"Impossible Foods beefed up its roster of meat alternatives." "It's a
burger that's become quite popular."
"Now, the meatless craze sweeping through grocery stores, restaurants,
even down the street at Carl's Jr." Despite the buzz around
plant-based alternatives and vegan recipes, Americans still love
meat. In 2018, Americans consumed more than 180 pounds of beef, pork
and poultry, 10% more than in 1970.
Plant based meat retail sales were $760 million dollars in 2019, a
fraction of the total meat and poultry sales.
Whether it's at your favorite fast food restaurant or in the grocery
aisle, one company that carnivores turn to again and again is Tyson
Foods. Tyson Foods is one of the world's largest food companies and
produces roughly 20% of the beef, pork and chicken in the U.S.
IT services restaurants and schools and sells brands like Jimmy Dean
and Sara Lee in supermarkets.
But in the spring of 2020, restaurants closed as governments enforced
social distancing rules.
And in April, thousands of infected Tyson workers at processing
plants caused facilities to shut down, causing meat shortages at
grocery stores across the country.
The 85-year-old food giant faced the perfect storm: higher production
costs, lower levels of productivity and softer demand.
"We've implemented a wide number of measures to look after our workers
from measuring temperatures as they come through the door.
Face coverings, staggered breaks, expanded room, social distancing.
All of these are designed to help keep our workers safe.
And keeping our workers safe is what will keep our plants running.
And, of course, where necessary, we've been willing to close those
plants and to deep clean them in order to make sure that we can get
back to speed as quickly as possible."
But analysts argue that after decades of industry consolidation, some
of Tyson's problems may have been self-inflicted.
"Covid-19 has exposed weaknesses in the meat system that people have
been talking about for years, but that have never been exposed as
they were now and essentially what Covid-19 showed was the profound
fragility that happens when you move all of your production into a
few slaughterhouses as possible."
So can one of America's biggest meat suppliers recover from the
devastating blows of 2020?
Or has the Covid-19 crisis created an opening for rivals JBS, Cargill
and Smithfield Foods to overtake them?
In the early 1930s, 25-year-old John Tyson left his family's farm in
Missouri in search of a better life.
The Great Depression meant jobs were scarce.
But after arriving in Arkansas, Tyson saw opportunity all around him
in the form of chickens.
Chicken was a delicacy in Midwestern cities at the time, so Tyson
loaded up his truck and started hauling birds to markets as far away
as Chicago and Kansas City.
In 1947, Tyson was not only transporting the chickens to market, but
also selling baby chicks and feed to farmers.
"Tyson Foods was at the forefront of the revolution in
vertically-integrated meat production.
And it's not like you can go back in time and point at one person as
being the, quote, inventor of vertically-integrated meat production.
But if you would, John Tyson Sr.
would be really close."
But it was Tyson's son, Don, who many credit with turning a simple
chicken business into a global empire.
Don joined the company after dropping out of college in 1952, built
the company's first processing plant, and became CEO in 1967 after
the death of his parents in a car train accident.
In 1963, Tyson went public, selling 100,000 shares at $10.50 each.
By the 1970s, there was an explosion of industrialized,
vertically-integrated poultry production in the U.S., with about
three dozen companies controlling half of the chicken market,
including Pilgrim's Pride, Sanderson Farms, Perdue Farms and of
course, Tyson.
"Chicken was really the first animal that was produced like a widget
on an industrial assembly line.
And so the amount of chicken that was available just exploded during
this time." By the late 70s, Tyson was producing over 230 million
birds per year. And with a grow-or-die philosophy, Don Tyson's
company started acquiring competitors and expanding the family
business. "Starting in about 1980, you see this enormous wave of
consolidation sweep across the industry, where a handful of companies
who have really good relationships with investors on Wall Street,
where they could raise the capital to go on a merger spree with Tyson
Foods being probably the premier company in this way.
They went out and bought their competitors and they rolled up
ownership into a handful of firms."
By the mid 80s, Tyson reached a billion dollars in sales and claimed
the number one poultry producing slot in the country.
The company went on a buying spree.
In 1989, Tyson bought Holly Farms for $1.5 billion dollars, doubling
the size of the company. And in 2001, it bought IBP for $3.2 billion
dollars, making it one of the world's largest meat producers and
processors. "Tyson made a business model out of buying out its
competitors and shutting down the older, smaller slaughterhouses and
moving more and more production into a handful of very large, highly
sophisticated slaughterhouses where they could add value to the
product." In 2014, Tyson bought Hillshire Brands for $7.7 billion
dollars. And in a bid to boost its sales at restaurants, in 2018,
Tyson bought McDonald's chicken nuggets supplier Keystone Foods $2.1
billion dollars.
