All this happened while more Americans were out of work than at any time since the 1930s and while household incomes were plunging. Tyson’s results reflected the truth that even in hard times, people need to eat. And when people eat, Tyson’s products were all but unavoidable. The only way to avoid them was to become a vegetarian.
When it came to controlling costs, Tyson was in an enviable position. The company was able to hold wages down at its processing plants without worrying that employees would jump to a competitor. In many towns, Tyson had no competitors. Farmers worked in the same economic isolation, willing to accept fewer shipments of birds when Tyson cut production because they were beholden to the company’s contracts.
Labor had gotten so cheap in rural America that Tyson found that it was more profitable to hire more workers than buy expensive machines for its slaughterhouses. Smith told the investors that morning that Tyson had cut about $600 million in costs in its chicken division over the previous three years. Don Tyson’s ethic of pushing costs down at every turn was alive and well inside his corporation.
Smith ended the conference call with an emotional mention of Don Tyson’s recent death.
“He meant a lot to our team members. He meant a lot to me personally. We will miss him,” Smith said.
“I think 2011 will be a year that would have made Don proud.”
Smith’s prediction turned out to be correct. Tyson Foods reported $750 million in profits for the fiscal year of 2011, just shy of the record $780 million it earned in 2010.1
While Don Tyson would surely have been proud of the profits, he might have been even more amazed with how Tyson earned them. The company was able to raise prices throughout the year, even as demand and overall economic growth remained relatively weak. The company raised chicken prices 4.7 percent during its 2011 fiscal year. Tyson Foods raised its beef prices a remarkable 16.9 percent during the first nine months of the year even as beef sales volumes fell 1 percent. Tyson raised pork prices 15.2 percent.
Tyson Foods had come a long way from the volatile early days, when economic cycles could wipe out its profit margin and threaten its business. As the company demonstrated in late 2008, it was now big enough to help boost national meat prices through coordinated production cuts that squeezed supplies. Even in the wake of the biggest downturn since the Depression, Tyson managed to book a profit every quarter during 2011.
After 2011, price hikes and production cuts became central to Tyson’s business model. Between 2006 and 2012, Tyson Foods would raise chicken prices five out of the six years. It raised pork prices four out of the six years and beef prices five out of the six years. Tyson and its competitors raised prices in part to offset higher grain costs, but the price hikes clearly helped these companies turn bigger profits. The operating profit margins of the nation’s top four meat companies doubled between 2008 and 2009, even in the face of an economic crisis. The top four meat companies more than doubled their profit margins again to 4.5 percent between 2009 and 2010.
In early 2012, Donnie Smith was able to deliver a string of good numbers to the company’s investors, as Tyson delivered profits quarter after quarter. The company forecasted that overall U.S. meat supplies would fall between 2 and 3 percent during the year, which would help it raise prices. The executives at Tyson Foods seemed almost to be bragging about the company’s ability to cut production and raise prices.
By the middle of 2012, the plan was working well. During the first six months of the year, Tyson Foods raised chicken prices 9.6 percent, beef prices 16 percent, and pork prices 7.3 percent. The $322 million in profits it earned halfway through the year wasn’t as high as the same time in 2011, but Donnie Smith predicted the company’s profits during all of 2012 would stay near the record levels of 2011 and 2010.
While Tyson did well for itself, it is less clear how well the company did by the communities that made it rich. Remarkably little research has been done to measure the economic impact of vertically integrated meat production on the nation’s economy. Instead, the massive firepower of public research dollars has been aimed at a different question: how to accelerate the industrialization of agriculture. At the University of Arkansas in Fayetteville, for example, researchers study, on the molecular level, how chickens can more efficiently convert feed into meat, helping companies like Tyson to further compress their cost margins. At Kansas State University, researchers are finding new ways to keep cattle from getting open sores on their feet during the months they stand in manure-covered feedlot pens.
