Editorial

Market Research Demonstrates Superior Demand for Beef over Plant Based Alternatives

10/04/2020

An extensive survey conducted by Purdue University, Michigan State University, and Wageningen University in the Netherlands, confirmed that consumers favored beef over plant based alternatives. The survey appears to have been a conjoint analysis with orthogonal comparisons representing a valid evaluation of willingness to purchase given product attributes  at various prices.

 

The cost of hypothetical products ranged from $3 per pound to $10 per pound for certified angus beef, Beyond Meat patties, Impossible Foods patties, and Memphis Meats cell-cultured product, presuming commercial availability.  Attributes evaluated by the 1,800 participants in the survey included sustainability, technology and branding.  In evaluating the individual products 72 percent opted for beef, seven percent for a yeast-based alternative and 16 percent for a pea-based product.  Only five percent selected a cell-cultured product, although the price range offered was competitive with conventional meat, but given current technology unattainable at anywhere near $10 per pound.  With respect to sustainability, 68 percent of respondents opted for beef, but this increased to 80 percent when branding was an option. 

 

The study did not examine consumer response to a hybrid product combining real beef with plant-based extenders, effectively the 2020 version of “hamburger helper”. In a recessionary economy price will be an important determinant of the purchase decision. It will be possible for companies such as Tyson Foods that is already marketing combinations of beef and vegetable-derived protein to satisfy the demand for nutritional value, organoleptic qualities and the perception of sustainability.

 

The conclusion from the study is that consumers are willing to consider alternatives to beef for patties, but a major change in purchasing patterns will require time, improvement of product with regard to texture and taste and will necessitate extensive promotion.  Currently, alternatives to meat represented one percent of the retail market share of animal protein sales in 2019.  With selection of protein to be influenced by price, consumers will carefully evaluate unit cost that at present disfavors plant alternatives that are inexplicably more expensive than real meat.  The fact that close to a third  of subjects in the survey would consider purchasing an alternative to real meat does not necessarily indicate that this proportion will represent the ultimate market share attained by the plant-protein segment of the food industry in years to come.


 

DOJ Criminal Investigation of Collusion in the Broiler Industry Expands

10/09/2020

In May 2020 the Department of Justice (DOJ) indicted Jason Penn, then CEO and marketing executive Roger Austin of Pilgrim's Pride and their counterparts Mikell Fries, CEO and Scott Brady of Claxton Foods on charges of price collusion The DOJ has now indicted additional broiler industry managers alleged to have been involved in collusion. The charges brought by the Department of Justice carry sentences of up to ten years in prison and a fine of $1 million.

 

 Although news reports have implicated an additional three companies, they are in fact not involved other than having apparently innocently employed marketing personnel fired by Tyson Foods.  In the process of defending a class action civil lawsuit, an internal investigation by Tyson Foods demonstrated irregularities.  To their credit the company immediately approached the DOJ and negotiated a leniency arrangement, obviously with the assurance of cooperation.  Ex-Tyson employees who migrated to other companies have been charged including Timothy Mulrenin, William Kantola and Brian Roberts.  In deference to the situation, CHICK-NEWS is withholding the names of companies that employed ex-Tyson marketing personnel presumably without knowledge of their previous activities.

 

Bill Lovette, former CEO at Pilgrim's Pride who retired in March 2019 has been indicted on evidence that he either actively participated or condoned illegal activity during his tenure.  His successor Jason Penn was first placed on administrative leave on June 15th, but then was terminated on September 25th, succeeded by Fabio Sandri the CFO of Pilgrim’s Pride.

 

It is however apparent that in addition to Pilgrim's Pride and Claxton Foods the principal subjects of the May indictments, other integrators may have been involved in allegations of price fixing and additional indictments may be forthcoming.

 

The DOJ inquiry suggests that illegal activity occurred as early as 2012 and extended until 2019 based on documentation of the alleged collusion. Since the May indictments the DOJ has probably "turned" lower-level individuals as is the practice with white-collar criminal investigations.

 

The intervention by the DOJ placed a hold on the class-action civil suit alleging collusion among major broiler integrators over an extended period.  An aspect of this case relates to indirect collusion through subscribing to the Agristats® subscription benchmarking service documenting historical cost and sales data. The plaintiffs allege that data disseminated by Agristats® enabled integrators to manipulate supply through strategic placement of breeder replacement flocks thereby maintaining higher wholesale prices.  It is noted that in an early stage of the civil lawsuit Fieldale Farms settled with the plaintiffs for a substantial figure subject to their cooperation with the law firms involved.

