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Wed February 19, 2014
Is Tyson Foods' Chicken Empire A 'Meat Racket'?
Originally published on Mon February 24, 2014 2:38 pm
Christopher Leonard's new exposé on the chicken industry, The Meat Racket, doesn't devote much ink to the physical object on our plate, the chicken meat itself.
Instead, Leonard focuses on the economic machinery that delivers the meat to us, or, as he puts it, "the hidden power structure that has quietly reshaped U.S. rural economies while gaining unprecedented control over the nation's meat supply." His book aims a spotlight at Tyson Foods, which helped create the modern chicken industry. And it recounts the stories of people, mostly farmers, whom Leonard contends Tyson has chewed up and cast aside since its incorporation in 1947.
Leonard, now a fellow at the New America Foundation, once worked for the Arkansas Democrat-Gazette, covering business news in Tyson's home territory. And there's a note of admiration in Leonard's description of Don Tyson, the man who drove the company's rise to global superpower of meat after taking over the company when his father, John, died in 1967.
"I think he was a genius," Leonard tells NPR's Renée Montagne on Morning Edition. "Don Tyson had the ability to see the world as it did not yet exist. He saw that chicken would soon replace beef or pork as the most popular meat in the United States." (For more, listen to the entire interview.)
Leonard has no admiration at all, though, for the system of chicken production that Tyson built, which "keeps farmers in a state of indebted servitude, living like modern-day sharecroppers on the ragged edge of bankruptcy."
Leonard's criticisms are not new. Activist groups devoted to farmers' rights, such as Rural Advancement Foundation International and the Institute for Agricultural and Trade Policy, have been fighting against concentration in the poultry and meat-packing industries for many years. In the early days of the Obama administration, the Department of Agriculture and the Justice Department held public hearings on alleged abuses by companies that dominate the meat business. Just a few weeks ago, the Pew Charitable Trusts released its own critique of the broiler industry.
Leonard's book, however, is probably the most detailed account of the inner workings of Tyson, as well as the relationship between poultry companies and the not-so-independent farmers who actually raise the birds. That relationship is often called "contract farming." It was invented by the poultry industry, but is now gaining ground in the pork and beef industries, too.
In this system, the farmer owns the chicken houses, but the poultry companies are very much in control. They deliver the chicks on their own schedule — in fact, they aren't required to deliver any flocks at all. They supply the feed, and the feed additives.
Leonard depicts that relationship as something like a con game run by the companies for their own benefit. "Almost invariably, from everything I've seen, the farmer loses," he told Morning Edition. "The farmer takes the brunt of the volatility; the farmer swallows the worst of the losses when there is a problem with their chickens."
Leonard tells the stories of farmers who've fallen into bankruptcy, and implies that this outcome is almost inevitable. The National Chicken Council, an industry lobbying group, responded with two pages of quotes from poultry producers who stoutly defend the contract growing systems. It also pointed out that when grain prices spiked a few years ago, chicken companies ate huge losses, while contract farmers, who didn't have to pay directly for the feed, were protected.
Tyson, in a separate statement, said "we depend on [contract farmers] and want them to succeed. Some of them have been raising livestock and poultry for us for decades, and in some cases, for multiple generations."
The Meat Racket's description of the problems with contract farming is more convincing than its ideas for how to build a better, more equitable alternative. Leonard, for instance, endorses the modest reforms put in place in Iowa, which guarantee farmers certain rights, such as the right to share contract information. But those reforms don't touch the basic shape of the system.
His more ambitious hope is for a revival of free markets in meat production instead of vertically integrated supply chains run by big companies. Yet it's unclear whether this would really improve things. Competition among farmers is a brutal reality of commodity production; as farmers push to become more efficient, it drives down prices and pushes the weakest out of the business. In poultry, the companies run that competition; in many other commodities, free markets do the job.
Few American consumers seem to care very much about that. After all, if competition keeps prices low, why should they complain?
Leonard thinks the situation has changed, and that poultry superpowers now are using their power to raise chicken prices, squeezing consumers as well as farmers. Yet the industry's ability to protect its profits still seems limited. Five years ago, one of the biggest poultry companies in the country, Pilgrim's Pride, actually went bankrupt when feed prices soared.
Pilgrim's Pride was snapped up by JBS, a Brazil-based multinational. It's now the biggest producer of meat in the world, ahead of Tyson. Increasing concentration in the meat industry, once fueled by Don Tyson's ambition, continues even without him.
RENEE MONTAGNE, HOST:
A trip to the grocery store offers what appears to be an abundance of chicken choices - from patties to pot pie, tenders to Cornish hens. The selection can almost be overwhelming. But you can count on just one hand the number of food companies producing those choices.
In his new book, "The Meat Racket," author Christopher Leonard investigates the handful of companies that have taken control of the meat supply, focusing especially on Tyson Foods. Behind that household name was a man Leonard calls a genius, Don Tyson.
CHRISTOPHER LEONARD: Don Tyson had the ability to see the world as it did not yet exist. And the most important thing he saw, back in the 1960s, was that chicken would soon replace beef or pork as the most popular meat in the United States.
MONTAGNE: The idea was not common wisdom at the time. Up until the 1940s, chicken was reserved for special occasions.
