State of the Plant Protein Business


The recent releases of the Q3 results by Maple Leaf Farms detailing the performance of their Plant Protein segment and the Q3 results posted by Beyond Meat Inc. raises serious questions as to the financial viability of plant-based substitutes for red meat. 


Beyond Meat posted a decline in sales of 12.7 percent and the Plant Protein segment of Maple Leaf Foods was down 6.5 percent from their corresponding quarters in fiscal 2020.  Beyond Meat posted a loss of $54 million on sales of $106 million that exceeded the loss of $19 million for the third quarter of 2020.  The Plant Protein segment of Maple Leaf Foods posted a loss in adjusted earnings of $30 million on sales of $38 million, although a 12.8 percent improvement over Q3 of fiscal 2020.


The negative return posted by Maple Leaf Foods for their Plant Protein segment contrasted sharply with profitability from the larger Meat Protein segment attaining adjusted earnings of $85 million, up 32 percent from Q3 2020 on sales of $920 million, and 13 percent higher than for the corresponding quarter of the previous fiscal year.  Michael H. McCain, President and CEO of Maple Leaf Foods implied that his Company is reexamining their investment in plant protein noting, "given current category performance a review is underway that will either affirm or adjust our strategies or investments going forward".


It is evident that both companies with relatively similar plant protein products have lost sales.  This is attributed in part to the fact that initial acceptance and growth in demand was attributed to a "curiosity factor" in addition to appealing to the environmentally conscious.  Media reports and especially laudatory articles in vegan-oriented platforms extolled the virtue of plant substitutes frequently deprecating the welfare and sustainability aspects of conventional meat.


It is evident that Beyond Meat is committed to retail with a proportion of 71 percent of U.S. sales although down 13.9 percent for the most recent quarter.  This could be due to consumer disaffection with quality including texture, flavor or appearance when cooked.  It is also evident that price is a significant deterrent to inducing consumers to convert from real meat to plant-origin substitutes.  A recent visit to an upscale supermarket showed that a range of plant-based brands including Beyond Meat were priced over a range 80 to 85 cents per ounce compared to high quality grass-fed beef at 70 cents per ounce and USDA prime ground beef in the 50 cent range with ground turkey even less expensive at 35 cents per ounce.  There is obviously a limit to the willingness to pay for intangible attributes including welfare and sustainability, especially in an inflationary food environment where cost is becoming an important factor in willingness to pay.


The thesis that there is a curiosity factor driving early acceptance of vegetable-based alternatives to meat is supported by the market strategy apparently demonstrated by Beyond Meat.  During the first week of November, CHICK-NEWS reported on the entry of the Company into the Australia and New Zealand.  The third quarter report of the Company notes that international sales were up 142 percent.  The question arises as to whether the company is forced to consistently find new markets to take advantage of "low-hanging fruit" by appealing to environmentally and welfare conscious consumers and those willing to “try” alternatives.


The CEOs of both companies point to the high expenditure in promotion mainly in the form of discounts that detract from profitability.  Given the declines in revenue, promotional expenditure does not appear to be effective driver of sales.


An interesting observation is the decline in gross margin posted by Beyond Meat.  It is evident that this Company is unable to capture benefits from economy of scale.  Gross margin declined by 20 percent from a value of 27.0 percent in Q3 of 2020 to 21.6 percent for the most recent quarter.


The founder of Beyond Meat evaded the fundamental issues of how the Company will attain future profitability and provide shareholders with a return on equity. In the quarterly investor call Ethan Brown pointed to “weather” and other presumably non-recurring misfortunes, simply expressing hope for a future improvement.  The shareholding of Beyond Meat comprises insiders with approximately 11 percent and institutions below 55 percent, presuming a high proportion of independent retail investors. And then there are the shorts.  Despite hype and promises, financial performance is critical to long-term success.  Beyond Meat has ranged in 52-week share price from a high of $221.00 to $91.95 with a 50-day moving average of $103.60.  After the release on November 10th, BYND fell 18.6 percent after hours and during trading on November 11th fell an additional 13.3 percent followed by what might be regarded as a "dead cat bounce" of four cents in after-hours trading.  The 32 percent of float short as of October 28th and deteriorating profit and operating margins are inconsistent with long-term prospects.


