final owens
9233ASD
tyson_color.pdf
CASE 14 • TYSON FOODS: INC., 2015 481
Tyson Foods, Inc., 2015
www.tyson.com, TSN
Headquartered in Sprindale. Arkaitsas, Tsim Fixids has ahout I 15.0(M) etiipIoees and is the ;; orids second—largest nieat—producing company, trailing only Bra,i I—based JBS S.A.. the par— cut to l’ilgrinfs Pride. i\ son has international operations in Mexico. Hraiil. China, and India.
A]ilioLiL’li conitnonl and inaccurately thotielit of in its home market of the United States as a chicken—only cumnipan;. T; son actually deri’es higher sales from beef than chtcken. although operating income from pouitn operalions is significantly higher. flSi)n also produces significant pork and prepared Foods. ncludmg deli tiieats. piiu toppings. [ti/ia dust. and tortilla chips.
amusing others. son is one of the largest V.5, tnatkerers of ;alue—added clucken. beef, and pork to retail
grocers. food—service distributors .and fast—Fond and full—service restaurant chains. Tyson supplies
all KR’. Taco l3ell. McDonald’s. Burger Nine. Wendy’s. Walmart. Kroger. IGA. Beef 0’ Brady’s. and oilier restaurants with their meat. T; son has 123 food—processing plwits. making Buffalo wings. boneless Buffalo wings. chicken nuggets and tenders, and more. The company’s largest meat— packing facility is its beef plant tn Dakota Cit;c Nebraska. Other facilities include feed mills. Iiatcliet’ies. and tanneries.
T son has aggressi; clv expanded its operations in China 1w building more than 40 chicken farms out ofa planned 90 to ensnre betier tjua]itv and saferchicken products for Chinese custom ers, ‘I; son recently acquired Don Juilo l—oods. a tortilla and snack firm: Circle Foods ‘t producer of frozen Mexican ftwd: and Bosco’s l’ina, Txson continues to expand into prepared foods.
The company is full; integrated in its Ixltiltty business, especially in o; erseas markets. In the United States. ho;; e; er, Tyson relies on contract gro;; ers to a large extent, since they are regulated and standards are more consistent (miii gro;; er to gro;; Cr. T; son is engaged in feed production. and through its” holly in; ned subsidiary Cobh—Vantres (Cobb) is one of’the leading poultry breeding stock suppliers in the world.
About 20 percent of all beef. chicken. and pork in the United States is pro’ ided by Tyson, With relationships ;; ith 5.5(M) chicken farms. Tyson each ;; eek handles 11 million chickens. 135 thousand cattle, and 310 thousand pigs. Tyson has 57. 13. 0. and 25 production plants for chicken, beef. pork. and prepared foosk respecti; clv.
For the quarter thai ended June 30. 2015. kson reported its fiscal Q3 re; enue tip 4 percent car—rn er—; ear to SI 0. I billion, and adjusted operating income tip 40 percent year—over—year to
a record high of 55GM million. For thai period. 1’; son’s total adjusted operating margin was 5.6 perceni. led by their Chicken segment operaiin margin of I I .4 percent and Prepared Foods seg— titeni at a record adjtisted operatin margin of’ 10,9 percent. Dttring the quarter. ison tad s; ncr— gies of S87 million that resulted frotn the integration of 1-lillsitire l3rands.
Copuriç’In by lint l)aiid Books Ll_(’. iI-u,-Ii:.s(nfle’tn hi/’.i-nn (ll’?’iucii b Hni;r N. Dui’iil)
Back in 1929. John 1’; 5on mined his faittil; froni Missouri to Arkansac and began transportine cheap southern chickens to cities -.ticli us Chicago. Detroit. and St. 1_otmis. ;; here Rson cottld cotnniand a high price. His business \;as so ‘ticcesst’ul that lie quickl; began to backward iiite - grate b; purchasin and operatin his in; ii chicken (arms. By the I60s_ 1; con had di;e,ted its chicken artns to focus on titeat prck’csstlg_ establislntig an elaboraie \sietn oI’btt; itig tom ctiii— traLt fatuers and paving each farmer based on tinielv and qttahtv chicken prodtiL’tioti. Recentl;. honeer. ‘Rson ia-. hack;;artl ititegrated agaiti h; pttt’cliain its 0;; n (anus to gain better control of sanitation and tittalit; of chicken’. c’petialh; in China.
