Value ChainsAbout Value Chains
The Hog Farming Value Chain
Hog farming is an integral component of the pork production industry. For this reason, this value chain shows, in addition to the true farming elements included in the raw materials and processing stages, the additional activities carried out by pork product manufacturers in the final product, distribution, and sales stages. Furthermore, three vital supporting industries are shown which represent opportunities for hog farmers and pork producers to optimize operations through the use of preservatives and the effective processing of waste or branding to differentiate themselves through innovative marketing strategies.
Map - North Carolina's Hog Farming Companies, 2007
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The single most significant feature of the hog farming industry in North Carolina is that a few companies dominate the industry through control over different segments of the value chain.1 What this means for the state is that the size of hog operations has increased tremendously. The U.S. Department of Agriculture defines the size of farms in the following manner:
|Farm Size||Number of Animals|
|Industrial-scale||5,000 head or more|
North Carolina is the state that has the most industrial-scale units in the country, according to a 2000 report, and more than double the number of its nearest competitor, Iowa.2
However, not all corporations operate in similar ways to gain greater efficiency and consolidate market share. Through the general chain of the events listed above, we can see the specific ways hog farmers attain these goals. We explain below the value chains of two major powerhouses in the hog farming sector: Smithfield and Tyson.
Smithfield's Vertical Integration
Smithfield has concentrated its corporate strategy on acquisitions. As a result, the company structure, as is evident from its list of subsidiaries, is extremely vertically integrated. Smithfield has either ownership or control over every single stage of the chain, from the DNA line and feed that comprise the raw materials right down to the managerial and administrative levels. This is exemplified by the case of North Carolina, where Smithfield owns a total of 12 companies.
Furthermore, Smithfield has diversified overseas, acquiring companies in Poland, China, Mexico, the United Kingdom, and elsewhere. This highly diverse international portfolio is again consistent with Smithfield's core strategy, namely vertical integration. Smithfield's international ventures own or control materials through marketing. Since the 1980's, Smithfield has acquired a great many companies to augment its now enormous base.
Tyson's Horizontal Integration
Tyson is the largest integrated poultry producer in the United States. Unlike Tyson's vertically integrated poultry business or Smithfield's strategy in the hog farming sector, Tyson's pork operations depend upon independent livestock producers to supply their plants. Tyson's fresh meat operations are strategically located close to these independent farmers to ensure the high quality of hogs. Approximately 140 hog buyers bid on the hogs that meet the company's specifications.
Tyson's production starts with genetics: they have been using the latest in genetic research to improve the Tyson Hog. This is the core of the Tyson's competitive edge, and to protect their line, every employee and visitor must shower before coming into contact.
About 114 days after the sow is bred, she will give birth. The baby pigs will then stay with the mother for the next 21 days, and after careful inspection, they will be sent to the second stage, the finishing farm.
Tyson hogs come in at around 35-50 pounds, and will remain at the finishing farm for the next 126 days. By the time the hogs are ready to be slaughtered, they will be 250 lbs. All Tyson hogs are sold to meat packers, and then distributed under the Tyson label.3
Comparing Smithfield and Tyson
The most distinctive feature of the Smithfield value chain is its almost complete vertical integration. Conversely, Tyson is notable for its more horizontal approach. The two strategies, as can be seen from the performance of both companies, are extremely effective and the alternative approaches are both well suited to North Carolina's hog farming industry. Each has its own selective advantages and disadvantages.
One of the main advantages to a vertical structure is the company's ability to control both upstream and downstream activities. Smithfield has benefited significantly from its forward and backward integration. In addition, vertical integration allows Smithfield to benefit from a potential reduction of transport costs, improve supply chain coordination, achieve increased differentiation through greater control over upstream activities (inputs), capitalize on value added from more areas of the value chain, gain exposure to downstream activities that might have otherwise been inaccessible and facilitate increased concentration on core competencies. However, vertical integration also has disadvantages. Smithfield is continually at risk of becoming top heavy. It has to ensure that the upstream activities are producing sufficient quantity to justify the expense of the downstream operations. Total ownership at all stages of the value chain can lead to a decrease in supplier competition and a reduction of efficiency. Finally a vertical structure potentially increases bureaucratic costs.
An advantage of a horizontal structure would be the ability to capitalize on economies of scale. Tyson's larger scale operations at one level of the supply chain result in increased geographical expansion. Companies are then capable of drawing on resources common to all products, allowing for synergistic activity. Finally, horizontal integration allows a company to achieve chain dominance and gain control over particular upstream and downstream activities. However, there are disadvantages as well. One of Tyson's greatest risks resulting from its horizontal integration stems from antitrust violations. An overextension or failure to comply with antitrust regulations can lead to heavy fines and increased bureaucracy. Supposed synergistic relations can turn out to be unobtainable or non existent and investment therein becomes risky. An example in this industry might include presumed technological cross-over between the hog and cattle rearing industries.
The advantages and disadvantages as outlined above comprise the essential differences between the two structures and serve as a useful basis for comparison.
