An upstream attitude. That's what John Tyson will bring to the beef industry. It's what his grandfather John Tyson, his father Don Tyson and he have brought to the chicken industry — a focus on the end-product with attention to convenience and making chicken an enjoyable and affordable “everywhere” food.
During a recent interview (October BEEF, page 16), John Tyson, the man who just spent nearly $3 billion for controlling interest in IBP and overnight control of 28% of the beef market, talked about the past. It's not hard to figure that Tyson's past is beef's future.
And, no matter how much you hate meatpackers — no matter how badly they have burned you in the past — face the fact that Tyson means business. He's a tough, tough businessman who will not fail.
Don Tyson grew the chicken business by focusing on two important philosophies.
First, he didn't necessarily intend to sell more chicken. He figured the long-term solution was to get more for the chickens he produced.
Second, he decided early on that he needed the food retailers and food service industries to be profitable. So, at every juncture he worked to provide business solutions for his customers.
John Tyson says it “just happened” that Tyson Foods was in a position to ride two growth curves at once — growth in per capita consumption and growth in demand. Of course, it didn't hurt the chicken business that cattlemen simply didn't understand who was signing their paychecks.
To be fair, ranchers did have something to show for their efforts. Second- and third-generation cattle producers built some impressive, efficient operations on cheap land with cheap labor (whoever put a value on farm labor in the '50s and '60s?). Building on what their dads and granddads had put together, they pumped out impressive amounts of commodity beef to a public whose desires were changing.
Trouble is, producers kept looking back at the downstream end of the business — diversifying, making bigger cattle and inventing more ways to make them different.
Today, the only rule left for the rancher is the one that says success lies as much in what's upstream from the cutting chute as in what lies downstream.
What's the upstream outlook with Tyson as the chief navigator on our waters?
Number one, Tyson doesn't want to own ranches. Not even Tyson has the wherewithal for the investment it would take to control enough cattle for significant integration. He knows there are plenty of men and women out in the country who want to own land and can grow beef efficiently.
What Tyson has done is buy into a mature meatpacking business. IBP has ironed out most of the inefficiencies of meatpacking. Tyson is poised to take IBP full speed ahead into the value-added, end-product future.
Tyson will put tremendous resources into the finished beef product. He certainly didn't invest $2.7 billion to let nearly one-third of an entire industry flounder. But, he's not going to be patient if supplies begin to wane or if the cattle he buys don't fit his needs. He will do everything in his power to keep the pipeline full.
For the rancher in the country, the ultimate question is: How will Tyson approach the supply end of the beef business?
He might not need to own cattle, but there's no question he'll be looking at his suppliers to offer him business solutions. If he's able to get more for the beef he produces, will he reward those suppliers commensurately?
Or, will he try to use his market power to manipulate the ebb and flow of cattle supplies? If he does, will it work in today's changing market structure?
Either way, it's likely there will be an ever-widening split between prices for types of cattle. There'll be a price for source-verified, uniform cattle that fit the high-end product category. Then, there will be a significantly lower price paid for the hodgepodge that will ultimately be dissected into bite-sized pieces.
Spreads will widen for different classes of fed cattle, with separate price schemes paid for “program” cattle. But, whether spreads will close wholesale cutout and retail prices is any one's guess. That's where people like Tyson can come to the table. It's a two-way street — he needs to provide business solutions for his suppliers, too.
Can John Tyson look upstream while keeping an eye on what's downstream? I think so.