IBP And The U.S. Meat Industry Starting out in 1961 with a $300,000 loan from the Small Business Administration, by 1989 IBP had grown to become the nation's largest processor of fresh beef and pork...

IBP And The U.S. Meat Industry



Starting out in 1961 with a $300,000 loan from the Small Business Administration, by 1989 IBP had grown to become the nation's largest processor of fresh beef and pork with revenues of $9.1 billion. However, as concerns about the adverse health effects of red meat mounted, competition in the meat processing industry increased, and industry excess capacity approached 25% in the trough of the beef cycle, IBP's profitability deteriorated. In 1989, IBP's net earnings dropped 43.3% to $35 million, or .4% of sales.


At the same time, speculation emerged concerning the life expectancy of Occidental Petroleum's controversial 91-year-old chairman, Armand Hammer, who had acquired IBP in 1981. Occidental ran IBP as a wholly-owned subsidiary until 1987, when it divested 49.5% of IBP's common stock in an initial public offering. Many on Wall Street felt that Occidental might soon sell its remaining 50.5% stake in IBP.


As IBP's financial condition worsened, the company began to consider possible remedial actions, and hired Bain & Company to assist in evaluating strategic options. Speaking of IBP, one industry observer commented, "They haven't been the innovator in the last five years. They've just taken advantage of their earlier victories."¹



Meat Industry History


In the 1800s, with railroad lines converging from the livestock raising regions and extending east, Chicago emerged as the nation's central market for livestock trade and packing. To promote increased commerce, a number of railroad companies and the city's packers jointly financed the Union Stockyards in 1865, a train depot with nearby cattle and hog pens. Packers who located at the stockyard used unskilled workers in a rationalized and quickened disassembly process, and hired chemists to reclaim value from packinghouse wastes by turning animal remains into everything from soap to violin strings.


Research Associates Nancy Donahue and Toby Stuart prepared this case under the supervision of Professor David Collis as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This case was prepared exclusively from public sources and was not approved by IEP.


Copyrigln@ 1991 by the President and Fellows of Harvard College. To order copies, call (617) 495.6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business SchooL


1. Marj Charlier, "Occidental Plan to Spin Off up to 49% of IBP," Wall Street Journal July 22, 1987.


IBP And The U.S. Meet industry


Other midwestern cities, such as Kansas City, set up their own "terminal markets" and lured packers to establish on-site plants with offers of stockyard ownership. Gradually, midwestern meatpacking became concentrated at the terminal markets. The midwestern packers typically operated out of tall, multi-storied facilities. Animals walked up ramps to the killing floors on the top story. Once slaughtered, they were hung on hooks and propelled by gravity to the lower floors for further cutting and cleaning. The work was labor intensive, with human hands wielding knives and saws to behead, gut, chop, and trim the animals.
By 1900, five competitors controlled 70% of the nation's fresh meat output (Armour, Morris, Swift, Cudahy, and Wilson.) During the next 20 years, the group of five became known as the Beef Trust. Their terminal market plants grew into multi-species facilities, slaughtering cattle, hogs, and sheep in sufficient numbers to keep their expansive transportation and distribution systems running efficiently. In addition, the Big Five firms also held majority interests in cattle ranches, fertilizer works, glue factories, dairies, and poultry and egg operations. Together, the Beef Trust controlled the largest stockyards and the major terminal railroad companies.
In 1906, Upton Sinclair riveted public attention on the Beef Trust with his best selling novel,
The Jungle-a
book that gruesomely documented the unsanitary meatpacking conditions and adulterated products. Government investigation of Sinclair's claims led to a USDA system of plant and product inspection. In addition, by 1919, the Justice Department was investigating the Big Five for violating the Sherman Anti-Trust Act. In 1920, the Beef Trust signed the Packers Consent Decree that sought to restore competitive market conditions and mandated that the five meatpackers divest their railroad and branch house holdings.
While the Consent Decree weakened the position of the Big Five, changes in the industry after WWII also contributed to their decline. The development of refrigeration for trucks coupled with the construction of interstate highways lessened dependence on the railroads, and many new packers opened plants closer to livestock supplies in the Great Plains region. For the new companies, such as Iowa Beef Packers, locating near supply sites lowered the cost of transporting live cattle to the packinghouses and reduced the weight loss that occurred during shipping as cattle became dehydrated.
Other savings for new packers were associated with the land and labor costs in rural areas. The 1947 Taft-Hartley Act prohibited union shops in most Plains states, which allowed packers to circumvent the Master Agreements that the unions had long before negotiated with the Big Five. The newly formed packers paid their workers
$5.50
to $6.00 per hour with little or no fringe benefits (1980). Comparatively, the older packers under the Master Agreements paid average wages of $10.69 per hour with fringe benefits adding $4 to $7 more.
Even though the new meatpackers lacked brands, the government's mandatory federal grading system did much to increase buyer information and equalize beef products. Imposed during WWII, the USDA system ranked the quality of all beef cuts in seven grades and made beef an essentially homogeneous commodity product.
Beginning in the 1950s, supermarket chains preferred the higher USDA grades, including Prime and Choice cuts, to meet the tastes of their expanding and affluent urban customer base. These cuts were most easily attained from grain-fed cattle, so the grocery chains helped to organize the nation's first feedlots. These complexes, sourcing from ranches and farms, became
2
IBP And The
U.S. Meet industry


"Beef Factories,^tt
fattening animals on a grain diet before sending them to the packinghouse. Many feedlots hired full-time nutritionists and veterinarians and installed computers to systematize feeding. By the mid-1960s, huge commercial feedlots had opened throughout the Southwest and Great Plains, and packers set up nearby facilities to slaughter feedlot cattle. In 1970, Chicago's Union Stockyard closed for lack of business, surrounded by idle plants. The other midwestern terminal markets similarly declined.
Innovations at the new plants from 1960 to 1980 made meatpacking an intensive, mass- production business. Because the cattle usually came from feedlots within a 100-mile radius, packers could schedule continuous delivery, avoiding inventory build-up and on-site feeding. With an improved horizontal process flow, the packers disassembled the cattle efficiently. Factory line procedures reduced carcass disassembly into very specialized tasks, performed repeatedly by workers. Equipped with power saws and knives, many workers stood on moving platforms that were raised and lowered as the carcass passed by to minimize the movements required. As the slaughtering process became more mechanized, labor requirements fell off and killing costs per head declined. By 1967, the killing cost at highly automated plants was 20-25% less than the industry average. By 1980, Iowa Beef, the low-cost leader, ran its slaughtering processes at about half the cost of its older competitors.
The introduction of boxed beef in 1966 resulted from these production improvements. With Iowa Beef at the forefront, many new packers began to break the carcass down into multiple cuts of beef. These cuts were then vacuum-packed in plastic and placed in corrugated boxes, which extended the shelf life of beef from one to three weeks and also reduced the need for highly skilled butchers at the retail level. A typical carcass would be broken down into nine boxes (Exhibit 1'). In the process, the packers could capture additional waste and process it into animal feed, fertilizer, and other co-products. This eliminated the need to ship over 200 pounds of fat and bones. Because boxes of beef could be neatly stacked, more boxed beef could be loaded on each truck than carcass beef, reducing shipping costs by
25%.
Throughout the 1970s, the distribution of boxed beef grew rapidly, and by 1990, sales of carcass beef had virtually ceased. For example, by 1990, only 4% of IBP's sales were of carcass beef.