In 204)1 - I\ son Foods acqtiired 113R Inc.. the largest beef paLker and sccotftl—largest pork pr0i’essnr in the United States. (or 532 billion. It also acquired in tIlL’ lat tlt’catle cuitupanies sticli as hjtishsott kx,ds. Garrett lNitilti;. Waslutigtott Creamery. Fratii roods. Prospect i-arms.
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History
482 STRATEGIC MANAGEMENT CASES
Krisp Kitchens. Ocoina I oods. Cassadv Hroiler. \‘anlress Pedigree. Wilson Food, . Ibineyheir
foods. L’slcxican Original. ValliiaL’ Intltisiries. Heritage Valley. line Processmg_ (‘tihb_\:uitress
I-buy Farms. Wright Brand hssk. anti Don Julio Fcxxls. In June 2i)11. F on acquired lfillliire
Brands for $7.7 billion. I iillslnre produces iimm Dean sttusage and flail Park lint dogs anti
mire. In July 2014. Tyson sold its Mexican and llra,ilian poultry businesses Lo iRS S..•\,
$575 inillioti to help pa lbr Hillshire.
Vision/Mission
kson i—oods has qtiile an elaborate written mission staleiiient on the corporate website. Nw
nhission statement is dis ided into three parts: Who We Are. Vhat We Do. anti I l ow Ve Do It.
Basically, the R son ilibsitill sta{enient sa s ‘‘X\e are a compan of people engaged in the pro
duction of food, seeking to pursue truth and integnty. and comiiiitted to creating value for ou
shareholders, our custoiiiers. our team members, and our communities.’’
Organizational Structure
Exhibit I reveals that Tson [nods tises a divisional—In—product orgLtnilational structure. Note
there is onI one ii oak among 14 iop e secuth es.
Tyson’s Chicken Strategy
China Historically. Tyson has purchased chicken from independent farmers iii close proxim
ity to
T\ soii’s chicken processors. This remains the floWs main strategy in the Lnited Si ate. I-Ioweier,
due to recent food safety concerns in China. Tyson is spendin millions to backw ard integrate
in China by building its own chicken farms. In early 2014. Tyson operated around 20 ‘arms in
China and expects to operate 90 by late 2015. Tyson’s CEO. Donnie Smith. w as quoted as say
ing. ‘‘XVe just can’t build the chicken houses (in China fast ennitigli. and were goi ng absoltitely
as fast as s e know how to go.” This is likel an important strategy [‘or Tyson. considering t hat
traditional many chicken farms in China are nothing more than mom—and—pop home steads
prodticmg a few hundred birds at a time in open—air farms that are subject to bird d roppings from
ahos c. Research shows bird dnsppi ws could lead to increased cases of the bird I ti. For example.
in the United States, a single cm ered. cii nate-controlled farm may supply Tyson with I 00,000
birds at a time. In markets such as China, where there are many small suppliers, it makes inoni—
toring the sheer olume of farms br sanitation and excessi e use of ftmd additises to promote
chicken growth difficult anti expensi e. In contrast, one Tyson farm in China tpicallv can house
os er 330.000 chickens in 16 climate—controlled htuldings each the sue of two Olym pic sw un—
ming pools. Trucks are spra ed three times before entering the facility. Numerous sanitation
procedures are followed by workers on the floor.
With the recent safety concerns on meat products in China. Chinese consumers have reduced
their meat consuiliption considerably. Thus, building trust with the Chinese con sumer in the
lyson brand could go a long way to creating a sustainable competitive ads antage by provid
ing dependable and safe chicken l’or Chinese consumers. Cliitiese consoniers f or the first Lilac
exceeded U.S. consumer as the largest chicken consumers in the world in 2012. The United
States retiiains the largest chicken consumption nation per capita by os er 3—I rati o. Es en tim’s
such as Walmart in China have taken notice of Tyson’s commitment to delis ering safe chicken
products. thus reducing X%ilmart’s own risk. htlawgh Ts son does not report sales by gel graphic
region. anah sts estimated Tyson’s res enue in China ss as 57 15 million in liscal ear 2013 and
projections of res enues topping $ I, I billion by tiscal ear It) IS. Howes er. T son has not pro
duced a prolit in recent years sLemniing from the large expeilsis e backw ard integration strategy
Managenient expects by 21)15 to enjo prohts in,n the new strategy in China.
