Big industrial meat companies, such as Tyson and Smithfield Foods, practice vertical integration. Small rural towns suffer when the companies crush local economies.
One of the biggest myths about U.S. farming is that there’s no money in it. Small farming towns, the thinking goes, have died over the last 50 years because there’s no profit to be made in this largely backward-looking business. This would be a sad reality if it were true, but it’s not. Farming is immensely profitable. The agriculture sector is one of the richest, most productive machines of modern business. The critical question isn’t whether there’s money in agriculture, but, rather, where does the money go?
Visiting a town like Waldron, Ark., which is home to a massive poultry plant operated by Tyson Foods, supports the misperception. About a million chickens a week may be killed at such a Tyson plant, and the giant slaughterhouse is an impressive industrial machine. Waldron’s residents refer to it simply as “The Complex,” because the plant isn’t just a factory — it’s more like an entire small-town economy consolidated onto one property. The several-acre compound contains its own trucking line, feed mill and hatchery, and a slaughterhouse. This complex alone churns out chickens from their beginnings as eggs to finished food products that are worth millions of dollars each year.
Yet Waldron itself seems to be suffocating economically. Many of the businesses along the small downtown strip are boarded up. On Saturday night, Waldron’s Main Street is quiet to the point of abandonment. The new strip mall downtown is vacant, with black garbage bags peppering its empty parking lot. The sole locus of activity, before it closed in April, was the renovated Scott County Movie Theater, which drew a crowd for its single screening of the night. A young woman named Frankie Watson took tickets, chatting with the clientele. People are so poor in Waldron, Watson says, that the Great Recession of 2007 and 2008 largely passed them over, unnoticed.
The perpetual hard times in small towns such as Waldron stand in stark contrast to the fortunes being made by Tyson Foods and other big food companies that operate on the fringes of rural landscapes. In 2013 alone, Tyson cleared a record $778 million in pure profit. And that was during a tough year in which consumers were dining out less and buying fewer precooked meals, which are Tyson’s real cash cow. Other industrial agriculture companies were just as successful.
This article is based on reporting from my book, The Meat Racket: The Secret Takeover of America’s Food Business, which explores how Tyson Foods pioneered the industrial system that now dominates the food market. Today, many companies have adopted the Tyson business model, including Hormel, Swift, Cargill, Smithfield Foods and Foster Farms. Tyson’s operations reflect the broader realities of a centralized, highly concentrated meat industry, as well as the effects this system has on small-town economies.
If the money isn’t circulating in places like Waldron — if it isn’t in the hands of Frankie Watson or the teenagers who visited the theater where she worked — then where has all the money gone?
The money is riding a one-way current. It is generated in the churning machinery of Tyson’s slaughterhouse: Cash is minted along the conveyor belts carrying chicken carcasses and in the industrial ovens baking chicken patties. But the money exists only for a moment within Waldron city limits. Almost as soon as it’s created, the money rides that same current north to Springdale, Ark., to the treasury of Tyson Foods. It then goes to Wall Street, which acts as a post office address for Tyson’s owners. These investors are mostly big institutions, such as universities and mutual funds, and private shareholders. Tyson’s profits stay with them.
The communities where our food is raised have been increasingly severed from the giant corporations that profit from processing our food. The average annual per capita income in Waldron and surrounding Scott County has stagnated in Tyson’s shadow, growing just 1.4 percent over the last decade to about $22,000. During that time, Tyson’s annual income rose a staggering 245 percent. The same pattern is writ large across other areas where Tyson and other industrial agriculture businesses operate.
While Tyson profits, rural communities tread water. Or drown.
There are deep, structural reasons for this inequity. The meat industry, for example, is controlled by just a handful of giant companies such as Tyson that dominate the U.S. market for beef, pork and chicken. Four companies market about 85 percent of all U.S. beef, for example, while just three companies sell about half the chicken. The industry is more consolidated today than it has been at any point in U.S. history, largely because a number of companies, including Tyson, went on a massive merger spree during the 1980s and ’90s, buying out their competitors and gaining ever more control over the industrial food market. The meat industry is emblematic of other parts of the food system, which is dominated by companies with monopolistic control of markets, whether it is Monsanto in the seed business or Archer Daniels Midland in grain processing.
The effects of this kind of consolidation are entirely predictable. When companies gain power over a market, they use it. Back in the early 1900s, a similar oligarchy of meat companies controlled the industry and earned the nickname the “Meat Trust.” These companies depressed the prices they paid farmers for animals, while raising the prices they charged consumers for meat. Tyson Foods is doing the same thing today. But the modern Meat Trust isn’t facing significant resistance from government officials.
Things are arguably worse today than they were back in 1910. If the old-school Meat Trust barons were able to tour the headquarters of today’s food companies, they would most likely marvel at the new Meat Trust’s mastery of the market. These modern meat corporations rely on “vertical integration.”
In a nutshell, vertical integration refers to the way companies buy up the outside firms that supply them. When a company becomes vertically integrated, it takes under its control and ownership all the once-independent businesses that previously supported it. Prices go from the competitive open market to corporate rate-setters.