Meat Industry Issues and Developments, 1980-1990

During the 1950s and 1960s, the demand for beef in the United States grew phenomenally. Beef became the major staple of the American diet. During the 1970s and 1980s, however, the tastes and demographic make-up of the American public began to change, and by 1989, beef consumption had dropped to its lowest level in almost 30 years (Exhibit 2).
Americans had gained a heightened awareness of health and nutrition, and had become concerned about the high caloric and cholesterol content of beef as reports linked these to heart disease and strokes. More and more, consumers were choosing chicken over beef because it was leaner, easier to cook, and less expensive. In 1987, per capita poultry consumption surpassed beef for the first time, and industry experts forecasted that per capita beef consumption in the U.S would fall to about 50 pounds by the year 2000, while chicken would reach 90 lbs.
It was cheaper to produce chicken and pork than beef because they required significantly less feed per pound of live weight than beef (Exhibit 3'). Chicken processors had integrated forward into branded products and backward into the management of hatchers and growers under long-term contracts. This allowed them to control genetics and feed formulations to produce a more uniform product. A study showed that between 1967 and 1988, the poultry industry reduced the cost of marketing, transportation, and processing their products from the incipient stage to the retail point by 36%. Beef costs during the same period rose 10%. From 1950 to 1987, the retail price of chicken increased 28%, compared to 222% for beef and 231% for pork (Exhibit
In response to these changes, all beef industry participants attempted to adapt. Some cattlemen introduced new feed formulas and genetic selection programs to generate leaner cattle. A new cattle pricing program also attempted to promote leaner cattle by gauging yield and grade after slaughter. To promote a leaner image, retail butchers initiated a program in 1986 that reduced the external fat cover on beef cuts. Packers also began trimming away more separable fat, which enabled them to render more fat into co-products.
On the marketing front, the National Cattlemen's Association (NCA) approved a mandatory $1 per cattle head check-off program in 1987 to raise funds for consumer-oriented beef promotions. The money provided a $60 million annual budget for marketing initiatives that was largely allocated for a television advertising campaign called "Real Food For Real People." Overall, the responses to these efforts were mixed. The cattlemen who had paid for the major marketing efforts believed that their actions had only prevented further downward trends in beef consumption. "Packers have to do more to increase the demand for beef," noted one cattle raiser. 'They have to sell the sizzle of their own lean beef products on TV."²

One major meatpacker, Excel, the number three U.S. packer and a subsidiary of the agribusiness giant Cargill, responded to the industry changes by introducing a name-brand, case- ready fresh beef product. Excel's case-ready beef was made by trimming off almost all the visible fat on a cut of beef and then vacuum-sealing the cut in a consumer-ready packages. Because these packages were clear on both sides, consumers could see both sides of the beef, and the vacuum seal gave the product extended refrigerator life. Excel's innovation came in 1986 at the request of Kroger, the nation's second largest grocery chain, that had asked several meatpackers to develop branded beef. During its trial phase, Excel beef gained a 40-50% market share at many of the Kroger stores where it was offered. In its first year, repeat purchases of the product were about 70%, but getting consumers to make the initial trial was challenging. The Excel beef, because it was packaged so quickly after slaughter, had little exposure to oxygen. Although this actually made the meat fresher than boxed beef cuts, it also gave it an unfamiliar dark purple color.
Kroger priced Excel's beef products at a premium, which deterred purchase of the product. Traditionally, retailers set 20-25% gross margins on fresh beef products to cover their processing, packaging, promotion, and labor costs. This cost averaged 21 cents per pound, but Excel's case-ready product never needed to be touched by a butcher, and any employee could re stock the shelves when supplies got low. Despite this, many Kroger store managers continued to price the beef with high gross margins, which made Excel too expensive for many buyers. Nonetheless, the nation's more progressive retailers strongly supported beef's move to case-ready packaging. Case-ready products shifted the retailers $ 12-14 per hour butcher costs back to the meat producer, where they averaged $7-8 per hour.
2. Supermarket News July 14, 1986, p. 17.

4 ISP And The U.S. Meat industry



The other leading meatpackers, however, had been slow in developing viable case-ready beef products. Excel cited its disappointment that IBP and ConAgra did not response to case- ready packaging, particularly because it spent three years adapting its plants to package the product efficiently. Both IBP and ConAgra felt that case-ready products demanded a steady, consistent supply of cattle for a uniform product that was not yet available. Excel achieved uniformity for its branded product by contracting for livestock from Isa Cattle Company, a cooperative of cattle raisers that employed genetic management.


However, according to some industry analysts, the most impressive innovation in the beef industry during the 1980s was not case-ready beef, but natural beef, made from cattle not fed with anitbiotics, growth stimulants or chemical feed additives, and light beef, a low-fat product from special breeds of cattle. These products were introduced by niche players that monitored their beef product from conception to consumption so that at no point was it exposed to chemical additives, and they also controlled the number of breeds they processed. Unlike the major packers, which received up to 60 different breeds from hundreds of different feedlots, the niche players raised and sourced a uniform beef product. Typically, these producers cross-bred to generate lower fat (25-85% less than average beef), lower cholesterol, and lower calorie products (32-80% less than average beef and comparable to chicken). Natural/lite production costs were 15-20% over the industry average.


Many retailers that offered natural/lite products hoped that they would bring some shoppers back into the beef fold. By 1989, total natural/lite beef sales comprised under 1% of the U.S. $25 billion fresh beef market; their reception had been described as "moderately successful." Some analysts had forecasted that this category could eventually capture 20% of the U.S. beef market. This movement, however, threatened most U.S. cattle raisers, who used antibiotics and growth hormones to boost cattle weight and feared that natural products would imply that traditional ones were unsafe.


Beef industry participants, including cattle raisers, packers, and retailers, were also planning to face poultry with the introduction of higher quality, convenient, and higher value- added items such as microwavable products and fast fcod items.


Industry Structure in the 1980s


Cattle Raising and Feedlot Operations


Cattle raising in the 1980s was scattered throughout the middle states region on 1.5 million ranches and farms from the Texas panhandle to Montana. The typical operator only fed about 150 head of cattle; most ranchers derived additional incomes from oil or mineral deposits on their property, while the farmers grew crops. Ranchers and farmers maintained the cattle for their first 9 to 12 months and then sold them to feedlots, usually within 200 miles. The feedlots grain fed the cattle for 11 to 18 months before selling them to the packers.


