In an exclusive interview, John Tyson and Dick Bond, leaders of the protein giant created by the merger of Tyson Foods and IBP, talk with BEEF about what's in store for the American beef producer.
BEEF: Why has the beef industry been so slow to develop the consumer-based, end-product mindset that has been so successful in the chicken industry?
BOND: We worked for 40 years to make beef processing as efficient as we possibly could. We did this by building the right types of facilities in the right places. Really, the mindset was to take care of our customers, who were the retailer and the foodservice operator.
Yes, we were late coming to the party, but we were also doing very well in a commodity-based business. We needed to create that processing efficiency in order to step into the value-added business. It just took a little longer with beef than it did with chicken.
TYSON: One reason chicken surged like it did in the 1980s was because we took a wide variety of raw material and put it into a variety of forms with an emphasis on consistency and ease of preparation. We made it easy on the customer to use chicken.
It's happening now in the beef industry and to a degree the pork business. As you know, IBP has been moving in that direction.
But even in the chicken industry it took a while for our competitors to recognize what we were doing at Tyson — and in effect, they were late catching up with us, too. There were small family-owned poultry operations in the early 1980s that were working on value-added products. But they never had enough confidence in what they were doing to get on the value-added train.
My dad's perspective wasn't so much about selling more chickens; it was getting more for the chickens we had. But as the demand increases came, we got both dynamics going and rode both growth curves.
Also, our direct customers — the retailers and food service operators — were consolidating and demanding more from us. At that time, it wasn't so much a question of demand for beef or pork versus chicken; it was a demand for the right business solutions to go with the products our customers were buying.
BEEF: The beef business appears to be evolving into two production and marketing segments — value-based systems and commodity-based systems. How do you want Tyson Foods and IBP to be positioned if this segmentation continues?
TYSON: Tyson tries to offer our customers a full basket of goods — both commodity-based items and items that move up the value chain.
IBP has the fresh meat business figured out — they understand it. IBP can provide anything a customer wants in terms of fresh meat. Now, they're moving up the value chain and beginning to take care of a whole new set of customer's needs.
As we go to our national beef accounts, we can provide consistency and uniformity of product and performance for everyone. Consistency is an area of great opportunity in the protein industry. That aspect of the business will continue to grow.
BEEF: There's tremendous production diversity throughout the beef business. What challenges does that diversity pose for Tyson Foods? How do you plan to deal with those diversities in procuring cattle and producing consistent beef products?
BOND: At IBP today, we're still buying what's in the marketplace because that's what's there. Then we sort for specific needs once we get the product into our processing plants.
But as we go along, we're going to have to segment our buys. We're going to have to direct our purchases to fill specific needs. It will be an evolution into a value-based system, and we are going to have to pay for what we need.
But all animals are not going to be alike. We'll try to narrow that variation through economics. A lot will depend on the size of animal.
We have always pushed to increase carcass weight — because the more pounds you have, the cheaper it is to process. Well, we've taken that to an extreme. Now there is going to be an optimization of weight.
We'll carve out different values for different quality and weight ranges of cattle. Is that all laid out in some master grid today? No, but it will evolve over time.
TYSON: As you move raw materials up the value chain, you theoretically can charge a little more for that product. Once you create a demand for that product, you can go back to the source and share some of that return.
I would not want to vertically integrate the cattle business like what we see in the poultry business. But relationships between suppliers and the processing industry will change based on the type of animal being produced and the demand we create as we take the primary products up the value chain.
I don't think we can help grow the beef and pork industries if we spend our money trying to integrate the “animal end” of the business versus spending money in product development, innovation, marketing and promotion. If we take what we've learned about customer expectations and apply it to beef and pork, we'll have a deeper impact, and sooner, on the beef and pork industries.
BEEF: Do you see Tyson working directly with seedstock suppliers to identify and produce genetics that meets your overall needs the best?
BOND: I think there will be a mutual, positive benefit that will start that process. Whether it's done directly by us at Tyson/IBP or it goes back through the historic chain of the feeder and cow/calf producer is a good question. It might work both ways. We could very well go back to the ranch level and identify where we need to start and what we need to produce — but again, it will be by evolution.
BEEF: Do you see Tyson/IBP getting into the feeding business anytime soon?
BOND: At this point we don't intend to invest in the feedlot business. That's not where we want to put our capital. We want to put our capital into the finished product and take it on up the value chain, working with the retailer and the consumer.
BEEF: Will we see the Tyson label on beef and pork anytime soon?
TYSON: As of now, no. IBP has spent $12 million developing the Thomas E. Wilson line of products — introducing case-ready and fully-cooked products. We will brand beef and pork — it just might not say “Tyson.”
