Table 4 - Firms' Position in U.S. Meat Processing Industry
|U.S. Industry Rank||North Carolina Locations|
|Smithfield Foods Inc.||11,403.6||52,500||Pork: 1st
|Smithfield Packaging Plant
Murphy Farms LLC
|Tyson Foods Inc.||25,559||107,000||Poultry: 1st
|Central Farms Growout
Animal Protein Facility
Poultry Complex Service Ctr
Mexican Original Plant
Lab Services & Engineering
|Hormel Foods||5,745||18,100||Turkey: 1st
|Hormel Food (Corporate)||Charlotte|
|Swift and Company||9,350||20,200||Pork: 3rd
The hog farming industry's leading company is Smithfield Foods, a Fortune 500 firm with annual worldwide revenues of more than $11 billion in 2006. Smithfield raised 14 million hogs domestically in 2006 for a 13 percent U.S. market share, mainly in the southeastern region of North Carolina. This tremendous population of hogs enabled Smithfield to produce about 3.1 billion pounds of fresh pork in 2006. In 2001, Smithfield expanded into the beef industry and is already the nation's 5th leading beef producer. The Smithfield family consists of over 50 brands and 21 major subsidiaries. Smithfield employs 52,500 people globally, including 11,000 in North Carolina.1,2 In November 2006, Smithfield Packaging Company, a subsidiary of Smithfield Foods, opened a plant in Kinston, NC, that employs 300 workers.3
Founded in 1936 in Smithfield, Virginia, Smithfield Foods overcame financial difficulties in the 1970s under the leadership of Joseph W. Luter III. Luter began an expansion of the company during the early 1980s that continues today. Since 1981, Smithfield Foods has made more than 30 acquisitions, increasing its global competitiveness. Smithfield owns subsidiaries in France, Poland, Romania and the United Kingdom, and has joint ventures or major investments in Brazil, Mexico, Spain and China. Like many of the other major players in the industry, they are making a major push into the emerging Japanese pork market.
Beginning in the early 1990s, Smithfield and the rest of the major hog farming companies moved toward vertical integration. Vertical integration involves a company gaining the ability to control as many stages of production of a certain industry as possible. Smithfield took a major step in vertical integration in 1990 when it flew 2,000 specially bred sows to the United States from Britain's National Pig Development Company that were to comprise the Smithfield Lean Generation Pork line, which was certified by the American Heart Association for its low fat, sodium, and cholesterol content. In May of 2007 Smithfield Foods completed an acquisition of Premium Standard Farms for approximately $800 million.
Additionally, through its own hog production and contracts with other hog farmers in North Carolina, Smithfield is able to control all aspects of hog production from "squeal to meal", according to the president of the Smithfield Packing Company, Lewis Little.
Smithfield pursues acquisitions that increase market share. After acquiring Farmland Foods, Smithfield assumed control of 27% of the US pork market. Ownership or control of regional farms allows them to:
- Increase quality through single product concentration
- Avoid the risks of cooperative oligopsonies that other companies have towards farmers
- Assume a more chain dominant structure capitalizing on the high value added areas of the value chain
Smithfield dominance in the meatpacking and processing stage has allowed it to supplant the in-store butcher with delivery of case-ready meats to supermarkets. The process of structuring can be seen in terms of Charles Fine's double helix model: Internal pressures such as technological advances and supplier market power push the company to integrate vertically.4
Smithfield employs a combination of ownership and contractual-based work allowing it to bypass traditional commodity markets. Smithfield's strategy of relying on contracts is similar to how Wal-Mart operates. Smithfield does not own the farms, but provides the animals and feed in exchange for the farmers raising the hogs to market. The farmer is forced to take out a loan, often from Smithfield, to finance the farming infrastructure. In this way, the farmers assume all the risk while Smithfield is not saddled with all the associated long-term debt.
Smithfield continues to make acquisitions that complement its core competencies. It will acquire beef and turkey operations that are subject to similar market conditions and require relatively similar skill bases.
Tyson Foods Inc. is the second largest pork producer in the United States and the largest overall meat manufacturer in the world with almost $25.5 billion in sales in 2006.5 Tyson's pork processing holds 18% of the United States market. 23% of their hogs come from Tyson-owned farms, whereas the other 77% is purchased from independent farmers in the open market.6 Pork production accounts for 12% of its total revenue. Tyson's pork products are distributed throughout the nation in all major grocery stores as well as wholesale clubs.
Along with being a top pork producer in the world, Tyson is the world's largest producer of fresh beef. Tyson specializes in boxed beef, boxed pork, value added ground meats and deeply basted pork. Other aspects of Tyson are their involvement with raw materials for pet food and animal feed, gelatin bone for photographic film, tallow and lard, and pharmaceutical uses. They are also the leader in value-added chicken and producing the best protein-rich meats.
Tyson, a company almost 60 years old now, grew into the nation's largest poultry producer by 1986. The company entered the pork industry in a big way when it purchased the country's number two pork company, Iowa Beef Producers (IBP), in 2001. The acquisition of IBP made Tyson the leading meat manufacturers in the world.7 Tyson has 107,000 employees globally.8
Generally, Tyson has grown from acquisitions such as these. Between 1966 and 1989, Tyson made 19 acquisitions of smaller farms, as well as other food companies, instilling a product diversification strategy as well.