United States To help maintain its supply of chicken. Tyson pa-s chicken farmers in the Unite
d States on an
incentive—based s stem with farmers ss ho produce the largest quantit of healthy birds earning
more. lh keep chicken from dii fereut ltrnis as constant as possible. 1\ son pros ides Iaroiers
with both tine chickens and chicken Iced. fliis also protect ttrnner, from solatilc p rices nt corn
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Birds Per Week Current Birds Per We ek
Country Au9ust 2013 P rojected in 2014 Percent Increase
Mexico 2.7 Nt 2.7 NI U’?
I3cuciil SN! 2 XI 53?
liulia 275 K 45(1 K 61’?
(lucia .5 NI 3 Xl
lie: Based ‘ii iiilorinaticin it 1’sons’,’ehsitc.
and other grains by translerritig the sol atile nature of feed prices tO !\ son. In addit
ion. l\son
prosides inentonng for all farms. especially larti ts that are struggling. The typical coiltract in the
United States lasts 3 to 7 ears. but it can he a’ long as 15 sears for excellent larms.
Outside the United States, one ut l’s sons priiila r strategies is to increase chicken lirciduc.
Lion since otter corn prices, increasing i ncomes, and a demand for safe foods in man)
orejg
markets are drising up demand (hr ‘l’s son pr oducts. Chicken also remains one of the highe
r mar—
gin—generatin proieins available. Note in Exhibit 2 that lyson s chicken sales in Mex
ico are ex
pected to remain static in the near future b ut l\ scm projects large gains in both Chin
a and lSra,il.
India is projected to have the largest perce nt increase. hut the olume of chicke ii in Ind
ia ret nains
st eli below other regions. Despite has ing p rinciple operations in the U.S .. Mexico. Bra,i
l, China.
and India. l’s son does htisiness ss c,rldw ide.
Prepared Foods Strategy
Tson is one of the largest raw meal prod ucers in the world. hut raw meats have lower m
ar
gins than prepared meat that flrm.s such as H ormel Foods (and Hillshire Brands prod
uce. Many
analysts iew the raw meat industry, especial ly in the United States, to has e limited gr
owth. lb
counter this trend. T son is expanding its r aw meat business outside the United St:ttes. hu
t also
increasing its presence in the prepared food industry both in the U.S. and globally. This
is ‘shy,
in 2013. Tyson acquired Don Juilo Foods, a tortilla and snack manufztcturer: Circle Foods
, a pro—
ducerot’ Mexican foods; and Bosco Pizia. Tsso ns acquisition of l-Iillsliire Brands lw $7.7
billion
was printarilv to gain quick market share in the prepared meal indListry. T son sold Heino
ld Hog
Markets partly to pave way 11w the acquisi tion. hut Heinold accounted for only around
I percent
of total Rson revenues.
Segments
lvson reports iii four distinct business seg ments, as ret ealed in Exhibit 3. Chicken and
beef
dominate Tyson’s sales but it is important to not e the signilicantly loss er margins on
beef—related
sales. Higher costs associated ss ith pork and heel from drought. increased feed, and dis
ease that
have been ii nahle to he passed along to the con sumer are partly to blame.
EXHIBIT 3 Tyson’s Food Sales and Inco me by Product (in millions of USD)
Sales Operating Inco me
2014 2013 2014 2013
.4
Chicken S 11.116 S 10,981; 5883
Beef 16,177 14.400 347
Pork 6.31W 5.408 155 332
Prepared Foods 3,927 3,322 61)i 101
International 1.381 1.321 121)
37i
Otlicr 46 74: —
lmerscgmcnc Sales 1.325 ( 1.111)
1’”RATEGIC MANAGEMENT CASES
EXHIBIT 2 International Growth in Chicke n Production by Year-End 2014
it’
Source; Baed tin Is sons 21)14 .l,u,,uel Rcpoi s p. 27 .