From 1980 to 1990, the U.S. cattle industry was struck by heat waves and droughts that limited grain and livestock supplies, and by 1988 the cattle population was at a 25-year low. The availability of cattle depended on the cattle cycle, which ran 10 years from peak to peak, and which resulted in large swings in the profitability of meat packers. For example, the herd size peaked in 1983 and reached a nadir in 1988 (Exhibit 4~. As a result, many farmers and ranchers exited the business, and feedlots consolidated.


5- ISP And The U.S. Meat industry



Meatpacking

By the 1980s, most of the former Beef Trust companies had exited the meatpacking industry, and only Swift remained a significant force in the fresh beef business. Armour survived by concentrating on branded hot dogs and bacon, while Wilson developed pharmaceutical and sporting good subsidiaries and shifted to fresh pork, an industry without USDA grading.
The new meatpacking entrants had initially concentrated solely on beef production. Iowa Beef emerged as one of the most successful new entrants, and through a series of acquisitions and internal development it ultimately grew into the nation's largest meatpacker. Many other firms modeled themselves after Iowa Beef, but through a wave of industry consolidation in the 1980s most became part of huge food and grain conglomerates. By 1988, Iowa Beef, ConAgra, and Cargill slaughtered over
75%
of the nation's cattle and merchandised 82% of the boxed beef. The same three also controlled about
35%
of the U.S. fresh pork market (Exhibit
5
and Exhibit
In an industry where net profit margins averaged under 1% of sales, cost control and efficiency were extremely important. The top three packers operated two distinct types of plants. They ran slaughtering plants for beef carcasses and fabricating plants for boxed beef; specialized equipment and labor requirements for boxed beef made separate plants more efficient. Some fabricating plants were stand-alone facilities drawing on carcass plants up to 100 miles away, while others were adjacent to large slaughtering operations. As the meatpacking industry consolidated in the 1980s, many smaller plants were forced to shut down as economies of scale drove plant expansions. Total slaughter costs for a 60 head/hour plant, for example, were 40% greater than for a 300 head/hour plant. In 1988, construction costs for a minimum-efficient slaughtering and fabricating complex for cattle could exceed $70 million.
Each plant typically employed five to 10 field agents to source cattle from nearby feedlots. During the day the field buyers were in continual contact with the plant. They kept track of slaughtering costs, delivery costs, product shrinkage, plant operating levels, and the current retail prices for fresh beef and co-products, and used this information to set volumes and prices. Through direct negotiation the field buyers and feedlot operators settled on spot cattle prices based on live weight and "eyeballed' yield (pounds of beef per head) and grade (quality.) Delivery to the plant was usually scheduled for two or three days later. When the field buyer closed a deal he communicated details to the plant's sales department, which immediately began to solicit retail buyers. Routinely, the plant sold the beef even before the cattle left the feedlot, allowing packers to operate on a day-in, day-out basis.
During the early 1980s, live cattle prices were pressured downward as Iowa Beef, ConAgra, and Excel increased their market power. As consolidation occurred, plant closings often left only one or two buyers bargaining for cattle at many feedlots. By the late 1980s, however, the effects of industry consolidation on pricing were offset by the declining cattle population, and the nation's feedlots and meatpacking plants were operating at only 70% to 75% of capacity. Many packers bid up live cattle prices and implemented new pricing and sourcing programs to ensure a steady flow of cattle into their plants. Some began negotiating forward agreements that promised future delivery of cattle from the feedlot to the packer at an agreed upon price. Meatpackers also began to take ownership in feedlots. By 1989, the nation's 15 largest packers procured almost 20% of their cattle through these methods.

6


IBP And The U.S. Meat industry



Meat Wholesale and Retail


Beef was a supermarket's largest selling item, comprising about 8% of sales volume. Grocery stores typically bought fresh beef through their wholesale channels: the nation's largest 20 grocery chains purchased about 40% of all fresh beef sold. At the regional level, the grocery industry was consolidated with about four chains generally controlling over 60% of the fresh beef purchases in each major metropolitan market. Wholesalers had noted in the 1980s that Iowa Beef, ConAgra, and Excel were intense rivals, with each competitor cutting prices in pursuit of market share.


The wholesale-retail distribution channel absorbed 65% of the U.S. meatpacker's output. An additional 33% was sold to a range of buyers, from fine restaurants to McDonald and Burger King fast food outlets, which the nation's meatpackers reached through independent food wholesalers. The remaining 2% of U.S. beef was exported, but expansion was impeded by access barriers. EEC restrictions hindered exports to Europe: in 1988, the EEC banned American beef raised with growth hormones, which virtually closed the European market. Other factors, such as differences in taste, also limited industry exports mostly to animal by-products. In Asia, trade negotiations and the devaluation of the dollar helped to open the Japanese and Korean markets (which had been virtually closed to American producers), but American producers did not expect significant benefits until 1997 or later. Additionally, the Australians were strong competitors in the Asian markets.


Meatpacking Industry Competitors


Conagra Incorporated. ConAgra was formed in 1919 as Nebraska Consolidated Mills, beginning as a grain producer and flour miller (Exhibit 7 and Exhibit 8). By 1990, ConAgra had grown through acquisition to become the largest publicly held grain company, flour miller, and agricultural chemical distributor. ConAgra was a fully diversified food company, operating across the entire food chain from the farm to the dining room table. The company's 1989 revenues totalled $11.3 billion.


Beginning in the 1970s, ConAgra adopted a "center of the plate" strategy, and aimed to become a major supplier of chicken, turkey, pork, seafood, and beef. Describing the strategy, ConAgra's CEO Mike Harper said, "Consumer interests will shift from time to time short term. Regardless, we know that the American consumer will be having something in the center of the plate, and our business strategy has been to put in place balance, so that what ever happens we will be there."³



A wave of acquisitions from 1970 to 1990 made ConAgra the largest supplier of animal protein in the United States—number one in lamb, number two in chicken, turkey, beef, and pork, and a dominant competitor in seafood. Through these acquisitions, Conagra gained a number of widely recognized meat products including Country Skillet chicken and Morton seafood. It also acquired many higher-margin, name-brand frozen and microwave foods where it became a dominant player. Conagra gave each of its acquisitions operating autonomy, encouraging them to keep their own identity and brand name. In the 1990s, it had begun more active promotion