At this time, privately held Impossible Foods competes directly with the two publicly traded competitors in plant-based protein.  The profitability of this company will only become apparent following release of a prospectus for an IPO either directly or through a SPAC but there is little to suggest that it is any more financially successful than its major competitors.


Casting forward, it is evident that there will have to be rationalization in the plant protein market comprising three main producers and numerous start-ups funded by venture capital. Beyond Meat will probably be taken private by an investment group and then rolled into an existing manufacturer possibly Maple Leaf Foods that has a large but underutilized manufacturing facility.  This scenario is predicated by the fact that during the past quarter Beyond Meat assumed long-term debt presumably to fund ongoing operations.


Despite problems of government scrutiny, negative perceptions on welfare and the environment, logistic restraints, labor and transport challenges, the red meat and poultry industries have little to fear from plant-based substitutes



Grassley-Tester Bill on Red Meat Poses Potential Threats for The Chicken Industry


Senators Chuck Grassley (R-IA), John Tester (D-MT) and Mike Rounds (R-SD) announced legislation to address alleged anticompetitive practices in the meat and poultry industries. The Senators are concerned over consolidation especially in the red meat industry leading to potential pressure on producers and vulnerability to disruption in the production chain. These include events such as the fire at the Tyson Foods. Holcomb, KS. plant or cyber attacks that impacted JBS USA.  The Senators are also concerned that anticompetitive behavior possible through consolidation could function to the disadvantage of farmers, despite protection offered by the Packers and Stockyards Act.


Although the proposed bill has not yet been framed, and there has been no economic analysis justifying the legislation, concern over obvious unintended consequences has elicited opposition from both industry and academia.  Julie Anna Potts, President and CEO of the North American Meat Institute stated, "Beef and cattle markets are dynamic.  This fall producers received higher prices without any government interference".  She added, "In a rush to do something, this bill would replace a free market with government mandates and harm those whom it is intended to protect".


The major provision of the proposed bill would oblige packers to purchase a minimum proportion of cattle purchased through negotiated or cash transactions. This is intended to create greater transparency, thereby assuring farmers of higher prices for their animals.


A series of academic reports and submissions based on economic analysis criticize the proposed legislation:-

  •  The U.S. Beef Supply Chain: Issues and Challenges released by Texas A&M University warns against mandated minimums for negotiated and cash transactions.  Detailed analysis discloses that government intervention and mandates could in fact reduce prices to cattle producers.
  • Mark Gardiner, owner of a family ranch delivered testimony before the Senate Committee on Agriculture, Nutrition and Forestry advising against legislation with the objective of creating transparency.  He noted that the proposal could serve as a deterrent to value-based production and marketing that would be detrimental to both prices and quality.
  • Dr. Jayson Lusk, Distinguished Professor and Head of the Department of Agricultural Economics at Purdue University considers that the legislation would not increase revenue for farmers even with all cattle sold on the cash market.  His view was supported by Dr. Glynn T. Tonsor, Professor in the Department of Agricultural Economics at Kansas State University who believes that cattle prices would be lower and production would be limited resulting in higher prices to consumers.

Despite the expert testimony of impartial economists, industry associations and large-scale producers, it is apparent that the bipartisan initiative by the three senators will continue. The intended legislation is politically expedient despite ignoring basic principles of a free-market economy.


There is concern that if federal legislation intrudes into the supply chain for red meat, irredeemable damage could be caused as a result of unintended consequences.  The co-sponsors of the bill are in all probability well intentioned but have not looked beyond the immediate political benefits and to their income as farmers and legislators.  There is concern that if restrictive legislation is passed, the chicken industry could be next in line for a round of restrictive laws that expand the mandates of GIPSA.


USDA Intention to Suppress Salmonellosis Acquired from Chicken and Turkey Products


Public advocacy groups including the Center for Science in the Public Interest and spearheaded by Attorney Bill Marler of Marler Clark LLP., are advocating that up to 31 Salmonella serotypes should be declared adulterants.  Currently the USDA-FSIS has established maximum levels of Salmonella recovery from carcasses, portions and ground meat without distinguishing among serotypes or considering quantitative levels of contamination.


