Living Economics

The Rise of Chicken
By vertically integrating the chicken business and applying quality control and standardization to all the steps from production to marketing, Tyson Foods has brought better and cheaper chicken to consumers, higher wages to workers and fatter returns to shareholders in a once low-profit commodity business.

Today, a Tyson chicken goes from egg to drumstick in as little as 8 weeks. In the 30's, that process took more than 16 weeks. At slaughter, the chicken still weighed about 40% less than its modern cousin, despite consuming at least twice the amount of feed (Gage).

This technological breakthrough has lowered the inflation-adjusted price of broiler chicken eight-fold. Lower price and public perception of chicken as a healthy meat has increased American consumption per capita 9-fold in the past 40 years (Barrett).

The rise of chicken from an also-ran commodity to a variety of branded products commanding premium prices is a result of vertical integration. Vertical integration means that all the steps from production to marketing are under the control of one company. These steps consist of genetics, chicken hatching, feed manufacturing, chicken processing, advertising, exporting and, most importantly, the development of value-added chicken products (McInnis).

Tyson Foods is almost synonymous with this vertically-integrated chicken revolution. Tyson imposed uniformity on growers by supplying them with chickens, feed, veterinarians and instructions. Such top-down vertical integration allows Tyson to control the quality of the birds from conception to consumption. With its factory-style farming, Tyson was able to create one of the first lines of fresh meat with quality consistent enough to warrant a national brand name (WSJ). Branded fresh meat can command a premium price. But this price premium pales alongside niche value-added products where plain whole chickens were transformed into an appealing array of offerings ranging from frozen microwave dinners to chicken nuggets, now a staple at the nation's leading hamburger chains (McInnis). Such value-added products now account for about half of Tyson's $7 billion in yearly chicken sales and carry margins four or five times that of fresh meat (Business Week).

Vertical integration also facilitates product standardization. A $14 million computer in a Noel, MO. processing plant can match the parts that add up to the weight guaranteed on the package. For the first time, fresh chicken can be sold like a can of soup with a bar code. Once the bar code is scanned at the checkout counter, consumer buying habits can be easily analyzed for optimal pricing strategy (WSJ).

While economic textbooks glorify the efficiency of perfectly competitive firms selling homogeneous commodities, the real world firms are trying hard to escape from low-profit businesses by differentiating themselves with brands. Tyson Foods has succeeded by pushing upstream from food processing toward the chicken farm. Many farms in other products are pushing downstream from the farm to capture more of the consumer's dollar by producing branded value-added end products than they could as sellers of the raw farm products. While having doubtlessly improved the bottom line of Tyson, this chicken revolution has also brought about a better chicken at lower price for the consumer. In addition, it has improved the wages and work conditions of chicken cutters by replacing routine labor with machines. And without the profit made from lowering the production cost of chicken, Tyson would not have the means to come up with consumer-friendly products with even high profit margins.

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