3. Wall Street Transcript December 26, 1988, p. 92,060.


7



IBP And The U.S. Meat Industry


of its brands by forming product tie-ins with other companies (for instance, Country Pride Chicken with Kraft Barbecue Sauce).
ConAgra entered the beef industry in 1983 with the acquisition from Greyhound of a former Beef Trust company, Armour Food. Armour had concentrated its operations on name brand pork products, deli-counter meats, and Armour Dinner Classics frozen meals. It also ran a small fresh beef processing unit which ConAgra quickiy augmented through other acquisitions including Monfort, E.A. Miller, and Swift, the other remaining Beef Trust company. Monfort operated its own feedlots, owned 380 refrigerated trucks, and produced food service and retail meat products, while Swift operated the largest food distribution and sales system of any domestic meat processor, serving 18,000 clients. Although all the acquisitions were consolidated under the name ConAgra Red Meat Companies, each unit operated independently. Monfort, the largest of ConAgra's beef companies, was the industry's fourth largest competitor prior to the acquisition. Speaking about the acquisitions, ConAgra economist Dick Gady said, "I think ... there are some advantages of being in beef, poultry and hogs as a group. It's possible that poultry demand would drop and beef demand would increase. If that's the case, then ConAgra is in a beef market that would be an offset to weakness in poultry."⁴
In addition, because most restaurants used beef, pork, lamb, and poultry, salespeople from these areas could help each other in their sales effort. Through these acquisitions, ConAgra purchased feedlots that supplied about 15% of its cattle requirements, which ConAgra's CEO viewed as an "insurance policy" in times of livestock short- supply.
By 1990, some cattlemen and retailers were looking to ConAgra to use its acquired marketing skills to help improve beefs position. In the 1980s, Monfort had initiated branded beef and lamb products, but that effort was stalled as ConAgra struggled to solve the operating problems of its newly absorbed packers. However, the company had started to consider that the beef industry might follow the trend in poultry toward increased consumption of branded products. By 1990, 30% of chicken sales were of value-added products and over 40% carried a brand name, and Conagra felt the same pattern might emerge in beef.
Cargill. In 1978, Cargill, the agribusiness giant and the nations largest privately-owned company, outbid ConAgra to acquire Excel meatpackers. Cargill already participated in a number of related industries; it marketed Paramount Chicken and owned Capwork Industries, a chain of large feedlots in Kansas and Texas. In 1989, Cargill's revenues exceeded $40 billion, largely derived from commodities such as its worldwide citrus-handling and grain processing operations.
The Excel Packing Company was founded in Chicago in 1936, but later moved to Wichita to locate closer to a supply of slaughter animals. In 1969, Excel merged with the Kansas Packing Company and three smaller meatpackers. It changed its name to Kansas Beef Industries and began to market its products under the XL name. Five years later, in 1974, Kansas Beef merged with Missouri Beef Packers and the group came together under the Excel name.
During the 1980s, Cargill infused Excel with capital, upgrading facilities and growing it primarily through acquisition, from the sixth to the third largest beef packer. Two of its acquired companies, Spencer Beef and Sterling Beef, were each among the nation's ten largest beef packers.
4. Jane E. Limprecht, ConARra Who? ConAgra, Inc., 1989, p.249.
8
IBP And The U.S. Meat industry



With slow growth in case-ready beef, Excel began selling its branded beef in non traditional food outlets. In 1989, a few mixed merchandise K-Mart stores began to carry the Excel line and understood the "new math" of case-ready beef, attaching only a 10% gross margin to the product. "What we hope would happen," one executive said, "is that retail grocery operators would be able to see how it is working for other types of retailers and be a little more convinced that it will in fact work for them."⁵



Hormel. In 1891, George Hormel purchased an abandoned creamery where he began a meat-packing business. In the 1930s, under the innovative leadership of Jay Hormel, the company launched a line of canned products including Hormel Chile and SPiced hAM (SPAM.)


By 1979, Hormel's branded noncommodity products comprised 30% of its $1.4 billion in revenues. The remaining 70% of the company's sales derived from its beef and pork processing business, where labor costs amounted to 18.7% of sales, compared to an industry average of


10.7%.


Around this time, Hormel began efforts to improve the efficiency of its meat processing operations: between 1978 and 1982, the company spent over $250 million to modernize its facilities, including a $100 million state-of-the-art plant and a $24 million-pound-capacity warehouse. Simultaneously, the company launched an extensive R&D program, centered on developing flexible production machines and focused plants, as well as new products. As a result of these and later efforts, in an 18-month period around 1987, Hormel introduced 132 new products. Also, through its process research, Hormel had developed the most efficient pork operations in the industry.


From 1979 to 1989, Hormel's ratio of branded, value-added meat products rose from 30% of total sales to 75%. The company's value-added products generated margins as high as 9% of sales, compared to 1% of sales in meat processing. However, as the company shifted its product focus to a cunsumer orientation, Hormel increasingly competed with consumer products companies such as Kraft and General Mills. These companies possessed extensive R&D facilities, marketing expertise, and strong ties to the major retail supermarkets.


Coleman Natural Beef. Mel Coleman, one of the first natural beef producers, became well known throughout the industry for his two year legal battle with the USDA for the right to place a "natural" label on his product. Coleman's victory in 1981 made the marketing of Coleman Natural Beef products viable and opened the field to natural beef competitors. In 1979, he began to rear cattle without hormones or antibiotics until they were ready for market and hired a packer to custom-slaughter the animals.


Coleman's first years were difficult as supermarkets showed little interest in his product. Finally, in 1982, Coleman visited health food stores and signed on his first account in Los Angeles. Since then, Coleman's overall approach has been marketing driven as he created a natural, outdoorsy image for his products. Coleman Natural Beef advertisements and product labels read "100% Rocky Mountain Pure," and TV commercials showed Mel Coleman on horseback with cowboy hat and bcots.


5. Supermarket News. January 30, 1989, p. 39.


9




IBP And The U.S. Meat industry


By 1989, Coleman Natural Beers revenues reached $20 million. Coleman had a loyal customer following and was noted for quality: he had contracted 35 ranchers to raise cattle for him and owned a Denver slaughterhouse where he processed and boxed 400 cattle each week. A fleet of his own trucks delivered Coleman Natural Beef, which was priced about 25% higher than USDA Choice cuts, to health food stores around the nation and to some large grocery chains, including Purity Supreme in Massachusetts and Vons in California. By 1990, he was also considering introducing a natural chicken product. Coleman's plan, however, was threatened as the USDA reconsidered removing the natural label rights for all natural beef products.
UltraBeef Incorporated. UltraBeef was one of the most technologically sophisticated niche producers, developing UltraBeef brand with Chesapeake Genetics, a Maryland biotech firm. UltraBeef came from Simmenthal bulls, a Swiss breed known to generate extra-lean beef. UltraBeef matched its pool of Simmenthal bulls with select female cows through their own extensive computer database. In addition, it raised cattle on its own ranches in South Dakota and Montana, and then had them custom fed on feedlots according to a computer-controlled program free of antibiotics, growth stimulants, and chemicals. UltraBeef's cattle reached their market weight in 13-14 months (versus the average 24-28 months) and required less feed. Through a long-term contract, Dubuque Packing Company slaughtered and boxed UltraBeefs cattle. Three chain supermarkets, also under contract, sold UltraBeef. UltraBeef products contained 46% less fat than traditional beef cuts.

