2005 Processor of the Year: Tyson Foods

Despite the pitfalls of the animal protein market, North America’s biggest food processor for years has been adding value to meats, tightly running its plants and staying close to its Arkansas values.

By Dave Fusaro, Editor in Chief

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The company looks for two things in overseas markets: a platform of animal production that allows for growth in that country or region and growing consumption of animal protein in that country or region.

Tyson has targeted four geographic markets in which it wants to grow: China, Mexico, South America and Canada. The interest in China comes from the explosive growth in that nation as a consumer of both packaged goods and fast food. "As people's incomes grow, they tend to add more protein, especially animal protein," says John Tyson. "All our key customers are there, both in retail [Wal-Mart] and foodservice [KFC].

"Mexico also is growing as a consumer, and north Mexico is beginning to resemble the U.S. [in buying and consuming habits]," he continues. "We've been there 10 years, so we're well positioned." Subsidiary Tyson de Mexico is the largest producer of value-added chicken for both the retail and foodservice sectors in Mexico.

South America they speak of collectively, while acknowledging fine differences between countries and recognizing Brazil as a low-cost producer in the region.

Canadian subsidiary Lakeside Packers is a leader in the Canadian beef industry. A new joint venture in Canada with Export Packers is supplying fully cooked chicken products to the Canadian market.

While Tyson's past and future lie in animal protein, the company is not 100 percent meat. Its Prepared Foods division makes pizza crusts, flour and corn tortilla products, appetizers, hors d'oeuvres, prepared meals, ethnic foods, soups, sauces, side dishes, specialty pasta and meat dishes as well as branded and processed meats.

All these markets are following the pattern Tyson has experienced in the U.S.: Consumption of animal protein is on the rise, and that is closely followed by a growing appreciation of value-added, more convenient products. Another way these markets follow the Tyson pattern is that chicken seems to lead the way, with pork and beef trailing.

"Our assets are nearly all U.S.-based, so our first effort is in maximizing export opportunities," says Lee. "We sell to 87 countries and have offices in 18 of them. But long-term we recognize that we'll need to participate in the countries we serve. So we'll need to make careful choices on where to invest."

Investment, Lee says, could be in the form of building Tyson plants and other infrastructure in some countries or in acquiring or investing in local companies that can mesh with Tyson's goals and philosophy. "Only about 10 percent of the chickens produced in the world trade between countries, and about the same holds for beef. So there is great potential."

But the first step, especially for an American exporter, is market access, and that's been tough. "Europe doesn't even allow in U.S. chickens," he says. No U.S. poultry processing plants are currently approved for export to the E.U. because of differences in our processing procedures.

And the discovery of mad cow disease in the U.S. has closed most foreign markets to U.S. beef since December 2003. "Several times we thought some of those markets were going to reopen," Lee continues. "But we really believe the Japanese are winding down after they've seen the safeguards in place and that access to that market will come this month or next." Japan has been the number one export market for the U.S. beef industry. Lee believes at least younger American cattle, perhaps those under 20 months, will be allowed back in many countries.

In all, Tyson estimates it lost $800 million in overseas sales in fiscal 2005 because of the appearance of bovine spongiform encephalopathy (BSE or mad cow disease) in the U.S. And a significant portion of that is not typical cuts of beef that can also be sold here in the U.S., but many cuts and parts that are not even saleable here. Skinned beef tongue, for instance, sold for $7-8 a pound in Japan before the Japanese BSE-related ban on U.S. beef.

"Over the past two years and after testing over 300,000 high-risk cattle, they found only one other infected cow in Texas," Bond points out. "We believe the firewalls in place are working."

Even when bans are lifted, it could take a while for foreign consumers to get over their fears. "We recognize there will be some resistance, but Japanese and Korean consumers were very fond of American beef, especially the finer restaurants," says Lee. "We won't immediately go back to the pre-BSE sales levels. It will take some marketing and promotion, but it will come back."

The threat of avian influenza should only aid Tyson, as the company's style of more sophisticated and more hygienic growing practices should mean more disease-free birds. "[The disease] is starting in backyard flocks and only then moving to commercial poultry," says John Tyson. "You have to break that cycle. That's difficult because in some of these cultures poultry is used as currency. Animals in the backyard are part of their economic base.

"But when you read the reports from the World Health Organization, their recommendation is that China, Vietnam and Thailand move toward a model that is our agricultural model; that you move toward bio-secured, more sophisticated farms. Their recommendations mesh with our expansion plans."

And while they admit a heightened sense of urgency over the possibility of avian influenza developing here in the U.S., "We [at Tyson] have been managing animal health issues for 60-70 years. With the heightened sense of biosecurity that's been a byproduct of September 11, we believe the controls are in place so this would not get out of hand," says John Tyson.

Not 100 percent meat
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