In Tyson’s case, the company has swallowed all the businesses that used to make up a small-town economy. It owns the hatchery, the feed mill and the slaughterhouse. It owns the food processing plant where raw meat is packaged or cooked and boxed into ready-to-eat meals, and it owns the trucks that deliver its products to stores and restaurants. While Tyson doesn’t directly own most of the farms that supply it with animals, it controls them through the use of restrictive contracts (read on for more on these). The best way to picture Tyson’s vertical integration is to imagine the broad network of small businesses that were once the backbone of rural communities sucked into a single, towering silo. That silo is Tyson Foods. The company controls and owns everything that happens within the fortress-thick walls of Tyson’s corporate structure.
Tyson directly controls a network of more than 4,000 factory farms, giving it the power to manipulate chicken supplies almost down to the egg. This vertically integrated system has helped make meat production more efficient — between 1955 and 1982, the amount of time needed to raise a full-grown chicken fell from 73 to 52 days. And the chickens got bigger during that time, expanding from an average 3.1 to 4 pounds.
Tyson aggressively competed to win a bigger share of the U.S. market. The benefits of this transformation were passed from the farms to the consumers in the form of cheap chicken. But the benefit wasn’t free: Each new Tyson farm and each new Tyson factory further ripped the fabric of a profitable sector of the country’s economy. Society traded the vibrancy of small to midsized farms and related businesses that competed with one another for an oligarchy of giant companies that now controls the vast majority of the nation’s food supply.
The remaining farms feel this monopolistic power most severely. Declining competition and Tyson’s restrictive contracts have trapped chicken farmers over the years. When a farmer is financially abused, he or she often doesn’t have the option to work with a different chicken company, because Tyson and other firms operate in locations where they are the only game in town. I interviewed one couple who had borrowed $2 million to build a chicken farm where they raised birds for Tyson. Despite the huge scale of their operation, they couldn’t afford health insurance and couldn’t even scare up enough cash to fix their rutted driveway that Tyson’s giant feed trucks had damaged.
Tyson’s income gains are an open book, advertised each quarter when the company releases its earnings to Wall Street investors. The company is reaping record profits of hundreds of millions of dollars every year.
The income patterns of the rural communities where Tyson makes its money are a little more difficult to discern. But it’s possible, using government data, to build a map of Tyson’s economic footprint. By 2011, Tyson had slaughterhouses and production plants in 79 counties across the United States, with an additional four offices and plants located in big cities. Federal data shows per capita income levels in all of these counties, going back to 1969.
The verdict: Tyson’s economic impact is stark.
In 68 percent of the counties where Tyson operates, per capita income has not kept pace with the state average over the last 40 years. The majority of Tyson counties, in other words, were worse off than their neighbors in income growth, even as Tyson’s profits increased.
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 mapping analysis does not compare the overall per capita income in Tyson counties with the state averages. What this analysis measures is the rate of income growth in Tyson’s counties compared with the rate of income growth in surrounding counties.
One might expect that the economic dynamo that is 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: that is, the animals, the feed and the meat. 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 left in the wake of its vertical integration restrain rural income growth. The company has expanded in economically marginal areas, and it has fed off the lowly economic position of small towns and rural communities — rather than improving it.
Attempts to push back against the market power of Tyson Foods and other companies like it have largely met with failure. In 2010, the Obama administration attempted to pass antitrust reforms that would have brought more transparency to the food markets and potentially given farmers more bargaining power. But lobbying groups, such as the American Meat Institute and the National Chicken Council, spent millions to oppose the changes on Capitol Hill. Secretary of Agriculture Tom Vilsack backtracked rather than confront the big meat companies and their congressional allies.
Consequently, that means the rules of rural economies will continue to be written by the handful of companies that control them.
Change will take a lot of time and effort. The entire political equation in Washington will need to shift. Today, no politician in Congress wants to cross the meat lobbyists. Politicians would have to believe that there is a bigger political price to pay for going against consumers and farmers than there is for going against the new Meat Trust.
Of course, anyone can choose to opt out of this system, even if it takes a little bit more time, work and money. A vibrant economy of independent meat producers has sprung up around the country, usually selling their products directly to shoppers at local farmers markets or even online. These entrepreneurs raise breeds of chickens, hogs and cattle that are often different from those found on commercial factory farms or feedlots, and they tend to cater to conscientious consumers’ desire for animals that have been raised in healthier and more humane living conditions. Locally produced meat is more expensive, but paying that premium price comes with the benefits of health, transparency, and making an economic impact that’s an outward ripple instead of just another brick in that towering silo. Shoppers can meet the farmer who raises their food, and ask questions. They know their money will circulate locally, and not be shipped out of town. For a growing number of meat eaters, that premium is well worth the money.
Christopher Leonard is the former national agribusiness reporter for the Associated Press. His work has appeared in Fortune, Slate and The New York Times. His book, The Meat Racket, is available from the MOTHER EARTH NEWS store.