It's not clear how many of the state's 52 inspectors will be let go, but meatpackers say any layoffs will prevent them from growing to meet demand for locally raised meat. And, if state inspectors are scarce or unavailable, small meatpackers who can't afford to upgrade for federal inspections could cut back their operations or go under.
Their fears highlight a dilemma lawmakers in many states face as tax revenues decline and they struggle to balance budgets: How deeply do they cut programs that are essential to growing segments of their economies and could generate new tax revenues?
"We're one of the small businesses in Indiana that showed growth in a recession year," said Steve Beutler, past president of the Indiana Meat Packers and Processors Association. "Now we can't grow."
Industrywide figures for Indiana aren't available, but Beutler said his payroll grew from 15 to 20 workers last year, and that's typical. At a recent meeting of 30 of the state's roughly 130 meat processors, all said their revenues and hiring increased last year, he said.
Federal inspection is required for meat shipped across state lines. Meatpackers who sell locally can opt for state or federal inspections, and many prefer state ones because they say state inspectors are more accessible, flexible, attuned to the needs of small business and better at educating them on new requirements.
Also, upgrading to meet federal standards, which require such things as separate showers for federal inspectors, can cost $250,000, nearly the average annual value of meat leaving state-inspected plants in Indiana.
Twenty-seven states have their own meat inspection programs, which must meet U.S. Department of Agriculture standards for pre-slaughter and post-mortem inspection of animals, record-keeping, sanitation and other matters. Several states have looked at their programs as places where money could be saved as they try to balance their budgets, said Bob Ehart, director of public policy for the National Association of State Departments of Agriculture.
Dustin VandeHoef, a spokesman for the Iowa Department of Agriculture and Land Stewardship, said budget cuts have forced his agency to be more efficient in deploying inspectors, such as reducing the number of days each week they go to plants. They've also held one position open for four months.
The Indiana Board of Animal Health announced a 50 percent cut in its inspection program in January but backed off after complaints poured into the offices of Gov. Mitch Daniels and legislators.
Doug Metcalf, the board's chief of staff, said members understood how cutbacks could affect meatpackers and the reductions were "still a work in progress." Most of the state-inspected meat and poultry processing plants have already begun operating under new, consolidated inspection schedules that have inspectors spending fewer days or partial days in slaughterhouses, he said.
Greg Fisher, president of the Indiana Meat Packers and Processors Association, said the group recognizes the need for the state to balance its budget but some processors have been reduced to just one inspection day per week.
"I think they are cutting too much. I think agriculture and agriculture-related businesses are the next wave of growth, and I think our state should be embracing it more than they are," said Fisher, whose business employs 50 people in the eastern Indiana cities of Portland and Muncie.
State budget cuts also mean less federal money for the state inspection program as the federal government matches state money dollar for dollar. That has opponents worried any big cuts to Indiana's inspection budget could result in the program falling short of federal requirements. The state budget cuts take effect July 1.
USDA Food Safety and Inspection Service spokesman Neil Gaffney said the agency still expects Indiana to meet its standards even after paring its inspection program. If not, the federal agency will pick up the responsibility — at least for the plants that meet its facility standards.
Nikki Royer's family raises cattle, hogs and sheep about 70 miles west of Indianapolis and sells the meat by mail-order and at farmers markets. She relies on two state-inspected meatpackers to butcher animals for her booming business.
"I have a pretty big knot in my stomach," Royer said. "If we don't have meat inspection, how do we make a living?"