Based on statements by secretary of agriculture Tom Vilsack and senior managers in the USDA, the FSIS intends to extend jurisdiction and their involvement back on to farms.  The Agency is ill-equipped with respect to personnel and resources to accomplish any meaningful reduction in Salmonella contamination by regulating any single measure or their combination to be applied to live bird production.  Declaring 31 strains of Salmonella as adulterants would effectively destroy the broiler industry as we know it. Adopting a policy of banning the sale of poultry products contaminated with any of 31 strains of Salmonella would create a profound shortage of chicken and ground turkey, to the detriment of the industry, its suppliers and consumers.


In the short term measures currently implemented in plants including chlorination or an alternative bactericidal application by spray or immersion, maintaining scald and chill tank overflow and good processing practices have the potential to further reduce Salmonella contamination.  Obviously any investment in labor and equipment responds to the law of diminishing returns with respect to the effort to reduce low levels of contamination. The FSIS has yet to explain how qualitative evaluation of 31 serotypes of Salmonella on chicken and turkey could be achieved within the context of present-day plant volumes and procedures. 


The U.S. egg industry has eliminated Salmonella Enteritidis from the production chain by a combination of placing SE negative pullet chicks, maintaining high levels of biosecurity, drag swab surveillance of flocks and above all effective vaccination.  Even if SE is transmitted vertically from an infected hen to the egg, the mandated cold chain from packing through to point of sale will suppresses proliferation of the pathogen within the egg.  The risk of acquiring SE from commercial egg-producing flocks operating under the FDA Final Rule on Salmonella Prevention is further limited by adequate cooking. Obviously the broiler industry will have to adopt many of the proven modalities currently regarded as a standard procedure in the egg industry.  Broiler parent chicks should be delivered from supply hatcheries free of an ever-increasing range of Salmonella serotypes.  Parent and grow-out flocks should be raised in housing with concrete floors that allows decontamination between cycles. 


Activist organizations are less concerned over salmonellosis than basically destroying the broiler industry. Although they advocate testing, it is axiomatic that it is impossible to eliminate foodborne infection simply by surveillance.  Given the low level of intestinal colonization at the parent and broiler levels the intensity of sampling would be practically and financially untenable.  Certainly structured and directed sampling as in the egg industry would be beneficial but only with respect to specific complexes or farms implicated in outbreaks.


Only one of the 31 serotypes to be designated as adulterants is vertically transmitted.  This implies decontamination of eggs as soon as possible after collection.  Although out of favor based on carcinogenicity, effectively applied formalin fumigation decontaminates the surface of shells and markedly reduces the level of Salmonella in commercial broiler progeny.  Although gene-deleted, attenuated S.Typhimurium (ST) vaccines can reduce the level of intestinal colonization if administered at the hatchery, there is no broad-spectrum Salmonella vaccine that will be effective against as many as 31 serotypes.  The implication that the industry is either negligent or disinclined to apply “vaccination” is therefore unfounded.  Individual complexes that fail to meet FSIS Salmonella standards obviously apply ST vaccination along with other biosecurity measures and in-plant procedures including decontamination of transport modules to limit the level of intestinal colonization and feather soiling thereby reducing the quantum of Salmonella entering the plant on flocks.


Considerable research has been performed on treatment of birds within 24-hour of harvest in an attempt to reduce fecal contamination along the E-line.  Other measures including acidification of drinking water appear to have little practical benefit on the level of Salmonella recovered from carcasses and parts.


Prevention of Salmonella should be a joint responsibility of integrators and consumers.  Investigation of outbreaks of salmonellosis acquired from chicken or turkey confirms the high proportion associated with food from restaurants or institutional kitchens.  Although infection occurs in households, the number of those affected is usually so low that even if diagnosed and confirmed by bacteriology, which is infrequent, the number of cases in an outbreak are usually below the level required to be detected and reported through a regional or state diagnostic laboratory to a central data base such as Food Net.


Intensifying efforts to encourage more appropriate handling of chicken to prevent cross-contamination with uncooked foods such as salads would obviously be beneficial in both institutional and household kitchens.  Thorough cooking of chicken and turkey products to appropriate temperature effectively eliminates the risk of salmonellosis.


