Student’s Name: Vickie Eubanks
Course ID: B6023
Instructor’s Name: Dr. Jay Deb
Workshop (meeting) Number: Week Six
Due Date: June 18, 2011
Submission Date: June 14, 2011
Vertical Integration in the Poultry Industry
Today, most of the family farms that once claimed to be the economical back bone of local communities throughout the United States, are all but non-existent. The family farms of the 1800’s have been replaced by giant agribusinesses that now dominate and control most aspects of production through vertical expansion. As noted in the Week Five Handout for the class lecture on June 11, 2011, vertical integration is implemented as a strategy to increase a company’s power and position in the marketplace, vertical integration allows the company to dominate the entire supply chain from the required raw materials stage to the end users or consumer. Vertical integration is the degree to which a firm owns and manages its downstream suppliers and its upstream buyers. There are three types of vertical integrations: backward vertical integration, forward vertical integration, and balanced vertical integration. In backward vertical integration a company controls all the links upstream, such as the functions of production of raw materials. An example of this type of vertical integration would be the Ford Company in the 1920’s who sought to minimize costs by stabilizing the supply inputs for the production of cars and car parts. Forward vertical integration is when a firm controls all the links downstream such as its distribution centers and retailers where its products are sold. Balanced vertical integration is when a firm controls all the components from raw materials to delivery and retailing to the customer. (Deb, 2011) One of the best examples of how rapidly the meat production system has become industrialized and vertically consolidated is the broiler chicken industry. Traditional poultry farms populated much of the poultry industry until the early 1950’s. Technological advances, coupled with new inventive leaders in the industry allowed large, “confined broiler operations to surpass the production capabilities” (Consumers Union Southwest Regional Office, 2000) of the common poultry farmer. Over time, companies began to integrate and own all aspects of the production process-feed mill, growing birds, and processing plant-and then would contract with growers to house and care for their birds in exchange for a feed. (Martinez, April, 1999) Today, approximately 90% of all broiler chickens are raised by farmers under production contracts and the remaining 10% are raised on-site by the integrated poultry companies themselves. (Zerig, July, 1997) The biggest percentage of the broiler production in Texas is controlled by three companies-Pilgrim's Pride, Tyson, and Sanderson Farms. (Consumers Union Southwest Regional Office, 2000) Leading the way in the poultry industry by the early 1960s was Tyson, which by that time was already fully integrated. “Tyson controlled every aspect of production, from hatchery to retails sales of broilers. In 1968, Tyson Foods opened retail outlets known as “Chicken Huts,” but this venture into marketing directly to consumers was eventually discontinued. By 1970, Tyson had emerged as a national leader in broiler sales, with annual gross revenue for that year exceeding $70 million. Tyson, along with in-state competitors ConAgra and Pilgrim’s Pride, eventually propelled Arkansas into becoming the nation’s number-one poultry producer. In 1982, Tyson Foods made the Fortune 500 list for the first time.” (Riffel, 2011) As the nation’s leader in poultry production, Tyson’s vertical integration allows the company to oversee everything from the genetic engineering of the chicken to the delivery to the retail market. On Tyson’s company website, a full webpage is dedicated to touting...