In 2019, Tyson had a net income of $2 billion dollars, a 66% increase
from 2015. And by June 2020, Tyson had a market value of $21 billion
dollars, almost double the amount it had at the start of 2014.
The meat and poultry business in the U.S.
is a $232 billion dollar market, according to IBISWorld.
In 2017 alone, the industry processed 9 billion chickens, 121 million
pigs and more than 32 million cows for kitchen tables across the U.S.
While the scale is hard to comprehend, industry consolidation has led
to just a few key players.
The four biggest companies, Tyson Foods, JBS, Cargill and Smithfield
Foods, control anywhere from about 40 to 60% percent of supply,
depending on the type of animal.
Volatile commodity prices keep profit margins tight, forcing Tyson
and other meat processors to keep a close eye on costs.
Tyson has more than 200 plants in the U.S.
and had global sales of $42.4 billion dollars in 2019.
About a third of revenue came from the sale of beef, another third
came from the sale of chicken, and the remainder of the company's
revenue came from pork prepared foods and international sales.
The company sells about 45% of its products to retailers like
supermarkets, 31% to foodservice businesses like restaurants and
about 11% to packaged food companies.
The remainder of revenue comes from exports.
Tyson is the largest chicken producer in the U.S., followed by
Pilgrim's Pride. Pilgrim's has more than 30 plants in the U.S.
and processed about $1.7 billion birds in 2019.
The U.S. poultry industry has come under increased scrutiny in recent
years as consumers and grocery stores have accused Tyson Foods,
Pilgrim's Pride and other processors of inflating the price of
chickens. In June 2020.
Pilgrim's CEO Jason Penn, along with other chicken industry
executives, including Claxton Poultry Farms President, Mikell Fries,
were indicted for conspiring to fix prices on broiler chickens from
2012 through 2017.
In a statement, Pilgrim's said the company is committed to high
ethical standards, governance, and free and open competition that
benefits both customers and consumers.
Tyson was not named in the indictment, but a few weeks later said it
was cooperating with the U.S.
Department of Justice on a price fixing investigation that could
shield the company from criminal prosecution.
Pilgrim' is majority owned by Greeley, Colorado-based JBS, which is
also one of the world's largest beef and pork processing companies
and a subsidiary of Brazilian-based JBS S.A.
"So chicken is ground zero, if you will, for this model of vertical
integration and consolidation that happened fastest and most
dramatically in the chicken business.
Well, then these companies realized what a huge opportunity this was.
So they essentially exported that model to beef and pork."
The beef category is also dominated by a handful of companies.
At the top of the pack alongside Tyson and JBS is Cargill, a private
company that has more than three dozen processing plants in North
America. "So a typical plant shift at, say, a pork or a beef or even
a poultry packing plant might have 800 to 1,000 workers or more on a
given shift. And they typically are close and oftentimes it's
challenging to have six foot six feet, rather, of social distancing."
In 2019, Cargill had revenue of $113.5 five billion dollars.
In the pork category, the biggest producers are Smithfield Foods, JBS
and Tyson Foods.
The world's largest pork producer.
Smithfield Foods, started operations in 1936.
The company grew rapidly with more than 30 acquisitions since 1981.
In 2013, Smithfield was bought by Hong Kong-based WH Group for $4.7
billion dollars. WH Group is publicly traded on the Hong Kong Stock
Exchange. While supermarkets were seeing shortages and higher prices
in 2020, China was receiving a record amount of pork exports from
U.S. companies. In June 2020 Democratic senators Elizabeth Warren and
Corey Booker sent a letter to chief executives of Tyson, Cargill,
Smithfield and JBS, criticizing them for exporting pork and other
meats to China while threatening the American public with impending
shortages. Tyson told CNBC in a statement, "In recent months, we've
prioritized supplying meat to the U.S.
domestic market and have voluntarily curtailed shipping those pork
export items that are also used by domestic consumers to try to meet
U.S. demand." The coronavirus pandemic hit Tyson with two
major crises, with consumers eating more meals at home due to
restaurant closures, Tyson faced a shift in demand from food service
to retail. "Well, certainly we saw a pretty big falloff in food
services as schools and restaurants were closed.
But at the end of the day, you know, people are not resigned to
eating less. And so you saw a big spike in retail.
For our company, that works out to be a net negative because not all
of the plants can be switched over to produce food for retail, but
we've certainly been very successful in a number of them.
As the world economy began to shut down in March 2020, Tyson stock
fell to a more than one year low of $44."
"It definitely was disruptive to their business, but for the most
part, they were able to ship that those products over to the retail
channel, which was experiencing unprecedented demand."
But the second crisis had far bigger implications for the company as
well as the entire food supply network.