CASE 14 • TYSON FOODS, INC., 2015 485
EXHIBIT 4 Tyson’s Sales by Geographic Region
• C .OTit’.IUCI Irotlutis
WI oud Scr c
• Iiitcriintw,ial
• Othcr
Tyson does not pros ide a detailed breakdou n based on international s.des and revenues. hut
Exhibit 4 indicaies about 17 percent of all sales are derived from foreign markets, With Tysoils
commitment to build 90 full—scale chicken Ilirms iii China and their further commitments to other
regions. it is cx peeled international sales percentage ill increase in the future. Tx sun has et to
turn a proht on its Chinese backward integration strategy. and CEO Donnie Smith indicated it
may take tint ii earl’ 2015 before a profit is reached from these operations.
Finance
I or the quarter that ended June 30. 2015. Tyson reported its fiscal Q3 segment revenue as
fol]ou s:
Chicken: Sales decreased 2.5 percent sear-over-war to 52.75 billion due to a 5.3 percent
decline in a erage sales price (AS!’,. Sales volume increased 2.9 percent.
Beef: Sales climbed 2.7 percent ear-over—year to $4.3 billion. Average sales price x cut up
6.9 percent due to lower domestic aailabilitv of fed cattle supplies.
The segment sri Ocred an operatin loss partly due to reduced consumption of beef.
Pint: Sales pluni!ed 31.7 percent ear-rn cr—\ ear to $1.20 billion due to a 4.6 percent
decline in olume and 28.2 percent decrease in ASP.
Prepared Foods: Sales increased to S 1.61 billion from 5901 million a ear ago. priniarilv
due to a 77.4 percent increase in oltimes as s\ eli asan ASP increase ol 13.2 percent.
international: Sales declined 33.2 percent to 5244 million cltie to a 25.3 percent drop
in ‘ oltitne and a 10.5 percent ASP decline due to supply imbalances as a result of w talc
demand in China.
T son’s income statement and balance sheet are provided in Exhibits 5 and 6. respectivelc
Unlike their liscal Q3 data just summari,ed, T son’s sales and net income increased nicely in
2011.
Competitors
E\llibit 7 re\eals a comparatie analsis of ix son Foods \er.,tis dxal firms. The rixal frins in
lixhibit 7 ccmnpetc tnostl on chicken xx itli lxscimi: liossexer. l’s son also produces nbstatttial beef
and pork products indicated b Exhibits 9 and 10.
Pilgrim’s Pride Uhe Bri,iIian food giant. JUS. onus 75 perct’nt of Pilgrim’s Pride. IRS is the second—largest pro—
ditcer of chicken prodticts in the xxorld. trailing onI Tx son l-oods. The fun’s largest U 5.—based
ttsiness is l’ilgtinf’ Pride. xxluch ha operations in the states. Mexico. and Puerto Rico. xx tb its
global headquarters iii Greele. Colorado. Pilgrims Pride sells its products to iner 1(61 coun
tries etnpltn s 36.0(N) people. and proces’es 36 million chickens per xx eek compared to Tx son’s
Source: 13 ased on c o npanv d ocu tue nt s.
486 STRATEGIC MANAGEMENT CASES
Coit ii) sale,
(iross pro 15t
Selling, general & adiniiiistrati’e expenses
)peraIin iliconie (loss
In lere it .1 nd tlie r
Income I 10551 ironi cmlnti(itliiii! operations lsciire illetlille I.LXes
lncomi,e (as expense benelit
IiIc(IiiIe k,ss ) lismiii ccmntmnui ig operations
Income (loss) from discontinued operations, net
Net iiiconie I loss)
nc: Based On CI in) pamis d IC’’ in en Is.