In 1977, Tyson began to vertically integrate in the hog market, buying up hog production facilities in North Carolina. This diversification strategy extended to other acquisitions as well, when in 1983 Tyson bought up Mexican Original, a tortilla and flour products company. By 1992, Tyson had even extended itself into the seafood market. With the merger with giant competitor Hudson Foods in 1998 and the acquisition of IBP, Tyson further cemented its diversification and acquisition strategy.
Tyson is not only a major company domestically, but also internationally. Tyson has managed to be one of the leaders in international trade of their pork, beef and chicken. With the U.S. government renewing exports to Japan, South Korea and Taiwan, it opened more potential international markets for Tyson. Their key international areas are China, Mexico, Canada, and South America; which they are planning to continue to increase their presence in.
Hormel Foods Corporation
Hormel is the fifth largest pork processor behind Smithfield, Tyson, Swift, and Excel. The corporate strategies of the giants of the hog farming industry in North Carolina have primarily centered on vertical or horizontal integration. In an industry that depends on mass distribution of a rather simple product, monopolization through takeovers and buyouts, and edging out competition through strength, may be seen as the only successful methods. Hormel has taken a different route and managed to stay very competitive. Hormel's main strategy has been an emphasis on innovation, on not only products, but also the entire marketing and distribution chain. Hormel comes out with new, differentiated products as well as new ways to sell them.
After setting up shop in 1891, Hormel took initiative to set up a chain of stores across the United States, quickly spreading its name. North Carolina became an expansion site for Hormel because of the multitude of contract farmers already in place in the state.
Hormel has extended itself by appealing to the ethnic tastes of America. A full line of Mexican, Indian and Asian foods were sold under new brands. Interestingly enough, this extension into the ethnic foods arena would catapult Hormel into the international market as well. Since the late 1990s, the company has been an international power. Using its large variety of products and ethnic foods, Hormel was able to establish itself in Mexico and the Philippines.
The success of Hormel's corporate strategy shows the importance of innovation in a company. Comparatively, Tyson and Smithfield were able to use their size and buying power to launch into a larger market. However, without product diversity and less value added products, the appeal of Tyson and Smithfield could diminish greatly. Hormel has a strong line of differentiated products in the global market. Its main edge in the market has come from recognizing a consumer's personal needs, and thereby increasing profit through value added products. In fiscal year 2006, Hormel spent 18.6 million on research and development for new products. From 2002 to 2006, Hormel's sales of branded pork products in North Carolina went from 69% of total sales to 51%.9 Hormel's initiative to branch out from being a manufacturer of processed meats into the consumer branded food market will only help as the company moves forward.
Swift and Company
Swift and Company, a subsidiary of Brazilian beef company JBS since its purchase in 2007, is one of the major corporations in the pork production industry, falling behind Smithfield Foods and Tyson Foods, Inc. respectively. A comprehensive corporation, Swift and Company, is vertically integrated within the stages of pork production, actively participating in research and development, meat processing, finishing and packing, and product distribution. While Swift raises a majority of its own hogs, some of its hogs come from contracted local farms. Swift distributes its pork products to many local and national grocery chains as well as wholesale clubs across the country.
Swift and Company is emerging as a globally competitive pork production company. Swift entered the international stage with its partnership with Australia Meat Holdings, a leading Australian meat-producing firm that has high exports to the United States and Mexico.10 Swift is also knowledgeable about the growing international pork economy, commissioning studies focused on the emergence of Japan's pork production industry. Swift is committed to having a varied product mix, offering two types of pork and four types of beef to retailers. Swift and Company is able to distinguish itself from its competition with its focus on research and development. With consumer tastes shifting towards that of organic and all-natural foods, Swift was able to stay ahead of the curve by developing Swift Natural Fresh Pork. This no artificial ingredients added meat is boasted as being, "all-natural and wholesome", coming from hogs that are grown under "strict feeding and handling guidelines."11 Along with organic farming, Swift has developed guidelines for humane handling, the usage of genetically modified ingredients, and antibiotic usage in all its hogs and cattle.
- "Smithfield Packing to Create 206 Jobs in Kinston," Triangle Business Journal (Raleigh), October 13, 2004. Last accessed December 19, 2004. [http://www.bizjournals.com/triangle/stories/2004/10/11/daily19.html]
- Hoover's, "Smithfield Foods: Company Profile." Last accessed August 16, 2007.
- Charles Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage. New York: Perseus Books.
- Tyson Foods, "Tyson Today," Website. Last accessed August 16, 2007. [http://www.tysonfoodsinc.com/corporate/liroducts]
- Market Line, "Tyson Fresh Meats," Last accessed August 8, 2007.
- David Moeller, "The Problem of Agricultural Concentration: The Case of the Tyson and IBP Merger" Drake Journal of Agricultural Law; Volume 8; 1 Drake Journal of Agricultural Law, Volume 8. pp. 1-24. Last accessed December 19, 2004. [http://www.flaginc.org/liubs/arts/Tys-IBPmerg.pdf]
- Hoover's, "Tyson Foods: Company Profile." Last accessed August 16, 2007.
- Hormel, Inc., "2006 Annual Report," Last accessed August 8, 2007. [http://thomson.mobular.net/thomson/7/2179/2401/]
- Swift and Company, "Swift and Company - Products - Swift-Branded Pork Programs," Website. Last accessed August 8, 2007. [http://www.swiftbrands.com/index.php]