How Tyson Broke The Meat Supply Chain

Summary

Tyson Foods, a leading meat producer in the U.S., faces challenges from the COVID-19 pandemic, including plant closures due to worker infections and shifts in consumer demand from food service to retail. The company, known for its significant share in beef, pork, and chicken markets, also confronts criticism over its industry consolidation practices and potential price-fixing in the poultry sector. Amidst these struggles, Tyson explores new markets, launching plant-based products to tap into the growing interest in meat alternatives, while also looking to expand in international markets like China, affected by African swine fever.

Takeaways

• 🌿 Impossible Foods has expanded its range of meat alternatives, with a popular burger option gaining traction.
• 📈 Despite the rise in plant-based diets, meat consumption in the U.S. increased by 10% from 1970 to 2018, with Americans consuming over 180 pounds of meat per person.
• 💲 Plant-based meat retail sales reached $760 million in 2019, which is a small fraction compared to the total meat and poultry sales.
• 🔁 Tyson Foods, a major player in the meat industry, produces about 20% of U.S. beef, pork, and chicken, supplying to restaurants, schools, and supermarkets.
• 🏭 The COVID-19 pandemic led to meat shortages as Tyson Foods faced challenges with social distancing and worker safety in their processing plants.
• 📉 The pandemic exposed vulnerabilities in the meat industry's consolidated production system, with a few large slaughterhouses handling a significant portion of the meat supply.
• 🛒 Tyson Foods has been under scrutiny for alleged price-fixing in the chicken market, with the company cooperating with a DOJ investigation to avoid prosecution.
• 🌐 The U.S. meat and poultry market is a $232 billion industry, with a few key players controlling a large portion of the supply.
• 🐷 The pork industry, including Tyson Foods, faced challenges in 2020 with the need to cull millions of pigs due to supply chain disruptions and processing plant closures.
• 🌱 Tyson Foods is looking towards plant-based products and international markets, such as China, for future growth, launching plant-based products and increasing exports.

Q & A

What was the impact of the COVID-19 pandemic on Tyson Foods' operations?

The COVID-19 pandemic led to the closure of several Tyson Foods processing plants due to worker infections, causing meat shortages and increased operating costs to implement safety protocols.

How did the meat consumption habits of Americans change during the pandemic according to the script?

During the pandemic, Americans increased their meat consumption at home due to restaurant closures, leading to a shift in demand from food service to retail.

What measures did Tyson Foods take to protect its workers during the COVID-19 outbreak?

Tyson Foods implemented measures such as temperature checks, face coverings, staggered breaks, expanded room for social distancing, and deep cleaning of facilities to protect its workers.

What was the role of Tyson Foods in the consolidation of the meat industry?

Tyson Foods played a significant role in consolidating the meat industry by acquiring competitors and expanding production into a few large, highly sophisticated slaughterhouses.

How did the vertical integration model contribute to Tyson Foods' success?

Vertical integration allowed Tyson Foods to control the entire production process from farming to retail, leading to cost efficiencies and greater market control.

What was the impact of the meat processing plant closures on the broader supply chain?

The closures led to a ripple effect, causing farmers to euthanize excess animals and a significant reduction in pork and beef processing, which was estimated to be down between 20 and 30%.

How did Tyson Foods respond to the challenges posed by the COVID-19 pandemic?

Tyson Foods responded by prioritizing domestic market supply, implementing new safety measures, and temporarily closing and cleaning facilities to control the spread of the virus among workers.

What is the significance of the Chinese market for Tyson Foods' future growth?

The Chinese market is significant for Tyson Foods' future growth due to the country's large consumption of pork and recent increases in U.S. poultry imports.

How has the interest in plant-based foods affected Tyson Foods' product offerings?

Tyson Foods has expanded into plant-based products, launching chicken-less nuggets and a blended burger, to cater to the growing consumer interest in plant-based foods.

What was the role of John Tyson Sr. in the development of Tyson Foods?

John Tyson Sr. was instrumental in the early stages of Tyson Foods, starting with transporting chickens and later selling baby chicks and feed, which laid the foundation for the company's growth.

What challenges does the script suggest Tyson Foods might face in the future?

The script suggests that Tyson Foods might face ongoing challenges related to the COVID-19 pandemic, including potential second waves, supply chain disruptions, and the need to address structural issues within the company.

Outlines

00:00

🌿 Rise of Plant-Based Meat and Tyson Foods' Challenges

The paragraph discusses the growing popularity of plant-based meat alternatives in the United States, despite Americans still consuming large amounts of traditional meat. It highlights Tyson Foods, one of the world's largest food companies, which has faced significant challenges during the COVID-19 pandemic. The company, responsible for a significant portion of U.S. meat production, saw its operations disrupted by social distancing rules and worker infections, leading to meat shortages. The paragraph also touches on Tyson's history, its vertical integration, and its consolidation strategy that has made it a dominant player in the industry.

05:02

📈 Tyson Foods' Expansion and Market Dominance

This paragraph details Tyson Foods' aggressive expansion strategy, which involved acquiring competitors and consolidating the industry. It discusses the company's significant growth, including its acquisition of Holly Farms and IBP, making it one of the world's largest meat producers. The paragraph also covers Tyson's financial success, its market value, and its revenue distribution across different sectors. It highlights the company's dominance in the U.S. poultry industry and its position in the global market, as well as the industry's consolidation leading to a few key players controlling a large portion of the market.

10:06

🐷 Impact of COVID-19 on Tyson Foods and the Meat Industry

The paragraph delves into the dual crises faced by Tyson Foods due to the COVID-19 pandemic. The first crisis was a shift in consumer demand from food service to retail, and the second was the outbreak of the virus among workers in meat processing plants, leading to plant closures and supply chain disruptions. It discusses the impact on workers, the measures taken by Tyson to protect its employees, and the broader implications for the food supply network. The paragraph also addresses the criticism Tyson faced for exporting meat to China during domestic shortages and the potential long-term effects of the pandemic on the company and the industry.