LEONARD: It was a specialty meat. It's what you would cook for a nice Sunday dinner. Back then, you would typically cook a whole bird. It was a luxury item. I mean, when people talked about having a chicken in every pot, that was sort of a marker for affluence. But that really changed in the '40s and '50s, when these farmers in the South figured out how to raise chicken more efficiently.
MONTAGNE: Well, you refer to raising chickens, especially in the early days, as a casino.
LEONARD: Yeah, absolutely. The market was very volatile. When supply outstripped demand even by a little bit, the price of chicken would just drop through the floor. And it was hard to gauge production exactly right.
MONTAGNE: Well, this has to do with the fact that with a cow, you're talking anywhere from many months to a couple of years. I mean, you can raise a chicken and get it ready to be slaughtered in six weeks.
LEONARD: That's right. You can almost respond to the market in real time with a chicken. And in the early days, that's exactly what the industry looked like - this boom-and-bust-type cycle of people seeing good prices, ramping up production, creating an oversupply; and then prices would fall again.
MONTAGNE: So this is what the Tysons - John Tyson and son Don Tyson - figured out, that other companies copied - or tried to copy, but that they helped start; this idea that you had to count for this volatile market in the chickens themselves by doing what?
LEONARD: Well, this company, Tyson Foods, started in John Tyson's living room in the 1930s in rural Springdale, Ark. This was a hard place. Don Tyson did not grow up rich. And one thing he focused on relentlessly was keeping down costs - because what he learned was that the market would get good, and everybody would jump in and companies would get fat, and everybody made a lot of money but inevitably, the market would crash again. And the companies that survived were the low-cost producers.
MONTAGNE: OK. Nice thought. I suppose everybody, in a way, thought that. What Don Tyson figured out to do was to buy up every stage of production, even including the eggs that created the chicks. They had the feed. They had the slaughterhouses. They had the delivery systems. But the one thing they chose not to own were the farms. Why, exactly? Give us a little economics lesson here.
LEONARD: First of all, you have to have a lot of land to have an industrial chicken complex. I mean, farm is kind of a bad word for these meat factories - is really what they are. They're these giant, automated warehouses that can hold maybe 25,000 or more chickens at a time. And Tyson Foods realized that it was kind of a rotten investment to build chicken farms.
So Tyson developed a system over time, that's really called contract farming. And here's how it works: A person in a small town will borrow hundreds of thousands, or even millions, of dollars from the local bank. They'll build a giant industrial footprint of chicken houses; and then they sign a contract with Tyson Foods, which will deliver the chickens to their farm, deliver the feed to their farm. And the farmer grows the birds to Tyson's exacting specifications.
MONTAGNE: Well, you describe the system - which, by the way, is not exclusive to Tyson - as something close to modern-day sharecroppers.
LEONARD: That's exactly what it is - a high-tech form of sharecropping. And the farmers in this kind of contract system have almost zero autonomy over their operations. They can't control the quality of the chicks that arrive. They can't control the quality of the feed. When things go wrong, they depend on Tyson Foods to tell them what goes wrong. But you point to a critical outcome of this, which is that the farmers do not keep the majority of the income from their farm.
MONTAGNE: But how many other companies in the meat industry follow this example?
LEONARD: Just three firms produce almost half the chicken in the United States. Back in the '70s, you know, nearly 40 companies controlled that much of the market. So what that means is, these companies act as regional monopolies. You can go to any chicken town, and you'll find that a farmer will have a choice between one, maybe two, chicken companies to sign a contract with, if they're lucky. So that's one of the key reasons why the terms of these contracts have become less and less advantageous to farmers over time.
MONTAGNE: I mean, isn't the beauty of this system, though, that the chicken's cheaper, and that's a good thing for consumers?
LEONARD: No, it's not. (Laughter)
LEONARD: Chicken is not cheaper today. Meat prices have been rising very fast since 2008.
MONTAGNE: But chicken, not as much as other kinds of meat, right? And also, wouldn't it have gotten more expensive if this industry wasn't so centralized?
LEONARD: Chicken is relatively cheap today. It's cheaper than it was many, many decades ago, even though it's at nominal record-high prices right now. But you're right, the American food system is a technological marvel. I mean, it does an incredible job at giving us meat that is more or less safe, at a predictable price, that's relatively cheap to our incomes.
But I can say, chicken would be cheaper today if this industry was not so consolidated. You've got these giant companies whose reach spans out across 22 percent of the entire market. So a single company can cut its production and keep prices higher than they would be. A highly consolidated and monopolistic industry is not good for consumers.
MONTAGNE: I wonder how difficult it is for any person to opt out of the system; to steer clear of buying and eating meat produced by these enormous meat companies.
LEONARD: I have concluded that the only way to truly opt out of the system is to become vegetarian. If you're eating meat today, unless you know the farmer and that's the only meat you eat, you're participating in this industrial system. All of the unlabeled meat that is served in our restaurants, cafeterias, hospitals, at the grocery store - it all comes from industrial companies. And so I think we need to take a hard look at this system that delivers most of our meat to giant cities seven days a week, 52 weeks a year.
MONTAGNE: Thank you very much for joining us.
LEONARD: Thanks so much for having me.
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MONTAGNE: Christopher Leonard is the author of the new book "The Meat Racket." We reached out to Tyson Foods before our interview, and you can find their written statement at NPR.org.
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MONTAGNE: This is NPR News. Transcript provided by NPR, Copyright NPR.