IBP


History

In 1989, IBP was the world's largest processor of fresh beef and pork, with annual revenues of $9.1 billion (Exhibit 9). Robert Peterson, who had joined IBP as a cattle buyer in 1961 and worked nearly every job in the packing business, led IBP as CBO and Chairman of the Board. Peterson was known as an adept production executive and a tough negotiator, who capitalized on opportunities to grow the company and who operated a centralized, lean management group out of IBP's Dakota City, Nebraska headquarters. Additionally, IBP ran a wholly owned subsidiary which designed and acted as the general construction contractor for IBP's plants, as well as manufactured much of IBP's slaughtering and processing equipment.
IBP had been credited with leading the packing industry through its many changes in the 1960s and 1970s, and had always pursued a strategy to be the lowest cost beef and pork supplier. The company was founded in 1960 by AD. Anderson and Currier Holman, who shared a common belief that the meatpacking industry's standards of production were antiquated and inefficient. They decided to form Iowa Beef Packers and planned to capitalize on recent advances in transportation and mechanization.
Iowa Beef constructed its first plant in Denison, Iowa in 1961. At this location there was an abundant supply of feedlot cattle, and IBP faced almost no local competitors in sourcing livestock. Three years later, in 1964, Iowa Beefs high volume Denison plant was running near 90% capacity. Competitors' plants, meanwhile, averaged 60% capacity or less, and Iowa Beef entered the nation's top 10 meatpackers with its modern, automated Denison plant. Two more cattle slaughtering plants quickly followed in 1966 at Fort Dodge, Iowa and Luverne, Minnesota.

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IBP And the U.S Meat industry



The next major innovation Iowa Beef made was into boxed beef fabrication. Although it did not invent the boxed beef concept, it was the first industry player to adopt it, and in 1967 Iowa Beef opened a fourth plant, fully dedicated to boxed beef production, in Dakota City, Nebraska. The Dakota City plant was the nation's first large-scale beef processing plant. It became so successful for Iowa Beef that the company built three more slaughtering/fabricating plants between the years 1967 and 1974. By the early 1970s, Iowa Beef dominated the boxed beef market. In 1980, it fortified this position by constructing its eighth plant, the largest slaughtering/fabricating facility to date, in Fmnney County, Kansas near a concentration of feedlots (Exhibit 10). To promote boxed beef sales, Iowa Beefs Center for Meat Management, an on-site education complex formed at Dakota City in 1971, converted carcass beef buyers by demonstrating the economies of boxed beef to retail store managers and butchers. By 1971, Iowa Beef was the world's largest slaughterer of cattle and the largest processor of boxed beef. To more accurately reflect its broadened role in the beef industry, the company changed its name to Iowa Beef Processors.


In addition to internal development, Iowa Beef grew with the 1976 $8.6 million acquisition of Columbia foods, a two-plant cattle slaughtering company headquartered in Idaho. Although Columbia's two plants were smaller than any of Iowa Beefs facilities, they gave Iowa Beef a presence in the West. Before closing the Columbia Foods deal, Iowa Beef secured a five-year joint venture contract with Northwest Feeders (NWF), a six feedlot cooperative, to ensure a dependable flow of livestock for the two plants. The Northwest had a much smaller cattle population than Iowa Beefs midwest stronghold, and NWF controlled 30% of the livestock feeding in that region. One year after the Columbia acquisition, the Packers and Stockyards Administration, a government agency formed in 1920 to break-up the Beef Trust, contested the Iowa Beef-NWF agreement on the grounds that it gave Iowa Beef the power to squeeze unintegrated packers on the supply side and to prohibit the entry of new packers in the Northwest. An Idaho court eventually ruled in Iowa Beef's favor, and BP became the biggest boxed beef supplier to the West. However, two previous anti-trust proceedings had prevented Iowa Beef from acquiring Blue Ribbon Packers in 1969 and Missouri Beef Packers in 1973.


In 1981, Occidental Petroleum bought IBP in an $800 million stock swap. Although it was primarily an oil company, Occidental was also involved in genetic engineering for cattle and in the production of agricultural fertilizer, seeds, and chemicals. It hoped to use some of these skills to Iowa Beefs advantage. Overall, the Iowa Beef acquisition fulfilled Occidental's long-term strategy of gaining a strong presence in two commodities, food and fueL Financially, the deal allowed the giant oil company to use investment tax credits estimated at $117 million. Also, Occidental's "deep pockets" gave Iowa Beef access to large sums of capital and hastened what CEO Peterson called his "pork thought." Iowa Beef had previously steered clear of the pork industry, but it saw the same opportunities there that existed in beef One year later, in 1982, Iowa Beef entered the fresh pork industry with the purchase of an idle plant in Storm Lake, Iowa. Iowa Beef transferred its successful boxed beef process to the pork industry and in the following years grew to become the nation's leading fresh pork producer with 13% of the market. IBP's pork growth had been entirely internal, although it did attempt a failed hostile takeover of Wilson, a major pork producer. To deemphasize its beef connection and acknowledge its horizontal move into pork, the company again changed its name to IBP.


By 1987, IBP's relationship with Occidental had soured. IBP's chairman reportedly disputed Armand Hammer's leadership of Occidental, and Hammer wanted to sell IBP to get Peterson off the Occidental board. In 1987, Occidental sold 49.5% of its interest in IBP in a


11



IBP And the U.S Meat industry


public offering valued at $600 million. This spin-off left IBP saddled with $417 million in long- term debt.

Strategy

Historically, Iowa Beef pursued an agressive growth strategy, operating with a single- minded focus on becoming the largest and, above all, the most efficient processor in the meat packing industry. IBP's goal was to become the industry's low-cost producer while still offering a conistent, high-quality product. Under its two founders, IBP achieved efficiencies at its first plants by "extracting savings in fractions of time and fractions of pounds."⁶
Iowa Beef slaughtered cattle on the day they arrived at the plant to minimize feeding costs and refrigerated the slaughtered carcasses quickly to reduce the weight shrinkage that came with moisture loss. Since its inception, the company had increased its processing volume while reducing costs through efficiency and yield improvements. Because IBP had historically prospered as the industry's most efficient processor, it had been willing to buy cattle from feedlot operators at premium prices or sold its product below competitive prices.
IBP operated under a lean and centralized management group (Exhibit 11.) In its day-to day operations, [BP followed three basic guidelines. The company automated when it was functionally possible to do so, and it continually sought to simplify manual activities. Second, it continuously modernized its facilities. Finally, it minimized its exposure to commodity prices by sourcing its animals from the cash markets as soon as possible before slaughtering and selling its finished product immediately after it was processed.