If either consumers or regulators require a zero tolerance for Salmonella contamination in product as consigned from plants, irradiation represents the only effective kill step.  Although cobalt60 requires expensive installations and trained personnel, electron beam treatment could serve as effective to eliminate Salmonella, Campylobacter and other potential bacterial pathogens.  Electron beam irradiation analogous to an X-ray is relatively inexpensive, is effective for tray- pack portions and IQF products since this source of irradiation has low penetrating power.


If the problem of salmonellosis is to be addressed, it will require a comprehensive approach involving primary breeders, who have made considerable progress in elimination of the pathogen; parent level multiplication including hatcheries, the broiler grow-out stage, processing and food preparation.  Simply imposing a blanket ban on product “adulterated” with as many as any of 31 Salmonella serotypes is counterproductive, impractical and fraught with unintended consequences. A wise observer remarked that for every complex problem there is usually a simple single elegant solution that is invariably wrong.  Let us not be dragooned in having draconian restrictions imposed. These will in themselves create even greater practical and financial problems than the current burden of poultry-derived salmonellosis.


Biased Congressional Report on COVID in Meatpacking Plants Generates Controversy


On October 27th the Select Subcommittee on the Coronavirus Crisis issued a report on infections and deaths among workers employed by the top-five packers of red meat . These included JBS USA Food Company, Tyson Foods Inc., Smithfield Foods Inc., Cargill Meat Solutions Corporation, and National Beef Packing Company LLC.  A finding by the Committee was that among the approximately 500,000 meatpacking workers in the U.S., 59,000 were diagnosed with COVID and 269 fatalities attributed to the infection were documented between March 2020 and February 2021.  These figures as supplied by the individual companies were approximately three times the levels previously estimated, based on surveys conducted by the Food and Environmental Reporting Network (FERN), an activist non-profit organization.


The values for morbidity and mortality during March 2020 through February 2021 should however be expressed as rates to compare COVID incidence over the period in red meat plants in comparison to the general U.S. population.  Assuming 500,000 employees, the 59,000 diagnosed cases represent a morbidity rate of 11,800 per 100,000.  The mortality rate was 53.8 per 100,000.  Assuming 40 million cases of COVID in the U.S. population of 330 million over the corresponding period, the morbidity rate was 12,121 per 100,000 closely approximating the morbidity rate in red meat plants. In establishing the mortality rate for the U.S. population, it is assumed that 600,000 died of COVID over the period corresponding to a mortality rate of 182 per 100,000 that exceeded the rate in red meat plants.  The U.S. morbidity figure is however biased by inclusion of the elderly and those with predisposing conditions that would not be representative of workers in plants.  Notwithstanding the differences in demographics between the U.S. population and packing plant workers, morbidity and mortality rates were not as high as the report purports to show based on publication of raw data not expressed as a rate. 


It is however evident that specific plants in the U.S. recorded exceptionally high morbidity rates both in the U.S. and in Europe.  CHICK-NEWS has previously documented the extensive outbreak among workers at the Tonnies hog plant in Gutersloh, Germany. 


An obvious realization from the Congressional Report is that during the spring of 2020, accurate figures of morbidity rates were not collected and there was apparently no central database under the control of a Federal agency that was collating data on a real-time basis.  Understanding the magnitude of a problem through evaluating accurate data is necessary to formulate programs for control and prevention of any community-wide infection.


It is clear that OSHA under the direction of the Department of Labor failed in their responsibility to protect workers.  OSHA did not issue an Emergency Technical Standard (ETS) to protect workers. A clearly stated ETS based on current knowledge of the modes of transmission of COVID would have guided management to implement protective measures.  Independently a number of companies introduced policies and programs to limit spread of SARS-CoV-2 virus among line workers based on emerging reports on the epidemiology of COVID based on emerging studies in the E.U. and the U.S.


The Centers for Disease Control was slow to react to the pandemic. The Agency developed a draft memorandum based on visits to plants with high rates of infection.  The draft was criticized by senior executives affiliated with a number of the packers since adapting to the virus in the absence of a vaccine would have reduced output and hence profit. Political pressure resulted in a diluted CDC recommendation on April 22nd merely containing suggestions and effectively allowing operators of plants to ignore recommendations that were considered to be inconvenient with respect to plant throughput.


