How Tyson Broke The Meat Supply Chain - YouTube

"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."