But an extensive analysis of publicly available data shows the impact of Tyson’s rise has been, at best, a mixed blessing for the communities where the company operates.
* * *
Tyson’s income gains are an open book, advertised each quarter when the company releases its earnings results to Wall Street investors. The company is reaping record profits of hundreds of millions of dollars every year.
The income patterns of rural America, where Tyson makes its money, are a little more difficult to discern. But it is possible, using government data, to build a map of Tyson’s economic footprint.
By 2011, Tyson had slaughterhouses and production plants in seventy-nine counties across the United States, with an additional four offices and plants located in big cities like Chicago and Houston. Federal data shows per-capita income levels in all of these counties, going back to 1969.
The forty years between 1969 and 2009 is a good period to measure Tyson’s economic impact. During the 1960s, Tyson was just becoming the company it is today, expanding its network of contract farms and buying up competitors. Over the next forty years, Tyson came to dominate the economic life of towns in rural Arkansas, Iowa, Oklahoma, and elsewhere. Tyson had an unquestionable influence on the per-capita income in those places. In towns like Waldron and Berryville, Arkansas, for example, Tyson is the predominant economic force. Without Tyson, there is no local economy.
The verdict on Tyson’s economic impact is stark.
In 68 percent of the counties where Tyson operates, per-capita income has grown more slowly than the state average over the last forty years. Tyson counties, in other words, were worse off in terms of income growth than their neighbors, even as Tyson’s profits increased. That analysis excludes the four major metro areas where Tyson has facilities (Chicago, Dallas, Fort Worth, and Houston) because the multitude of other businesses there makes Tyson’s impact harder to detect. But even if those four cities are included, the analysis does not significantly change: In that case, 65 percent of the Tyson counties fared worse that their state’s average.
Tyson’s defenders might refute this data by pointing out that the company often operates in impoverished rural areas, which should not be expected to outperform the state average.
But the analysis does not compare the overall per-capita income in Tyson counties to the state averages. What this analysis measures is the rate of income growth in Tyson’s counties, compared to the rate of income growth in surrounding counties.
It is not unreasonable to expect that the economic dynamo of Tyson Foods, which has created billions of dollars of income for investors over the years, might help boost the income growth rate in the towns that produce the company’s actual value: the animals, the feed, and the meat. If Tyson is the economic anchor of a town, it could be expected to improve the economic lot of residents there.
But the data suggests that Tyson is a suffocating economic force on the communities from which it derives its wealth. Without question, the company provides thousands of jobs and steady paychecks. But its cost-cutting ethos and the lack of competition restrains income growth in rural America. The company has expanded in economically marginal areas, and it has kept those areas economically marginal. Tyson Foods is feeding off the lowly economic position of rural America, not improving it.
This analysis has its limits. Measuring per-capita income on the county level is a broad metric. It takes into account a lot of economic activity that isn’t attributable to Tyson Foods, wh
ile some activity outside the county’s borders (like some of Tyson’s more far-flung farms) would not be reflected in that county’s income figures. But by any standard, Tyson is a major economic force in the rural counties where its slaughterhouses, feed mills, and farms employ thousands of people. County-level income data might not be perfect, but it is the best picture of Tyson’s economic shadow that is publicly available.
Interestingly, the situation is worst in the one state where Tyson has the most power. In Arkansas, fully 89 percent of the counties in which Tyson operates are worse off than the state as a whole. This is the state where Tyson has by far the most employees and the state where Tyson has laid its deepest roots.
That 89 percent figure even gives Tyson the benefit of the doubt. The two counties that beat the state average that were also home to Tyson’s plants were located in the metro area of North Little Rock and the town of Rogers, which sits in the same county as Wal-Mart’s global headquarters (which has spawned gated communities and upscale retail centers in its orbit).
This finding suggests that Harold Breimyer’s warning back in the 1960s has come to pass. The income pattern drawn by Tyson’s system doesn’t reflect productivity; it reflects power. When one company owns the machinery of production in a town, it can keep the lion’s share of the profits. When one company buys the vast majority of its competitors it doesn’t have to compete with higher wages to retain workers or farmers.
