life. So when I sell breeding animals, I should be paying forward to the buyer the $.005/pound fee. And if I cull a breeding animal in my possession, I should pay the final fee of $.005/pound plus 30 cents Lamb Checkoff fee to the Lamb Board. If I purchase breeding stock from others, technically I should be discounting the Lamb Checkoff fee from their sale price ($.005/pound), or otherwise requiring the seller to remit this fee to me.

USDA Slaughter and Auctions

If I have lambs butchered at a USDA facility, and then market the meat by the cut, I would be considered the First Handler in this case, and would remit the Checkoff fee at the time of slaughter. Apparently also at auctions, the auction house typically does the accounting to acknowledge the Checkoff fee being paid forward from seller to buyer. I’m sure they do this just to be sure nobody is breaking the law under their roof, by “forgetting” to pay the fee, purposely or inadvertently.

So, seed stock, USDA by-the-cut sales, and auction transactions are pretty straightforward.

Non-USDA Direct Market

Here is where it gets a little interesting. We know that there is a growing market for direct sales, where the lamb buyer either does their own slaughter, or has the animal butchered at a local custom butcher. This is where all my butcher lamb sales go, because I don’t have easy access to a USDA slaughter facility. But the Lamb Checkoff law doesn’t really account for this, at least not yet.

In theory, the law requires that these buyers pay the Checkoff at the time of slaughter, because they are the First Handler in this situation. But of course, we can’t expect these types of buyers to even know what the Checkoff is, let alone be motivated to pay it. The Checkoff is designed around the concept that people in the sheep industry are motivated to fund it, because it’s there helping us market our product. And they are subject to enforcement and auditing if they are of large enough scale to be under scrutiny. But certainly the Seattleites who buy a single lamb from me can’t be expected to send a check for sixty five cents to the Lamb Board. TwinRamLambs

Paying in Good Faith

In theory, I have no obligation to do anything about this odd loophole, because the law says the First Handler must pay the fee, period. But, one could conclude that the right thing to do is to go ahead and collect the Checkoff from the buyer, or include it in the sale price, and remit it on their behalf.

I am considering doing this, because I leverage materials from the Lamb Board quite a bit in  my own marketing. I am honestly wowed by the Lamb Board’s stuff- gorgeous pamphlets and artwork with an early American Way Out West feel, emotion-invoking Celebrate With American Lamb byline sentiments, not one but three slick websites with recipes, health facts, and where-to-buy info for lamb buyers, and a well-monitored Facebook and Twitter campaign. The past is the past, but today I would say the Lamb Board is giving the Beef Producers a run for their money in effective advertising campaigns.

At least, to Americans. The only thing lacking in their campaign, IMO, is helping the ethnic market locate lamb and have it butchered it the way they want it done. Since we know the ethnic market is currently where the biggest growth lies, I feel we could be doing more to reach these people and make lamb available for their needs and cooking styles. We are so busy trying to convince Americans to rediscover lamb that we may be forgetting the biggest potential market that’s right under our noses. That is, the people who already eat lamb, and a lot of it; but who don’t know how to find us very well, and have a hard time understanding the way we move food animals through the system and the laws involved.

Lamb Checkoff literature claims that their campaign is generating an additional $44.14 in lamb sales for every Checkoff dollar invested. I’m not a marketing expert, but I believe that 44:1 is considered a very good ROI for advertising.

1032When to Pay

I mentioned that the Checkoff remittance is due monthly, and this was my final question. I estimate that this year, about 1700 liveweight pounds of lamb and mutton will enter the meat channel from my farm, coming from  about twenty-two animals. That adds up to a fifteen dollar Lamb Checkoff fee. But in any given month, it might only be $.65, if I sell one small lamb to a local buyer midsummer. Surely it doesn’t make sense for me to send such a tiny check; it doesn’t warrant the stamp on the envelope, or the processing time at the Lamb Board office.

The Compliance Department representative agreed, and said in this case, just use my judgment, send it once a year, or whatever makes sense. And no 2% late fee required. He asked that I just cross out the “assessment remitted during the month of…” line and write “… year of…” instead, so they can keep accurate records of the income.

So, there you have it, the Lamb Checkoff explained!