Operations: Cattle and Hog
Sourcing
With
25%
of the U.S. slaughtered cattle market, IBP's livestock supply needs were about 9 million head per year, most of which it bought in the spot market. Unlike ConAgra and Excel, IBP carried few forward contracts. IBP did not own a single feedlot, viewing them as capital intensive, erratic sources of profit that carried substantial commodity risk. In 1988, IBP went so far as to issue a public ultimatum to feedlot operators, threatening to "do something" if their supply agreements with rival packers continued. BP also began an advertisement in a trade publication that announced it would be forced to enter the cattle feeding business if other packers continued feedlot operations.
IBP purchased both cattle and hogs (10 million head per year) on a daily basis directly from farmers and feeders throughout the U.S. livestock regions. The purchases were made a few days before the animals were required for slaughter, and IBP's inventory turned on average about once a week. IBP employed a staff of 213 cattle and hog field buyers, all of whom were in constant communication with headquarters in Dakota City. The head office coordinated purchase volumes and prices for cattle and hogs with the daily supply requirements of each of IBP's plants. Occasionally, IBP's boxed beef fabricating plants purchased beef carcasses from other slaughterers to keep their boxing operations running at efficient levels.
6. Iowa Beef Processors: An Entire Industry Revolutionized, Speech to the Newcomen Society, 1981.

12


IBP And me the U.S. Meat industry



Operations: Beef and Pork Processing


IBP's beef slaughtering facilities reduced live cattle to dressed carcass form, and its fabricating facilities conducted further processing and breaking operations to produce boxed beef and numerous by-products. Eight of IBP's 12 cattle plants produced dressed carcasses for adjoining boxed beef processing plants. During the slaughtering processes at these plants, the meat cuts were conveyed along mechanized production lines from start to finish. The carcasses from the remaining four plants were shipped on IBP-owned refrigerated trucks to one of the firm's eight fabricating plants for boxed beef production.
IBP's four pork plants operated similarly, and all of its pork facilities included slaughtering, cutting, and boning operations that took the hog from start to finish. In 1988, plant capacity utilization for pork was 79%, and IBP believed that further utilization growth would occur. It considered only one of its existing pork plants to be mature, with the other three still running along their three to four year start-up curves. Unlike beefpacking, the porkpacking industry was relatively fragmented, with the four largest and most efficient producers controlling less than 40% of the market. However, industry observers felt that increasing concentration in pork processing was likely as the more inefficient packers ceased operations. IBP management had indicated that its pork operations were more profitable than beef. In 1989, about 72% of IBP's earnings came from cattle, while 8% came from rendering and 20% from hogs. Approximately
35%
of IBP's pork output was boxed and shipped to retailers as fresh pork. The remalning
65%
was shipped in bulk to other companies that further processed the pork into bacon, ham, sausage, and deli meat.
In the meatpacking industry, plant managers usually had a great deal of autonomy and were often most concerned about running their factories with a steady production flow.
At
IBP, all non-union employees received a bonus that was based upon plant profitability. Because IBP was largely non-unionized, management truly ran the plants as no restrictive agreements prevented the company from introducing productivity improvements.
IBP employed a "total utilization" of the animal, retrieving beef and pork waste at the plants and rendering it into a wide variety of co-products. For example, IBP was one of the world's largest suppliers of blue chrome tanned hides, and in 1988, built new blue chrome tanneries at its Joslin and Dakota City beef processing sites to expand its presence in this area. IBP also produced variety meats, such as liver and tongue, and many other products, both edible and inedible, were derived from tallow (animal fat and bone materials) and were supplied to soap, cosmetic, paint, and glue manufacturers. IBP also supplied pharmaceutical companies with a number of cattle and pork by-products such as epinephrine, used to relieve symptoms of asthma, and insulin. IBP expected to further expand its co-product manufacturing by setting up a plant to produce gelatin from bone and fat waste.
Overall, IBP's slaughtering and processing plants were among the most automated in the industry. Additionally, IBP's management information systems were highly sophisticated and reflected the firm's attention to detail. For example, they generated daily profit and loss statements for each plant. IPB's warehouse facilities utilized state-of-the-art, computer driven storage and retrieval systems.

13



IBP And the U.S. Meat industry


Operations: Sales and Distribution


IBP distributed its beef and pork products to grocery chain retailers and wholesalers, independent wholesalers, restaurants, institutions, and hotel chains. It made most of its sales through daily orders rather than through long-term supply contracts. However, with its long-term customers, IBP had "formula pricing" agreements under which it charged a flat fee to fabricate an animal and box the product, which eliminated the price-negotiating process. Typically, IBP's largest beef customer accounted for less than 3% of its beef revenues. Its largest pork customer bought about 7% of its pork.
IBF operated a sales and service network throughout the United States from nine regional centers, all of which were linked to IBP headquarters through computer systems. IBP's corporate sales personnel also did some selling through headquarters. Each morning in Dakota City, IBP's marketing personnel set the wholesale prices for the day. Most IBP products were shipped by truck from the plant located closest to the purchaser. IBP relied on contract carriers for transporting most of its products, but its trucking subsidiary supplemented outside carriers. IBP's corporate fleet also hauled live animals to some of its plants and transported carcasses to its boxed beef fabricating sites.
Internationally, IBP sold its products through two sales offices, one in London and the other in Tokyo (25% of IBP's exports were to the EEC and 70% were to Japan, where IBP had a 50% share of meat imports.) Export sales accounted for about 8% of IBP's revenues, significantly up from the early 1980s, and consisted about 60% of variety meats and co-products and 40% of boxed beef and pork. Export profit margins were significantly higher than domestic margins.

Labor

IBP employed 22,000 people in 1989, including 17,644 hourly plant workers, 213 buyers, 233 sales personnel, 1,650 management employees, and 2,258 clerical and support staff. When describing IBP's work force, Peterson said, "We are aggressive people. We are doers. We work six days a week in our plants and at our corporate headquarters. We are highly disciplined, motivated, and professionaL"⁷
On the whole, IBP's management considered its relationship with labor "to be good." Many journalists and industry analysts, however, described it as "combative" and "controversial."
Because of the high level of automation at its plants, IBP had little need for skilled butchers. While IBP's management maintained that it paid wages above the industry average, the company had instituted a two-tier wage structure at most of its beef plants to keep its labor costs down. This wage structure was particularly important as IBP required fewer and fewer skilled employees, reducing per head production costs. IBP's production line wages began at $6 and reached a peak at $10. Perennially, IBP's commitment to assembly-line production met resistance from unions. Throughout the company's tenuous management-labor history, IBP had shown little sympathy for the union's call to raise wages to the same rate as butchers. IBP's CEO Dale Tintsman stated in 1980, "We're proud of our workers, but basically we can teach anybody to do
7. Wall Street Transcript September 4, 1989, p.
94745.

