Friday, December 26, 2003

Oligopoly brief: Smithfield Foods As the meat packing industry starts winnowing itself down to a few survivors, Smithfield Foods is determined to be one of them. The $9 billion company has long been the largest pork packer in the world, a position that has been enhanced in recent years by some big acquisitions. It is also now vertically integrated, having become the largest hog producer in the world as well. This combination of farming and packing is unique in the meatpacking business, and it has radically altered the pork business. But Smithfield is not standing pat with pork. It has in recent years bought beef operations, so it's now the fifth largest US beef packer. It is also now a leading producer of deli meat and, of ready-to-eat entrees. Like other meat firms in the US, it is supplanting the in store butcher with the delivery of "case-ready" meats to supermarkets. Acquisitions have been a driving force for the company. Since 1981, when it was a regional producer of ham and other pork products, it has made over 20 acquisitions, many of them in the last few years. It is now expanding operations abroad, and has operations in Canada, Mexico, France, and Poland, with major exports to Japan on a score of other countries. Smithfield's growth has been unimpeded by antitrust actions. The 2003 acquisition of bankrupt Farmland Foods' pork assets moved the company from 20% to 27% of the market, with not a murmer of protest from the Department of Agriculture. And the EPA's campaign against the massive water pollution caused by Smithfield's factory hog farms in North Carolina and Virginia has been soft-pedaled; in spite of poisonous run-off from accumulated hog waste making many of North Carolina rivers toxic dumps. The company has also had struck down state laws that prohibit meatpackers from owning the animals they slaughter. The US political myth of the family farmer seems ever more irrelevant. Smithfield's hog farmers are employees who run large centralized factories. They specialize in one product only, and they follow the rules and the timetables of a major corporation, much like employees in a bank or a phone company. If pork consumption goes down r it becomes less expensive to bring in meat from Canada, Mexico, or the next state over, they are out of a job. The demise of the pork cooperative of Farmland may have been the last gasp of the independent farmer. While other meat packers have an oligopsony toward their farmers, Smithfield owns them outright. That may mean they assume higher risk, but so far, the results have been very good and the company continues to diversify and expand. Some recent acquisitions 1998 North Side Foods, a leading supplier of sausage meat to McDonald's 2000 Acquired hog supplier Murphy Farms 2001 Packerland Holdings, US's #5 beef packer 2001 Moyer, #9 beef packer in US 2001 RMH Foods, a maker of heat-and-serve meals 2002 Stefano Foods, a maker of Italian convenience foods (pizzas, calzones, etc.) 2003 Farmland Foods   Division Founded Segment Brands 2003 sales (millions) Smithfield Packing 1936 Fresh and processed pork products Smithfield Premium, Smithfield Lean Generation Pork, Tender 'n Easy, Lykes, Sunnyland, Jamestown $1,700 Farmland Foods 1958 Processed pork products Farmland, Carando, OhSe, Roegelein $1,700 John Morrell & Co. 1864 Fresh pork, processed meat, ready meals John Morrell, Dinner Bell, John Morrell Tender N Juicy, Kretschmar, Rath Black Hawk $1,600 Packerland Foods 1960 Fresh beef Packerland Packing, Showcase Supreme, Supreme Valu, Grand River Ranch, Sun Land, Murco $1,600 Gwaltney Foods 1870 Fresh pork, processed pork Gwaltney, Great, Valleydale, Esskay, Reelfoot, Stadler Country Hams $643 Moyer Packing 1877 Fresh beef, beef products MOPAC, Steakhouse Classic, Greaseland $616 Smithfield Deli Group 2002 Packaged deli meats Smithfield Premium Deli, Gwaltney Deli, Krakus, John Morrell, Stefano Foods, Kretschmar Deli, Patrick Cudahy $125 Patrick Cudahy 1888 Processed meats Patrick Cudahy, Patrick's Pride, Pavone, ReaLean, Golden Crisp, La Abuelita $268 North Side Foods 1880 Sausage Ember Farms $74 Cumberland Gap Provision 1979 Processed pork Cumberland Gap $70 Quik-to-Fix 1960 Ready-to-cook meat entrees Gorges, Quik-to-Fix $68 Ktakus Foods International 2000 Polish hams Krakus $33 Stefano Foods 1976 Italian convenience foods Stefano Foods, Rip-n-Dip, Great Stuff $23 RMH Foods 1937 Pork and beef entrees Quick-N-Easy Entrees, Rocke's Meating Haus $16 Smithfield Foodservice Group 2003 Foodservice products Gwaltney, Smithfield Premium, Lykes, Basses Choice $400 Smithfield Innovation Group 2002 Food research and development Smithfield by Chef MJ Brando   Scneider Foods (Canada) 1890 Processed meats, chicken, baked goods Schneiders, Mitchell's, Fleetwood, Cappola $770 NORSON (Mexico) 1972 Fresh and processed pork, exports to Asia Alpro, Norson, Sakura   Animex (Poland) 1951 Largest meat and poultry processor in Poland Krakus, Pek, Yano, Constar, Animex, Mazury, Agryf   Societe Breton des Salaisons (SBS) (France) 1964 Processed meats SBS Restauration food service), Petit Rose (export), 255 euros AFG (Chaina) 2002 Processed meat (joint venture with Dutch firm  Artal Holland) Maverick, Haslett   Murphy Brown 2001 World's largest hog producer   $338 CArolina Turkeys   Turkey and turkey products (joint venture with Goldsboro Milling) Carolina $336 1:01:29 PM

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