15:10

🌐 Tyson Foods' Global Expansion and Future Prospects

This paragraph focuses on Tyson Foods' global expansion efforts, particularly in China, where the company has seen significant growth in exports due to the country's battles with African swine fever and a ban on U.S. poultry imports. It discusses Tyson's strategy to capitalize on the Chinese market's demand for protein and the company's efforts to expand its presence in plant-based foods. The paragraph also considers the potential long-term effects of the COVID-19 pandemic on Tyson's operations and the U.S. meat industry, including the possibility of continued supply chain disruptions and the need for companies to address structural issues within the industry.

Keywords

💡Impossible Foods

Impossible Foods is a company that creates plant-based alternatives to meat. In the context of the video, it represents the growing trend of consumers seeking meat substitutes. The video mentions that Impossible Foods beefed up its roster of meat alternatives, indicating the company's efforts to expand its product offerings to meet the demand for plant-based diets.

💡Plant-based alternatives

Plant-based alternatives refer to food products that mimic the taste and texture of meat but are made entirely from plant sources. The video discusses the popularity of these alternatives, suggesting a shift in consumer preferences. Despite the trend, the video also points out that meat consumption in America remains high, indicating a complex relationship between dietary trends and traditional food habits.

💡Tyson Foods

Tyson Foods is one of the world's largest food companies, known for producing a significant portion of the beef, pork, and chicken in the U.S. The video highlights Tyson Foods as a key player in the meat industry, facing challenges due to the COVID-19 pandemic. It also mentions the company's history and its role in consolidating the meat industry, which is central to understanding the video's exploration of the meat supply chain.

💡Social distancing

Social distancing is a public health practice aimed at preventing the spread of infectious diseases by maintaining a safe physical distance between people. The video references social distancing rules enforced by governments, which led to the closure of restaurants and disruptions in the meat industry. Tyson Foods had to implement measures like staggered breaks and expanded room to maintain social distancing among its workers.

💡Vertically-integrated meat production

Vertically-integrated meat production refers to a business model where a single company controls multiple stages of the production process, from raising animals to processing and selling the meat. The video credits John Tyson Sr. with being at the forefront of this revolution, which has led to the concentration of the meat industry in the hands of a few large companies like Tyson Foods.

💡Consolidation

Consolidation in the context of the video refers to the process where larger companies acquire smaller ones, leading to fewer players controlling a larger share of the market. The video discusses how Tyson Foods and other meat companies have grown through consolidation, which has implications for market competition and the overall structure of the industry.

💡Meat shortages

Meat shortages, as mentioned in the video, occurred when COVID-19 led to the closure of meat processing plants due to worker infections. This resulted in a disruption of the meat supply chain and shortages at grocery stores. The video uses this situation to highlight the fragility of the meat system and the reliance on a few large processing facilities.

💡Pandemic

The pandemic, specifically COVID-19, is a central theme in the video as it has had a profound impact on the meat industry. The video discusses how the pandemic exposed weaknesses in the meat system, leading to worker infections, plant closures, and meat shortages. It also led to a shift in consumer behavior, with more people eating at home and seeking alternatives to traditional meat products.

💡Price fixing

Price fixing is an illegal practice where companies collude to manipulate the price of a product or service. The video touches on allegations of price fixing in the chicken industry, with executives from Pilgrim's Pride and other companies being indicted. This is relevant as it shows the scrutiny the industry faces and the potential for anti-competitive behavior among large meat producers.

💡Plant-based foods

Plant-based foods are a category of products that are gaining popularity due to health and environmental concerns. The video notes the rise in interest in plant-based foods, even among consumers who are not vegetarian or vegan. Tyson Foods' entry into this market with products like chicken-less nuggets and blended burgers illustrates the company's response to changing consumer preferences.

💡Supply chain

The supply chain refers to the network of organizations, people, activities, information, and resources involved in moving a product from the producer to the end consumer. The video discusses the disruption of the meat supply chain due to the pandemic, highlighting the interconnectedness of the industry and the impact of plant closures on farmers and retailers.

Highlights

Impossible Foods expands its range of meat alternatives, with a popular burger option.

Despite the rise in plant-based diets, Americans still consume significantly more meat than in 1970.

Plant-based meat retail sales were $760 million in 2019, a small fraction of total meat and poultry sales.

Tyson Foods, one of the world's largest food companies, produces about 20% of U.S. beef, pork, and chicken.

Tyson Foods faced challenges in 2020 due to COVID-19, with plant closures and meat shortages.

The company implemented safety measures such as temperature checks and social distancing to protect workers.

Analysts argue that industry consolidation may have contributed to Tyson's problems during the pandemic.

Tyson Foods' history includes significant growth and innovation in vertically-integrated meat production.

The company has undergone substantial acquisitions, including Holly Farms and IBP, to become a global leader.

Tyson Foods' market value nearly doubled from 2014 to 2020, reaching $21 billion.

The U.S. meat and poultry industry is a $232 billion market, with a few key players controlling a large share.

Tyson Foods faces scrutiny over alleged price-fixing in the chicken market.

The COVID-19 pandemic led to a shift in consumer demand from food service to retail, impacting Tyson Foods.

Tyson Foods' response to the pandemic included plant closures, safety measures, and a focus on domestic supply.

The company's CEO, Noel White, highlights potential for growth in global protein demand, especially in China.

Tyson Foods ventures into plant-based products, launching chicken-less nuggets and a blended burger.

Analysts warn of ongoing structural issues within Tyson Foods that could pose future challenges.

Transcripts

"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."