This means many parts of rural America can look to Arkansas if they want to see their future. As hog farmers in Iowa and feedlot owners in Kansas sign their first contract with Tyson, the state of Arkansas can show them the logical conclusion of Tyson’s path.
* * *
It’s unclear if anything will change this pattern. The likelihood that change will be driven from the ground up, from the communities where Tyson operates, is slim. To understand why this is, it is helpful to visit the Tyson town of Berryville, Arkansas, in rural Carroll County. The big, concrete expanse of the Tyson complex sits at Berryville’s core. Just south of that is a grotto of trailer homes that is home to many of Tyson’s immigrant plant workers.
Berryville’s First National Bank sits on a corner at the town square. From his perch in the president’s office there, Robert West had been able to observe Berryville’s economy for decades. West was born in Berryville, and he still remembers the time when the city had mostly dirt roads.
Now in his seventies, West has retired as bank president but still sits on the board of directors. West knows his place when he talks about Tyson. The First National Bank of Arkansas is sort of like a wild mushroom at the foot of a giant oak tree. The bank survives off the nutrients cast off by the giant above it. During West’s career, the bank extended mortgages and car loans to the lower-income workers at Tyson’s plant. It provided farm loans to the company’s chicken farmers. The plant workers never really jumped an income bracket. The farmers never really left their cycle of indebtedness. People might complain, but there really wasn’t an alternative.
Berryville had the Tyson plant, and in the eyes of most of its residents that’s all that the town would ever have. Berryville was remote. Berryville was left behind. Berryville was lucky to have Tyson.
“They’re gonna pay what they think they can afford. If they pay more, well, that’d be good for the town,” West said. “But it might not be good for the company.”
And Berryville would make do.
“I don’t know what we’d have if it wasn’t for them,” West said.
Of course, discontent with Tyson’s system has gained momentum across the country, culminating in lawsuits and a push for tougher regulations. A ragtag coalition of interest groups representing small farmers, with alphabet-soup names like R-CALF USA and RAFI-USA, have spent years lobbying Congress and they continue to lobby the White House to impose new regulations on Tyson and other meat giants. When President Obama visited North Carolina in late 2011, RAFI-USA took out a full-page newspaper ad, urging passage of the so-called GIPSA rule.
But by 2012, farmers had joined consumer advocacy groups like Food and Water Watch, which are concerned that meat prices have risen much faster than many other staples of modern life. Tyson’s expansion has left little consumer choice for middle- and low-income shoppers when it comes to buying meat. While niche localvore farmers are increasing in numbers, consumer advocates still worry that most middle- to low-income Americans rely on industrially produced meat for nutrition.
These new coalitions of interest groups appear to have been outmatched and outmaneuvered by meat industry lobbyists in Washington during the Obama years. The White House has backed off its initially aggressive stance on the issue, and the odds of Congress passing new legislation seem increasingly remote.
And the debate over these issues has not slowed Tyson’s growth. The company’s entrenched power is increasing and its control over rural economies is increasing. Every day, Tyson evolves, grows, and renews itself.
* * *
Tyson Foods used to recruit new contract farmers by placing ads in local newspapers. Now Tyson has a website to advertise its opportunities, extolling the virtues of modern meat production to rural entrepreneurs.
The website’s pitch isn’t much different than the one Buddy Wray made back in the 1960s, when he toured small towns and signed up farmers to supply Tyson’s expanding slaughterhouses.
“Tyson supplies the birds, feed and technical advice, while the poultry producer provides the labor, housing and utilities,” the website says. “In other words, growers are ensured of a consistent price for their efforts, no matter what the feed or grocery markets are doing.”
Interested parties are given a list of phone numbers to call if they want to join Tyson’s ranks. Residents of Scott County, Arkansas, are provided the phone number of a production manager in the town of Waldron. For a lot of people in rural America, opportunities like this are about the best for which they can hope.