-
537.550JH%) 534.3’ tim4
34.895.0(81 32.01 ((fl)
2.358,4 I)
98(HH)
l.375,
I 18.488)
I .257jlg
40’’ 88)
8 Sf, .( (4 (I I
8,00(1
(‘as Ii & cash equ i S ale its
Accounts reeds able
I nven LI In Cs
Other Current assctS
linal current assets
Net propei-i>. plant & equipment
Goods ill
Intangible as se Is
Other assets
‘fotal assets
Current debt
Accotimits pa’ able
Oilier elaTe lit hahi Ii ties
Iota) c u rre it Ii tb iii ties
Long-term debt
Dc cried income taxes
Other liabilities
total liabilities
Comm on stock
Paid in capial
Re tai ned earn jigs
Treasur stock
‘liitiil shareltolclers’ equity
$438,000
1.681.000
3.274.000
825.488)
6.221
5.1 3t).(Wli)
0,706,004)
5.276.000
623,000
23,956,000
613.04)4)
I .806.0(8)
1,348,04)1)
3797,000
7.535,000
2,450.000
I .284.0(11)
IS .066.0044)
42.048)
1.257.004)
5,748.000
(1.0 10.000)
(147.000)
8.890,0(8)
23,956,000
51.145.000
1.497.000
2.817.000
I45A11X)
5.604.041(1
4.053.0(8)
I .902.00(1
138.000
48R(H)
12.177,000
513(8)0
1359.0(8)
I,)3SJ8)0
3,010.000
I .895,000
479,000
592.00))
5.976.04)1)
2.292J%%)
4999000
(1.021.004))
108.000i
(,.2)) 1.00))
12.177,001)
41 million. Pilgrim’s contracts (Jilt mitch of its chicken grossing to mdependent farmers \‘ ith
over 3.900 contract farmers on record. Pilgrini’s is currently in the process of buying T son’s
poultry operaiions in Braiil and Mexico br about S60() million, alter losing (lie bidding battle for
IlilIsh ire Brands ss ith ‘f son.
EXHIBIT 5 Income Statement for Tyson Foods (in thousands of USD)
September 27, 2014
September 28, 2013
2.685.000
l.255,00()
I .434)0)
l 78,48%)
1,252(8)))
396.0(8)
S 48.000
0.000)
77 8.004)
EXHIBIT 6 Balance Sheet for Tyson Foods (in thou5ands of USD)
a
September27, 2014 September28, 2013
Other
total liabilities & eIluit
e: Ba scm I on Lion pam n d ocu mciii
CASE 14 • TYSON FOODS, INC., 2015 487
ExHIBIT 7 Tyson versus Rival Firms
Tyson Pilgrim’s Pride Sanderson Farms
# Lmplo cc, I 2-LIMIt) 35.4(X) I .401)
.5 Net Income 5656 M 5549 M 521’) NI
S Rc’enue $376 B $61 B $2.8 B
S Reenne!Emploee SlI)3.225 523726S .3235.614
S I:PS Ratio $2.4 I 5265 $10.61)
N tarkel Cap. $15 B S6i B SI .9 B
Se e: Based on coin pany cli ic nm cots
Smithfield Foods, Inc. Headquartered in Snatl Field. Virginia . .Siuitl field is the largest pork producer and processor in
the United States. Located in Tar Hi II, North Carolina. it is the largest slaughterhouse and meat—
processing plant in the world—a Smithfield facility. Purchased h’’ Chinese Vl1 Group in 2013
for S7.I billion. Smithfield is listed on the Hong Kong Stock Exchange. Packaged meats are the
Iarge’t revenue—enerating segment of Smitlilield. increasing to about SI .75 billion in mid—year
2014. up 1mm .31 .45 billion the previous year. Fresh pork sales also increased to SI .6 billion
from SI .3 billion over the same time frame. Total sales \\ crc UI) 11 percent with a profit of over
$32 million.
Hormel Foods Corporation Headquartered in Austin. Minnesota. Hormel is a Fortune 500 American food company that
produces Spain I ti ncheon meat and iii any other products under brand names such as Farmer
John. Llod’s, and Nttiscie Milk. As T son ino’es more into prepared foods, it is mno inir itito
Hormnels ierriton. Homiel has 40 manufacturing and distribution facilities. The company has
aboui 20.000 employees and generates about $9 billion annually in revenue. In 2013, 1-lonnel
acquired Skippy. (he best—selling brand of Ixanut butler in China and the second—best—selling
brand in the w orld—homn Unile\ er for $701) million: the sale included Skippy’s LT.S. and China
factories. Hormel produces a brand of w rapped moniIla-t PC snacks dubbed RE V These raps t are essentially miniature hurritos. aailahle in several flavors such as pepperoni pitia, ham and
cheese, peppered turkey, meat lo; cr5’ pizia. Italian—st Ic ham .along “ ith se eral others. In 2014.
