Globalization Will Mean More Mergers

From the US magazine: Cattle Buyers Weekly

Globalization of the meat industry will mean more consolidation, says retiring IBP chairman Bob Peterson. The evolution of consolidation cannot be stopped. Whatever industry it is in, nobody can build a fence big enough and strong enough to protect the inefficient, he says. And the U.S. is in a world market. What if Russia regains its power? What if Argentina emerges? What about China and its 450M hogs, compared to 100M in the U.S.? What is the U.S. going to do if it has to compete with them? There will be more mergers of poultry and red meat companies, maybe even fish.

Tyson-IBP will be a major international company with branded products, he says. Other companies will have to build a national, even an international brand and put a lot of money behind it. How are you going to compete in the world if you don't do that? There will be regional, ethnic brands. But they will stay small, he says.

IBP in five years time will be a major product brander, says Peterson. Its Thomas E. Wilson brand and Tyson will be major brands in both the retail and foodservice markets. Foodservice, other than at the very high end, will move to prepared products because of a shortage of cooks. Convenience and preparedness will continue to evolve. This kind of growth means meat companies can take their commodity margins today and double them. But he wants to be sure that IBP goes branded rather than becoming a custom manufacturer.

IBP is going to be the Oscar Mayer of muscle meats in terms of brand quality, he says. Thomas E. Wilson will also be the brand that IBP uses globally rather than just USDA Choice, he says.

Tyson/IBP will also become an international manufacturer, says Peterson. It won't do that to avoid labor costs. Global is where you have to go if you are going to grow. IBP has always gone where the livestock are, he says. Whether it's Brazil, Argentina, Australia, Russia or Mexico, the company should be there. Most of these places don't feed corn to cattle. But most of the world doesn't eat corn-fed beef anyway. Their palate is for grass-fed beef.

We've got to go to different places, we've got to change, we can't wait to go some place because they're not feeding corn, he says. We've got to be flexible, we've got to be able to make all kinds of products for all kinds of different ethnic groups, he says. But it has to be done on a major scale to keep costs down, and be done better than anyone else. Tyson/IBP's international business will grow tremendously in the next 25 years, he says.

Some beef plants in the U.S. will be sold in the next year or so, says Peterson. When the going gets tough, the tough really get going. There could be some shakeouts. In a very short time, there will be more production capacity available than cattle. Tyson/IBP will expand their beef and pork facilities in several different ways, he says. They will expand their sourcing of raw material. They have got to continually work on building a bigger base, he says.

As for forward integration, there will be more value adding and cooking of meat, he says. Pre-prepared products will include meat, potatoes and vegetables. They'll be barbecued, baked or whatever. They will be the whole meal. So Tyson/IBP will become more involved with other suppliers, he says.