Tyson is waiting to take their call, and ready to shape their future.
* * *
1. Tyson’s fiscal year includes part of the previous calendar year, 2010.
ACKNOWLEDGMENTS
A lot of people inside Tyson Foods talked to me for this book, and many of them did so at great financial risk to themselves. I am deeply grateful that they entrusted me with their stories. I am particularly grateful to the farmers who talked to me in spite of their fears.
I am grateful to former senior executives at Tyson who spoke to me for this book. I think they talked to me because they knew the history of Tyson Foods was much bigger than most people understood. Many of them were appropriately proud of what they accomplished. I am grateful to all of them, and I apologize if they disagree with the conclusions I have drawn. I did my level best to tell the truth with this book, even though that truth is bound to make many people mad.
I am grateful that Don Tyson gave me his time and shared his stories and insights, even though he had no need to do so. I had the opportunity to interview him twice at great length for this book. I consider those discussions to be among the few times I have sat in the same room with a genius.
This project would not have existed if it were not for the talents and decisive leadership of my editor, Priscilla Painton, at Simon & Schuster. Priscilla is an editor’s editor, in the finest tradition of the business. Priscilla began asking incisive questions about this project from the first moment she encountered it. Each question pushed the book forward and made it better, and I am lucky to have been part of the process. Priscilla’s ethics, her hard work, and her dedication to great journalism are an inspiration. I am so grateful for Jonathan Karp’s support for this project.
Editor Michael Szczerban was indefatigable in his support for the book, providing me with many an hour on the phone as I hashed through ideas and tried to figure out a way forward. I am grateful that Sydney Tanigawa swooped in to carry the book through to the end. Thanks to Phil Metcalf for shepherding the manuscript through productio
n, and to Robert Castillo for his sharp-eyed edit and suggestions. Thanks so much to Nina Pajak, Meg Cassidy, and Larry Hughes for helping get the word out.
I am indebted to my agent for this book, Diana Finch, who never gives up. Diana is both a sprinter and a marathon runner, which is handy in a business where the finish line is always moving.
I am so lucky that Lucy Shackelford decided to go below her pay grade and work with me on this project. Researcher extraordinaire, Lucy has combed this manuscript with the sharp eye of an auditor, removing embarrassing errors. I am indebted to her for both her research skills and her rock-solid advice and guidance. Thank you. It goes without saying that all the mistakes left are my own.
I am deeply grateful to everyone at the New America Foundation. I am lucky to walk through the door every day, and I never let myself forget it. I would especially like to thank Steve Coll for giving me the chance to come to New America and for his advice along the way; there is no better role model for a journalist than Steve. Andres Martinez has been an invaluable mentor and supporter, and I am forever grateful for his help. Rachel White has been a remarkable leader during my time here. I am thrilled that Anne-Marie Slaughter has decided to pick up the torch; the future is bright. Barry Lynn has been patient and wise in his guidance and his lessons about power. I am so grateful to learn every day from Becky Shafer, Konstantin Kakaes, Steve LeVine, Lina Kahn, Louie Palu, Susan Gwaltney, John Williams, Faith Smith, Alex Holt, Stephanie Gunter, Fuzz Hogan, Elizabeth Weingarten, Adam Sneed, Josh Freedman, Michael Lind, Patrick Doherty, Reid Cramer, Kevin Carey, Torie Bosch, Kirsten Berg, Victoria Collins, Clara Hogan, Patrick Lucey, Cyrus Nemati, and Nick McCllelan.
Bill Bullard at R-CALF USA has been a remarkable source over many years. He is a straight shooter who always has incredible graphs and spreadsheets at the ready, and I am indebted to his help. Becky Ceartas at RAFI was invaluable for her insight into the legal ins-and-outs of chicken farming.
The Meat Racket: The Secret Takeover of America's Food Business Page 34