Ilormuel bought the CvtoSport Company [or abotit $450 million, including the Muscle Milk pro
tein stipplemnent brand.
External Issues An Oligopoly Exhibits 8, 9. and 10 pertain to U.S hicken, heel, and pork prcxluction. respectively, and indi
cate an oliopoI ‘‘meat indttstn. mdi the top 4 or 5 firms producing mol ol all neat consumed
h Americans. Ho; ever, chicken production, dominated by ‘fl son and Pilgrim’s Pride, is quite
lramented. ithi 46 percent of all chicken produclion in the United States coining from smaller
EXHIBIT 8 USA Chicken Production
Company Market Share
l’son 2!’?
I’mlgriiiis I’m Ic 19’?
Sander—on I aiim’—
I’erdue I aria— 7’}
( )ther 40’?
Ba—ed on init’rimi.oion at Wan l’onttn USA, March 2013,
488 STRATEGIC MANAGEMENT CASES
EXHIBIT 9 USA Beef Production
Company Market Share
IS Soil 26’
JOS 23’
(aruill
Nath’ital I3ceI 13’
Other 15’
So,,,, ,: E1asctl ,,II iniormathin at Cattle I3LI\cr WcckI 2012.
EXHIBIT 10 USA Pork Production
Company Market Share
Sontlilield 26’r
1 vson I?’?
JBS Swift I It?
Cargill 9’?
H ornw I 8’
Other 29’?
.Sounc: Based on information atlvson’s \vLhsiIe 2013.
companies. Note in the exhibits that Tyson Foods is the U.S. leader in both chicken and heel production and trails only Smithfield bought by China Shtmangliui International Holdings Ltd. in 2013) in pork production.
Beef Trends \leatpackers across the United States ;; crc paying the highest prices on record for live cattle iii January 2014. due to droughts in much of America’s Great I’laines (and in Mexico) that leti to
higher corn prices. CatLIe numbers in the United States in 2014 were at 60—year lows and prices were up 21) percent 1mm just 5 sears earlier. \Vhile potentiaIl good news for Ivons beef seg— ment. the higher prices and healthier eating trends ha; e also been met with reduced red neat
consumption. In the United States, consumption rates cif red meat are down 25 percent over the
last three decades. Many customers now prefer chicken, pork. lish, and increasingl a totally
;egetarian diet. Mex co has also experienced a decline in red meat consumption per capita over the last
decade. On average, beef tends: to he a much more expensive meat product to produce and is niet
with much lower margins. One interesting way lirms such as Tyson and its rivals are increasing prolit margins from beer is by slicing areas of beef carcasses traditionally used for grotrnd beef
into thinly sliced steaks. The overall beef industry is also beneliting from increased exports to
Asia and Russia, and is beneliting from the waning paranoia nI the mad cow disease from a
decade earlier. Despite reductions in red meat consumption. Americans still account for the largest beef—
ealing nation a; eracing a whopping 77 pounds per person of beef annually, compared to citi/ens
of Europe at 34 and China at 10 pounds per person. Mexico. Japan, and Canada are the three
Lop beef export destinations for U.S—produced beef. l’he three nations ia; e rotated their rcspec— ti; e absoltite positions o; er the last 10 years. w ith Mexico reclaiming the top spot of the tince)
recentl’,. likel\ do to the drotights in the U.S.
Chicken Trends Chicken is the most comnmonI eaten animal in the United States: it is also popular around the
world us an affordable w a to obtain lean protein (a,suniing one does not eat the skin . As ni
earI 2014, China was the largest chicken consumer in the world. but the United States still leads
considerably in per capita consumption. [‘Cr capita chicken coilsumnption in the United States,
a
F CASE 14 • TYSON FOODS, INC., 2015 489
European Union i ELh. and China are around 99. 41. and 22 pounds per person anntlall3 respec—
ti’ clv. Mexico. Hraeil. Argentina. and Canada all cotlsttme about 70 pounds per person. and many
other nations in Central America and South America also consume more chicken per capita than
Europe or China. Peru. Paragua . and Bolivia significantly lag their South American counterparts
in chicken consumption and oiler possible opportunities for exponin chicken producers.