In appraising the Report it is evident that at an early stage of the COVID pandemic, plant management was generally unaware of the severity of COVID and were probably of a self-denial mindset that characterized the disease as a “little flu” as exemplified by President Bolsonaro of Brazil with disastrous consequences for his Nation. Prevailing attitudes towards workers and COVID were evident in memos available to the Committee and included in the report. The self-serving tendency to downplay COVID was supported by prevailing opinions expressed by the Administration minimizing the potential impact of the pandemic even to characterizing the disease as a “hoax”. Accordingly various levels of management were reluctant to apply preventive measures or to alter plant routines in order to maintain production. In the event increased transmission rates led to absenteeism that resulted in profound reduction in rates of slaughter and packing. This impacted the entire supply chain from the Nation’s hog and beef producers through to supermarkets.


The reaction of management in the broiler and turkey industries was far more proactive and the working conditions in processing plants, with a higher degree of mechanization allowed for social distancing between workstations. At an early stage in the pandemic employees were provided with personal protective equipment that was available.


The report of the Select Subcommittee obviously places blame on some companies and plants, but it must be remembered that very little was known of the severity of COVID, the route of transmission and appropriate protective measures.  Neither the OSHA nor the CDC were of practical help in the early stages of the pandemic.  The White House was more concerned with maintaining a supply of red meat and responded to lobbying by packers by issuing a Presidential Executive Order on April 29th providing the major red meat packing companies adequate cover to continue operations.


Hindsight is remarkably precise.  In 2006, the federal government was concerned over the possibility of an outbreak of a viral respiratory infection following the 2003 SARS outbreak. At the time a potential pandemic was presumed to be an emergent strain of influenza.  In January 2007, the President’s National Infrastructure Advisory Council warned of the possible impact of a hypothetical widespread respiratory infection. This resulted in a recommendation to initiate contingency planning for a national outbreak.  The Food and Agricultural Sector Coordination Council urged meat packers to consider social distancing measures and to provide protective clothing and masks based on the current knowledge of transmission of influenza virus.  Recommendations based on then current knowledge presumed that a virus would be transmitted in plants by the aerosol route. This was a prescient observation that became reality in 2020.  The Select Subcommittee Report notes “despite this forewarning meatpacking conglomerates were caught flat-footed by the Coronavirus pandemic, leading to breathtakingly high numbers of Coronavirus infections and deaths among meatpacking workers”. 


CHICK-NEWS previously reported on the difference in approach of the Federal OSHA and the California counterpart with respect to deviations from acceptable standards to prevent infection among workers.  Absent an ETS, relevant to red meat plants, OSHA was hamstrung in that it could only enforce a General Duty Clause which carries a maximum fine of $13,000 for serious violations.  The California OSHA was not restrained in their evaluation of violations of state codes and imposed heavy fines on packers demonstrating obvious neglect of their concern for worker safety as determined during inspections of plants and other agricultural operations.  During 2020, OSHA issued only nine citations among three meatpacking companies that experienced ultra-high incidence rates of COVID, despite receiving numerous complaints from workers and unions.


The Congressional Report fails to document the proactive measures taken by numerous companies with Tyson Foods and Perdue Farms representing the best of the red meat and poultry industries.  Tyson Foods introduced health inspections for workers reporting for work, provided personal protective equipment as it became available and contracting with a third party industrial hygiene company to implement preventive programs.  Perdue Farms introduced social distancing, modified plant shifts to prevent congregation in change areas and invited CDC and OSHA scientists and inspectors to plant visits to develop appropriate preventive measures.  Faced with absenteeism and concern among workers most companies were forced to provide benefits for employees that were quarantined and raised wage rates to overcome hesitancy to retun to work. The proactive companies initiated vaccination programs as soon as emergency use authorization was approved for COVID vaccines and encouraged immunization by arranging clinics and offering compliance bonuses.


The report of the Select Subcommittee on the Coronavirus Crisis, although documenting aspects of the infection in plants, fails to recognize positive action by the chicken industry and some red meat packers and emphasised only the negative aspects of the response to the pandemic.  This is to the detriment of the industry and is emblematic of the politicization of COVID.

Copyright © 2021 Simon M. Shane