According to the CDC, during the spring of 2020, more than 16,000 US
employees from Tyson and other companies working at meat and poultry
processing plants across the country contracted Covid-19 and 86 died,
forcing about two dozen plants to close.
Meat processing employees often work in tight quarters on high speed
lines that place them at greater risk of contracting or spreading
Covid-19. "Meat processing is a very labor intensive process.
So you have employees standing in close proximity to each other,
which, you know, really made it very difficult to control the
disease. So several meat processing plants had outbreaks."
The Midwest Center for Investigative Reporting said the numbers were
much more grim. It said as of July 17, 2020, at least 33,000 U.S.
workers at meat processing plants have been infected and at least 133
have died. The group said workers at more than 40 Tyson plants have
been infected in at least 12 plants have temporarily closed.
In May 2020, 40% of workers at a Tyson Foods pork processing plant in
Indiana tested positive for Covid-19.
The plant temporarily halted operations on April 25th.
At a pork processing plant in Iowa, more than a thousand workers were
infected with the virus that same month, according to county health
officials. "Tyson and other companies have been working as hard as
they can for decades to put as much production into a few
slaughterhouses and and then to cram as many employees as possible
into as little space in those slaughterhouses so that they can
process as many animals as possible, as quickly as possible to pay
off the investment of these really sophisticated mega
slaughterhouses." For Tyson, plant closures meant shrinking output,
plus an increase in operating costs to ensure new safety protocols.
Tyson deployed infrared body temperature scanners at some U.S.
sites and plastic dividers to protect workers.
But for those employees who didn't feel comfortable returning to work
in June 2020, the company wasn't giving out sick days.
According to news reports, Tyson doesn't have paid sick leave but
offer short-term disability coverage for employees who are ill.
CNBC reached out to Tyson Foods, but they did not respond to a
request for an interview.
Plant closures had a ripple effect across other parts of the supply
chain, too. With Tyson's U.S.
hog processing capacity nearly cut in half, farmers who were
struggling to find a buyer were now forced to euthanize excess
animals. Due to supply chain issues, more than 10 million pigs will
need to be culled, according to the National Pork Producers Council.
"If you consider the plants in the industry that have already been
closed and you look at the public data from USDA, you will see that
pork and beef processing are down somewhere between 20 and 30%."
In April 2020, Tyson Chairman John Tyson took out a full page
newspaper ad that said the food supply chain is breaking.
Days later, President Trump invoked the Defense Production Act,
ordering meatpacking plants to remain open.
"We didn't have widespread, massive meat shortages, but we did have an
interruption in the supply chain and a product-by-product level of
shortage. But what that did is for the first time, it really brought
Americans face-to-face with the reality of the industrialized meat
system that we depend on every day for our food.
There really has never been a shortage like this in modern times."
In May 2020, Tyson reported its fiscal second quarter.
net income had fallen 15 percent from a year earlier.
With the coronavirus wreaking havoc on U.S.
processing plants, Tyson might be looking to the horizon for its next
generation of consumers.
During a November 2019 earnings call, Tyson CEO Noel White said about
90% of future growth in the global protein demand could take place
outside of the U.S.
Since 2018. China, the world's top pork producer, has killed millions
of pigs as it battled African swine fever.
During a February conference call with analysts, White said Tyson had
year-over-year increases of nearly 600% to China in the first quarter
of 2020. China has also seen a surge of U.S.
poultry imports since the country ended an almost five year ban on
the trade in November 2019.
"China, just in November, eliminated their ban on U.S.
chicken, so we expect to see a lot more chicken heading over to China
and and just pork in general as the Chinese are large consumers of
pork and now they have a significant shortage.
So we do think that Tyson will benefit from that over the long term."
The company is expanding into markets at home, too.
While the number of vegan and vegetarians in the U.S.
over the past decade has remained flat, the interest in plant-based
foods is on the rise.
Consumption of plant=based foods also took off during the pandemic as
consumers continue to adopt healthier diets while facing shortages of
meat at grocery stores.
Tyson, once an investor in Beyond Meat, launched its first
plant-based product in 2019.
In June of that year, the company rolled out chicken-less chicken
nuggets and a blended burger that combines plants and beef.
But despite these new markets, analysts think Tyson's structural
problems could come back to haunt them.
"There's a strong chance that we're not out of the woods on this yet.
The virus is still spreading.
The number of cases inside slaughterhouses continues to rise.
The companies are not being forthcoming about how many of their
employees have this virus.
And and you could see how the companies might need to continue
selective shutdowns of plants going through this summer.
You know, and God forbid, if we have a second wave this autumn or
this fall, the supply chain issue is going to remain, you know, I
think, front and center for a lot of American consumers."