BEEF: Beef and cattle imports have been a very contentious issue for cattle producers. What's your overall philosophy on international trade?
BOND: Yes, imports are a big issue in some parts of the country. On a live cattle basis we buy cattle from Canada — if we didn't have those cattle, we would not have enough animals to keep our Pacific Northwest packing plants in operation. We don't generally import beef other than what we own in Canada — and then we end up shipping some of that meat back to Canada and some to other countries like Japan.
We try to optimize our exports every day. We export $1.6 billion per year in meat and by-products. We are very interested in continuing exports.
TYSON: From a poultry standpoint, you don't see much in terms of imports — it's just not economical to bring them in from other countries. Our concern would be different standards of production and processing from what we see here today that would change the economic balance.
We're going to aggressively export as much as we can. We're doing a good job of selling more than the by-products of the American poultry system, including value-added products. Like everyone else in agriculture, we'd like to participate in Europe, but Europe is a whole different issue.
BEEF: Where do you stand on the issue of country-of-origin labeling for fresh meats?
BOND: IBP is opposed to country-of-origin labeling. It's a cost to the industry that's of no benefit to the consumer. You are just adding another layer of separation to the system.
Beyond the packing plant, throughout distribution channels and retail outlets, you are adding a second set of stock keeping units (SKU's) to the system. And, remember those imported products are produced and inspected under the same processes as in this country.
The Tyson Story
In the early 1930s, John Tyson made his living hauling birds for chicken growers around northwest Arkansas. In 1936, he heard chickens were bringing a better price in northern markets.
So, he cashed out his savings, borrowed some money and bought 500 chickens and headed his battered old truck for Chicago. There, he sold the chickens for a $235 profit, wired some money home to pay his debts and bought another load of birds.
That trip was the foundation of what's now the world's largest poultry company — Tyson Foods Inc. On Sept. 28, Tyson completed its merger with IBP Inc., Dakota Dunes, SD, the world's largest beef processor. The $2.7 billion deal makes Tyson Foods Inc. the largest protein provider on Earth, with projected total revenues for 2002 of more than $25 billion.
Tyson's traditional operations are located in 18 states and 16 countries, exporting to 79 countries. Its integrated systems yield 7 billion lbs. of chicken and chicken-based foods annually. Production flows from 7,400 contract growers and 46 company-owned grower operations. Total 2000 sales were $7.3 billion.
Tyson also has 110,000 sows in its swine herd. More than 35% are on Tyson-owned farms, with the rest managed by independent contract growers. Tyson's hogs are sold to other feeders and directly to meat packers.
Meanwhile, IBP has more than 60 production sites in North America, joint venture operations in China, Ireland and Russia, and sales offices throughout the world. Annual sales exceeded $16.9 billion in 2000.
IBP began with a single beef packing plant in l961 in Denison, IA. It introduced the concept of boxed beef in 1967, dramatically changing meatpacking.
In later years, the innovative firm moved into pork and other value-added areas. It took a major step in value-added food production in 1997 with the purchase of Foodbrands America, a leading manufacturer and marketer of frozen and refrigerated food products for both the foodservice and retail industries.
Many other companies and operations have since been acquired and integrated into the IBP fold. Most recently, IBP took a major step in its mission to create branded product lines with the debut of their Thomas E. Wilson brand meats in spring 2000.
IBP's by-product line includes more than 350 items. The largest supplier of hides for the leather industry, IBP has also become one of the world's largest tanners.
Today, John Tyson, 48, — grandson of the 1930s pioneer — is chairman and CEO of Tyson Foods. He heads the new business structure created under the merger of Tyson and IBP.
From his Springdale, AR, offices, Tyson now oversees 120,000 “team members” working in more than 130 production facilities across the country. The new Tyson Foods Inc. expects to garner 28% of the U.S. beef market, 23% of the chicken market and 18% of the pork market.
The new company's structure will consist of two primary groups:
The Food Service and International Group led by co-chief operating officer (co-COO) and group president Greg Lee.
The Fresh Meats and Retail Group led by co-COO and group president Dick Bond.
IBP's current headquarters in South Dakota will remain the operational base for the IBP Fresh Meat Division.
Tyson and Bond recently sat down with BEEF to talk about the new company's structure, philosophy and direction. Tyson and Bond are confident the new company can do for beef what Tyson has done for chicken.
“I look at it this way — we as individuals eat some beef, we eat some pork, and we eat some chicken,” says Tyson. “That overall protein consumption level is going to grow in the future. We're going to take these two good companies that produce good quality proteins and add value to what we produce.”