Tyson: Poultry vs. Pork
Tyson Foods Inc. controls 17% of the pork market in the United States, claiming the number two rank of pork producers. Edged out solely by Smithfield, Tyson seeks to maintain their position as the "largest provider of protein products on the planet." Tyson is obviously one of the most recognizable brand names on the market. With an emphasis on product diversification including poultry, beef, pork, corn and flour tortilla products, and even serving the pharmaceutical industry with quality products, Tyson has increased its strength throughout the market. Its chicken and pork strategies verify the company's innovation, when it comes to entering and gaining position and strength on a national scale.
Growing Chickens the Tyson Way
To fully understand how Tyson works, we must look at the individual strategies for each sector. In contrast to the horizontal integration within the pork division, Tyson's chicken process uses "vertical integration to control product quality from the egg to the finished product on your table."4
The process begins with genetics. Tyson's birds come from generations of suppliers, such as Cobb Vantress, which is a wholly owned subsidiary of Tyson now, in order to attain an efficient bird that caters to the American market. The craving for breast meat and further processed products has affected the shape of the bird, and breeders choose the traits that best serve the customers' need. The breeder birds produce eggs, which are collected either by hand or conveyor belts and the eggs are sent to the hatchery. At the hatchery the eggs are placed in incubators, which are kept at a constant temperature and humidity. The incubator tilts the trays back and forth at regular intervals, which simulates what a hen would do by rolling around the eggs in a nest. After 18 days, the eggs are sent to the "hatcher." However, before leaving the incubator these eggs are vaccinated against diseases right in the egg. Again, care is given to the temperature and the humidity, and the eggs are closely monitored to give each egg the best chance of hatching. After just 3 days in the hatcher, the chicks begin to appear and are immediately treated with medicine to prevent respiratory problems.
These chicks are put into Tyson trucks and sent to farms. The birds are put in large houses which keep them as comfortable as possible. In the winter, they are regulated with increased heat, and in the summer automatic fans and motor-driven curtains keep the air moving. In addition, water misters overhead help keep the birds cool. Tyson makes sure to test the farm's soil and any other latent problem that might contaminate the flock. Each flock is tested by Tyson laboratories for pesticide residue before proceeding further in the process.
Approximately four to six weeks after arriving on the farm, the chickens reach processing weight and are sent to the Tyson processing facility. After the chickens are killed and prepared for consumption, the products go to a Tyson distribution center or another facility for storage until the customer needs them. Then, a Tyson truck carries them out to super markets around the country. All processes of transportation, and processing are done in-house by Tyson, and they remain very fervent in maintaining this structure.
Unlike the vertical integration structure of the poultry division, Tyson's pork and hog farming division relies on its independent farmers to supply its plants. Approximately 35% of pork processing is done in house, which leaves 65% up to the independent farmers. However, there are some similarities with their strategy with poultry.
As with chickens, the Tyson hog comes from the latest research techniques. They have spent the last 20 years developing a hog that would fit the latest consumer trends, including attaining a whiter meat and developing the right muscles for the most efficient use of the meat. There are around 110,000 sows in the Tyson swine herd, and over 140 hog buyers make competitive bids on meet the company's specifications of high quality pork. About 114 days after the sow is bred, she will give birth. As the baby pigs begin their lives, they are immediately vaccinated to prevent diseases. They will stay with the mother for thirty-five days before being sent to the finishing farm. Five days after the sow has weaned, she is ready to breed again. Tyson artificially inseminates the sows to ensure a genetic spread, a faster process, and a more consistent hog. At the finishing farms, hogs go from weighing about 35 to 50 pounds to reaching their market weight of 250 pounds in about 126 days. This is where Tyson leaves its mark on the independent farmers: specially formulated feed comes from Tyson feed mills to ensure the nutritional content measures up to their specifications. As with Tyson chicken farms, temperature and humidity are closely regulated to maintain comfort of the hogs. Afterwards these hogs are sold to the top meat packers, and distributed around the nation.
Tyson's poultry division almost mirrors the strategy of Smithfield; through acquisitions it has become the major powerhouse in the industry. The pork division, after acquiring major companies, still contracts the majority of their farming. The remarkable aspect of Tyson is that even with their different strategies, both divisions continue to dominate the market and produce profits. The chicken division realized gains of 20.2% and 13.1% in the fourth quarter and the 12 months of fiscal year 2004, respectively, and the pork division realized gains of 37.2% in the fourth quarter and 28.9% in the 12 months of fiscal 2004.
- Donnie Charleston, "Feeding the Hog Industry in North Carolina: Agri-Industrial Restructuring in Hog Farming and Its Implications for the US Periphery." Sociation Today. 2(1), 2004; Last accessed on December 16, 2004.
- "Factory Hog Farming: The Big Picture," (pdf) Last accessed on December 16, 2004.
- The Pork Group Inc.Last accessed on December 16, 2004
- Tyson Foods Inc. Last accessed on December 16, 2004