14

IBP And me U.S. Msat industry



a job in our plant in 30 days or less-then don't need the skills of an old-time butcher who had to know how to cut up a whole carcass.


IBP's management adhered to this position adamantly throughout the 1960s, 1970s, and early 1980s as it sustained long and violent strikes. IBP was partly able to do this because its management kept a mix of unions in the company's various plants and staggered contract time periods so that no one strike could shut down all of its operations. Additionally, of IBP's 12 slaughtering plants in 1989, only four were unionized, representing 40% of its production employees. Turnover rates at some of IBP's plants were considered to be high, reaching 100% per year in some locations.


Bad publicity and union activism had led to a number of government investigations at IBP. In 1988, the Labor Department singled out IBP for failing to pay workers for the time it took to outfit themselves with safety equipment and sharpen their butcher knives. A long-term Occupational Safety and Health Administration (OSHA) investigation uncovered that IBP had violated record keeping practices for worker injuries at its plants and resulted in $2.9 million in fines. IBP contested the OSHA inquiry from the start. Nevertheless, in response to the OSHA action and to improve worker safety at its plants, IBP began a three year ergonomics research project to determine potential solutions for repetitive motion illness. Among other things, IBP's project was evaluating possible improvements in work methods, tools, and automation.


IBP's Future


By the late 1980s, many industry participants in both the cattle raising and meat retailing areas were looking to IBP in hopes that it would move to improve the image of beef. "We're standing on the sidelines expecting another wave of creativity and innovation,'^t
said one feedlot operator in 1988.


By 1990, IBP was testing some precooked and microwave products, and it had introduced branded, consumer-ready pork cuts called "IBP Lean Supreme" on a limited scale, without advertising support. Branded fresh pork was seen as more viable than beef because of the widespread name recognition of processed pork products (Oscar Mayer, for instance). On the whole, IBP believed that it needed to conduct further R&D and confirmed that it was involved in developing better packaging materials for case ready products. It also believed that it needed to improve its marketing ability. "While it's true that we're not highiy intelligent marketing people," said Peterson, "we'll hire them."¹⁰
Peterson also insinuated that IBP may acquire marketing expertise by buying a poultry company.


For IBP, any new meat product would have to fulfill two requirements—it would have to serve a broad segment of the population, not a niche group; and it would have to bring real value to the consumer. Commenting on Excel's case ready beef product, Peterson said, "Adding value isn't wrapping cellophane around a piece of meat and sticking a gummed label on it."11


8. Financial World. 1980.


9. Wall Street Journal May 3, 1988, p. 6.


10. Wall Street Journal. May 3, 1988, p.6.


11.



15



IBP And me U.S. Meat industry


Some, however, questioned IBP's ability to maintain its leadership. "IBP was the leader for years and years," noted an industry specialist. "But in a few areas they've lost that leadership."'²
In addition to labor related and anti-trust problems, IBP's past was tainted with a widely publicized, mafia-connected scandal. In the 1988 Iowa Caucus, every Democratic presidential candidate campaigned against IBP as a symbol of corporate greed. IBP had made efforts to improve its image. For example, in 1989, it located its newest pork packing plant in Waterloo, Iowa in an area where a unionized packer had just shut down, and invited unions to organize. Additionally, since Occidental sold IBP shares, many industry analysts expected a "renaissance" as IBP would be forced to answer to public shareholders and avoid strikes for fear of falling stock prices.
Iowa Beef's management expected strong growth and performance for its company in the future. Between the years 1988-1990 it had opened five new plants (one beef processing, two pork processing, and two hide tanning). By 1992, it expected to increase its market share from 29% to 40% in beef and from 13% to
25%
in pork. "We are not high tech. We are in a basic commodity industry, but with the management, capital, and strategic direction necessary for long term success," said Peterson in 1989. "We have every intention of remaining number one in the red meat industry."'³

12. ibid.
13. WaIl Street Transcript September 4, 1989, p. 94745.
16

IBP And the U.S. Meet industry



Exhibit 1 Beef Industry Products
350 Pounds of Bone, 650 Pound Carcass or "Dressed Beef"


Fat, and Waste


200 Pounds of Additional Bone, Fat, and Waste


+


TOTAL 550 POUNDS CO-PRODUCTS TOTAL 450 POUNDS BEEF
9 Boxes of Beef,
including Each 40-50 Pounds
· Leather
Edible Oils
Glues
· Pet Foods
Animal Feeds
Fertilizer
Waxes
Detergents
Shortening
Candles
Cosmetics
Pharmaceutical Products


17


IBP And The U.S. Meat industry

Exhibit 2 U.s. Consumption and Retail Prices of Meat and Poultry
18
IBP And The U.S. Meat industry 391-006
Exhibit 3 Meat Industry Comparative Cost Structures (as percent of sales dollar)
Cattle Processing Hog Processing Chicken Processing
Total sales 100.00% 100.00% 100.00%
Livestock sourcing 87.30 68.89
Supplies and packaging 1.68
5.62

Production labor 3.37
5.45
______
Cost of goods sold 92.26 80.96 80.00
Gross margin 7.74 19.04 20.00
Other wages, salaries
and benefits 2.08 6.82 4.25
Interest, depreciation,
rent 2.81 7.53
5.75

Total operating expense 98.57
97.56
90.00
Earnings before tax 1.43 2.44 10.00
Income tax .63 1.24
5.00

Net earnings .80 1.20 5.00
Source: American Meat Institute, Broiler Industry.

19


IBP And The U.S. Meat Industry

Exhibit 4 U.S. Cattle and Hog Population

U.S. Cattle Population (000 head)

U.S. Cattle Slaughter (000 head)

U.S. Cattle Price ($1100 lbs.)

U.S. Hog Population (000 head)

U.S. Hog Slaughter (000 head)

U.S. Hog Price (S GilT)

1929 63.272 $6.53
1950 77.963 23.30
1960 96.236 20.40 59.026 84,150 15.96
1970 112.369 35.025 27.10 57.046 85.817 21.95
1971 114.578 35.585 29.00 67.285 94.438 18.45
1972 117,862 35,779 33.50 62.412 84.707 26.67
1973 121.539 33.687 42.80 59.017 76.795 40.27
1974 127.788 36.812 35.60 60,614 81.762 35.12
1975 132,028 40.911 32.30 54,693 68.687 48.32
1976 127,980 42.654 33.70 49,267 73.784 43.11
1977 122.810 41,856 34.40 54,934 77.303 41.07
1978 116,375 39,552 48.50 56,539 77,315 48.49
1979 10.864 33,678 66.00 60.356 89.099 42.06
1980 111.192 33,806 62.40 67,318 96.074 39.48
1981 114,321 34.953 58.60 34,462 91.575 42.63
1982 114.604 35,843 56.70 58,698 82.191 55.44
1983 115.199 36,649 55.50 54,534 87,584 47.71
1984 113,700 37.582 57.30 56,674 85,168 48.86
1985 109.749 36.289 53.70 54,073 84.492 44.77
1986 105,468 37,290 52.60 52,313 79,598 51.19
1987 102.000 35,647 61.10 50,920 81.081 43.51
1988 99.524 35,324 66.60 53.795