 

The attitude of the Department of Justice is exemplified in the statement of Makan Delrahim, the Assistant Attorney General for the Antitrust Division who stated, "executives who choose collusion over competition will be held to account for schemes that cheat consumers and corrupt our competitive markets". Delrahim prosecuted Christopher Lischewski CEO of Bumble Bee Seafoods who pleaded guilty to charges relating to collusion in participating in a scheme to rig the canned tuna market. He was sentenced to 40 months in Federal prison and fined $100,000.  Starkist a co-colluder with Bumble Bee was subject to a civil penalty of $100 million.

 

It would be advantageous for the broiler industry if this case were to be disposed of as soon as possible to avert further degradation of image. The criminal indictments could be settled with guilty pleas avoiding further negative publicity. Then there is the question of the civil case. With guilty pleas or verdicts the plaintiffs only have to justify their damages since the outcome of a trial is predictable.

 

(see the Commentary on Pilgrim's Pride settlement with the DOJ below in this edition)


 

Rise in Environmental Lawsuits Predicted

10/01/2020

This world in which we live is becoming scarier for businesses.  Not only are we contending with COVID-19 and environmental catastrophes such as extensive forest fires, hurricanes and floods, large enterprises can now consider environmental litigation as an additional risk. According to the September 19th edition of the Economist, more than 100 cases have been documented by the Sabin Center for Climate Change Law of Columbia University.

Large-oil appears to be the principal target, but ambitious lawyers will probably shake-down producers of meat, claiming environmental impact. The stage has been set by mammoth lawsuits based on adverse health effects and mortality from exposure to asbestos and tobacco. Clear connections have been established over many decades that these products resulted in cancer and premature death. More recently opiods have become the focus of lawsuits. 

 

It now appears that the legal profession is evaluating environmental impact.  The difficulty for plaintiffs will be to establish a cause and effect relationship between the activities of a company’s products and a direct quantifiable result on a plaintiff or class.  As with asbestos and tobacco, and more recently with glyphosate litigation, claims based on scientific expert testimony have won jury verdicts that are expensive to defend or settle and are difficult to overturn.  Absent an adverse verdict, the costs involved in defending an action are considerable in addition to executive time and effort devoted to working with cooperate and outside council.


Cattle in Brazil on Cleared Amazon Forest

 

The recent cases litigated in North Carolina Federal courts alleging nuisance from hog-waste lagoons demonstrate the effect of concerted legal action despite friendly state legislation.  Ultimately, Smithfield Foods will have to reduce the quantity of hogs on growers' farms or install environmental mitigation possibly in the form of anaerobic-digestors, that without legal action would not have been commercially feasible.

 

It is also evident that pension funds and institutional investors are discriminating against companies with an adverse environmental record. Previously only “green funds” offered investors of conscience an opportunity to invest in companies with environmentally acceptable products.

 

In some cases, the courts can overturn zoning decisions and permits issued by state, county and local authorities based on real or contrived irregularities.  Large companies have to defend brands and in the age of social media, concerted action can degrade company image to the point that an intended location for new facilities and expansion are abandoned.  Sanderson Farms experienced aggressive opposition to siting a plant in Nash County, NC requiring relocation of the proposed facility to Robeson County that was more receptive. Costco’s Lincoln Premium Poultry operation was obliged to move their proposed plant location from Nickerson, NE. to Fremont, NE. as a result of local opposition.

 

There are preemptive measures that can be taken to facilitate acceptance and avoid litigation.  This is illustrated by the progression of public relations activities by Herbruck's Poultry Ranch in locating an egg production complex in Mechanicsburg, PA.  The key step was to bring local officials and media to an existing facility in Saranac, MI. to clearly demonstrate the quality and appearance of facilities, the absence of odor and any other nuisance.

 

Over the long term the red meat industry is vulnerable to claims that products contribute to health effects and degradation of the environment.  There is a slippery slope between the appearance of activists protesting outside stores to the emergence of concerted legal action aimed directly at an industry leader.

 

The egg production and broiler industries have demonstrated improvements in sustainability, environmental compliance and have advanced scientific research to confirm the wholesomeness of eggs and poultry meat. These are examples to emulate and should be considered by any public-quoted company involved in food production.


 
 
Copyright © 2020 Simon M. Shane