Despite great popularit chicken is also more likely to he contaminated than other meats
and cross—contaminate other food products .A report in Con citnicr Reports in December 2013
claiiticd that 97 percent of all U.S. chicken hrea’ts contain harniftil bacteria. sparking a snap
reply frotit the National Chicken Counsel that “09.99’I’ ci chicken in the United States is eaten
safely each da . Taken literaIlc that would indicate I in 10.000 people become sick each daN. so
hopefull) tile number is considerably higher than 99.99Q. but one way for consumers to ensure
their chicken is safe is 10 heat to at least 165 F 74 C L avoid contact w ith other foods, and wipe
down all countertops thoroughly. It is probable that most of U.S. consumers getting sick from
chicken were negligent in the preparation process. The principle concerns are ; ith Echerichia cob tE colD and salmonella. In tim C,,nsi,nu’r
• Repon s stuth’. it was reported that half of 316 breasts sampled i U.S. only) contained sigttiticant
bacteria resistant to multiple antibiotics. The U.S. Food and Drug Adtiunistration FDA) is cur—
rentlv pushing for farmers to reduce the amount of antibiotics used in chicken feed to help reduce
producing bacteria that are resistant to antibiotics. Interestingly enough. there is no set standard
in the L’nited States by either the FDA or the United States Department of Agriculture tUSD;) to
ofliciallv bar food containing E. coli. so variation remains qtule high in chicken 1mm one prodttcer
to another. Interestingly. Europe avoids U.S. chicken. reportedly because in America. chicken is
submerged in chlorine briefly to assure cleanliness his procedure is lint done in Europe.
China has also dealt with its fair share of chicken—associated illnesses in recent years. so
many Chinese constimers have reduced their chicken consumption considerably. China has far
fewer standards than those in the United States. Farmcrs in China ma’ sell only a few hundred
chickens at a lime to the processor and their farms arc open air. at risk for bird droppings from
aho; e. and ma be fed diets excessi; e in gnn\ Iii hormones at a rate much higher than other
rttrmers.
Pork Trends China blows e; er’ one else in tile world a\ ay U heti it comes to total pork consumption. btit
I tIlt) C is not far behind in per capita concttmption. Data lrom 2013 re; ealed per capita pork
cousttmption in pounds for China. EU. and Ltnited States was 90. 88. and 62. respectively. Pork
production has risen in the United States.. hut consumption has declined in recent 3 ears due
partl to huge demand in foreign markets. ftc main recipient of U.S. pork is Japan. where abottt
35 percent of all American—exported pork is shipped. Mexico is second. acquiring about 20 percent
of all U.S—exported pork. Pork growth rates remain moderate per capita atar ound 2.5 percent in
Mexico. 3 percent in China. 2.6 percent in Smtth Korea .and 1.3 percent in Japan. Mexico might
he the real future star out of this above list, as Mexico hasa population growth of 1.6 percent.
rcttlting in oser 1 percent total pork consumption. Unlike Mexico. twist deeloped nations
w orldw ide are experiencinu declining or stable populations. The cost of pork continues to rise lhr pork processors. From the low in 2009 to Match
2014. lean hog prices are tip over 11)0 percent. which is not necessanlv good news for flrtns
stich as hson. which, at times, has di1l5cult pas’itlg on the increased cost to the consttmer. lijis
situation is slow I changing. however, as pork dettiatid is rising faster than prices and is son is
I ttore able to pass on increased cost to the consutiter. One strategy to he I p tii&u’gins would be to
hackward integrate into raising pigs. Howe; er. there have been numerous illnesses associated
with pius in recent sears. just as w ith chickens and cattle A ness swine S irtis discos ered in 2013
tlttickly spread to 25 states in less than a sear. killing millions of pig. Europe. in 2014. was experiencing a s irtts dubbed the “African Sw inc Virus that as killing pigs btit w as harmless to
littitiatis. Nc; ertheless. the ; irus ctttsed Rttcsia to block tIl European pig imports. creating qttile a political ruckus bet’’ eett the two global po;; crc.