20


IBP
And
The U.S. Meat industry



Exhibit 5 Meat Market Share


1989 1988 1987

Fed cattle

IBP 31.2% 32.2% 29.3%

ConAgra 25.0 24.0
23.6

Cargill 20.4 19.5 19.4
Top three 76.5 75.7 72.2
Other 23.5 24.3 27.8
Total cattle 100.0% 100.0% 100.0%
Pork

IBP
12.1% 11.3% 9.2%
ConAgra
9.0 7.0 7.4

Morrell 7.3 7.4 8.0
Cargill
3.4
2.9 1.2
Horn~l 1.7 5.7 8.6
Top four 33.5 34.2 34.5
Other 66.5
65.8
65.5
Total 100.0% 100.0% 100.0%
Broilers
Tyson 23.5% 14.9%
15.4%

ConAgra 9.8 10.1 10.2
Holly Farms 8.0 8.2
Gold Kist 8.0 8.4 8.1
Perdue 7.4 7.3 8.1
Pilgrim's Pride 5.0 4.8 4.9
Cont. Grain 4.3 4.4 4.5
Hudson Foods 3.8 4.0 3.4
Cargill 1.4 1.4 1.4
Top eight 63.3 63.4 64.3
Other 36.7 36.6
35.7

Total 100.0% 100.0% 100.0%
Turkeys
Oscar Mayer 7.8% 7.9% 7.6%
ConAgra 7.8
7.2 6.8

.Swift—Ekrich 7.5 7.1 7.2
Worbest 6.0 6.0 6.0
Cargill 5.7 5.6 5.3
Hormel 5.6 5.6 4.9
Carolina 5.5 5.6 4.3
Top seven 46.0 45.0 42.2
Other 54.0 55.0 57.8
Total 100.0% 100.0% 100.0%
Total Meat
ConAgra 12.9% 12.2% 12.2%
IBP 12.0 12.5 11.1
Cargill 7.5 7.3 6.9
Tyson 6.8 4.1 4.2
Top four 39.2 36.2 34.4
Other 60.8 63.8 65.6
Total 100.0% 100.0% 100.0%

21


IBP And The U.S. Meat industry

Exhibit 6 IBP's Market Share

Beef Market Pork Market
Share Share

1970 6.1%
1971 7.8
1972 8.6
1973 8.3
1974 10.3
1975 13.5
1976 14.8
1977 14.4
1978 15.6
1979 19.3
1980 22.1
1981 NA
1982 23.8 0.3%
1983 27.8 2.3
1984 28.7 3.5
1985 29.1 4.4
1986 30.1 5.5
1987 29.5 9.3

Source: USDA & published coq~any data Beef Market Share—1982 & 1987
1982	1987
IBP 23.8%	IBP	29.5%
Excel 11.0 Swift Independent 6.0 Spencer 5.5 Monfort 4.5	ConAgra (Monfort/Mi 1 ler/Swift/Val-Agri) Excel/Spencer Others	25.0 19.0 26.5
Dubuque 4.0 Others 45.2
Total 100.0%	Total	100.0%

Source: Industry sources

22
IBP

And

The U.S. Meat industry 391.006

Exhibit 7 Meat Industry Competitors

1989	1988	1987	1986	1985	1980	1975
ConAgra Net sales Net income Total assets Long-term debt Stockholders' equity	11,340 198 4,278 560 950	9.680 154 3,745 490 805	9,002 149 2,482 429 723	5.911 105 1.819 309 510	5.498 92 1.547 262 458	843 19 347 65 101	574 4 86 47 39
Tyson Foods Net sales Net income Total assets Long-term debt Stockholders' equity	2.538 101 2.586 1.319 448	1.936 81 889 206 341	1,786 68 807 211 259	1.503 50 761 212 204	1.136 25 471 118 155	390 21 192 45	169 10 59 11 22
Net sales Net income Total assets Long-term debt Stockholders' equity	2.341 70 727 19 470	2.293 60 707 20 419	2,314 46 698 48 373	1,960 39 585 63 339	1,502 38 560 64 311	1.322 33 356 28 208	996 12 224 28 127

23

Exhibit 8 Meat Industry Competitors

Company Beef	rork	Chicken	Turkey	Seafood	Processed Heats	Dell Heats	Dairy Products	Frozen Microwave Foods
IBP X	X
ConAgra X	X	Country Pride	Longmont	Mortons	Swift	World's Fare	Armour	Banquet
Country Skillet	Motts	Taste 0'Sea	Armour	Main Street	Cloverbloom	Armour
Armour Golden Star	Water Valley	Singleton	Decker	Light N' lean	Miss Wisconsin	Chung King Health Choice
Cargill Excel	X	Paramount	Honeysucklle	Sunny Fresh
Hormel X	X	By George	By George	Farm Fresh	By George	SPAN	New Traditions
Hormel Homestyle Black Label	Honnel	Top Shelf Micro Cup Dinty Moore
Fertilizer and Crop Chemicals	Animal Feed	Grain Processing	Feedlot Ownership	Livestock Financing	Cemnodity Futures and Option Trading	Geographic Presence

IBP London and Tokyo
offices
ConAgra X X X X X X 36 offices In 24
countries
Cargill X X X X X Worldwideproduct
trading
Hormel Operations in 10
countries
)
)

I

391—00Exhibit 8 Meat Industry Coms

Company Beef	Pork	Chicken	Turkey	Seafood	Processed Heats	Dell Meats	Dairy Products	Frozen Microwave Foods
IBP X	X
ConAgra X	X	Country Pride	Longmont	Mortons	Swift	World's Fare	Armour	Banquet
Country Skillet	Motts	Taste O'Sea	Armour	Main Street	Cloverbloom	Armour
Armour Golden Star	Water Valley	Singleton	Decker	Light N' lean	Miss Wisconsin	Chung King Health Choice
Cargill Excel	X	Paramount	Honeysucklle	Sunny Fresh
Hormel X	X	By George	By George	Farm Fresh	By George	SPAN	New Traditions
Hormel Homesty le Black Label	Hormel	Top Shelf Micro Cup Dinty Moore
Fertilizer and Crop Chemicals	Animal Feed	Grain Processing	Feedlot Ownership	Livestock Financing	Cemuodity Futures and Option Trading	Geographic Presence

IBP London and Tokyo
offices
ConAgra X X X X X X 36 offices in 24
countries
Cargill X X X X X Worldwideproduct
trading
Hormel Operations in 10
countries
)
)

I

E