Aside trout consumption patterns. rising prices, and potential intses. the pig itidn’tr’ is
plagued ) inhutitane treatment of pig.s in the United State’ and prol’abl other geographic Itica—
tiuns as well. T son urges .\merican farmers to ilupowe the qttahit of housing for all pigs. ccpe_
cially pregnant cows, but has not terminated contracts;; ith farmers that tise stalls w here sows are
490 STRATEGIC MANAGEMENT CASES
unable to stand. tornarountL or stretch. Stick stalls are still present and exen common on firms in the United States. Ts son is also concerned about the problem w Wi sick pigs often being killed In blunt force, likely resulnng in increased suffering.
Required Meat ID Labels Since 2013. the L’SD:\ reqtiires all meat producer to accuratcl label from where the nteat “ den’.ed. The labeling should stake it easier to track the source ot contaminated meat, I such as Tyson complain it is an unliecessan step that adds additional expenses. In addition all ertitiiid neat must now conic Iroin the same cottntn’. Historically. it was possible fiw rui heet’cw pork to come not only from different indi idual anintils hut also troin different countries In addition to ineat—prodticing limis such as Tyson. sonic countries ie.g.. Canada and Mcieo1 ha’ e expressed concern that American customers may he prejttdicetl tow ard meat gnn n in their respecti\e countries fw %ariotts reasons such as not heing patriotic and not tntsting the quality of the meats innn other countries. T son een snipped buying cattle lorni Canada in late 21113, citing the additional costs associated with the new LISDA rttlc. U,S.—hascd firms are also icarilil that Canada and Mexico will now start to impose tariffs on American—grown meats.
Geopolitical Concerns to Growing Livestock i\Ieat, poultry, and fish products were once onk ttffordable to the w ealtln hut as incomes hae grown worldwide, so has meat consumption. and the restilting increase in raising li estock to feed this new growing population. Some of the statistics below are startling, considering how many hungn’ people remain in the world. For example. it is estimated that over one third of all grain han ested is used to feed livestock. with around 75 percent of all grain in the United States being used to feed livestock. To grow this amount of Iced grain. according to one published report . arotind half of all water con stimed in the United States goes into keeping crops grown for li estock feed well watered and healthy. It is estimated that for e en I gram of meat protein a cow N ields. the cow consumed 5.6 grams of plant/grain protein As populations demand 1110EV meat products. especially beef products. there has been widespread delorestanon of old growth forest in pans of the Amaion and top—soil erosion and other nionopoli anon of valuable grat ing land that could he used for crops. Organiiaiions such as People for the Ethical Trc;tttuent of Animals 1 PETA) at times have stiggested that all raising of li estock is unethical. So. while nianv people enjoy eating meat, and while meat production creates many jobs. there remain geopolitical headwinds from environmentalists in the overall Ii’ estock indttstrv for coiiipanies
such as Tyson to na\ igate.
Future Many U.S-based companies were hurt on 2014 revenues because of the rising dollar in o erseas
markets. Tyson. which does signilicant business in China and other foreign markets, indicated
that cheaper chicken and pork prices globally offset many of the currency headwinds facing the
frm ttnd allowed for rising profts in US. markets. Operating income for chicken alone was Up
29 percent br lyson in 2011. l,.ower feed costs also helped boost prohits as well as a reduction
in the iruses that killed nan pigs oxer 2012 through nitich ci’ 2014. CEO Donnie Smith ha
recently expressed concerns o er a number of slowdowns at ports along the U.S. \Vest Coast intl
the uncertaint’ it will bring T son. Two other areas that are potentially prone to help Tyson tiiiiV’
ing for ard include constitners becoming more health conseiotts and switching from red meat
to more chicken and even processed clncken items. Chicken prodttcts tend to ha e signtticai1tl
higher margins than beef. as shown itt Exhibit 3. Ty ,on’s successitil launches of Natttre Raised
Fariiis and Jimmy Dean’s fro,en sand iches and how Is also boosted prolits. Nattire R,u,ed
Farms markets chicken as “no antibiotics ever’’ for health—mi tided consumers and the new Juntily
Dean fro,’en food items are designed arotind lunch and dinner. 110½ ing awaN irom Jimmy I )ean’s
traditional breakfast line—tip of product offerings. Considering the heay competition in the meat industn. prepare a 3 ear trategic plan tO
help CEO Smith 1110% Tl I’or aid.
