Back to the future: a CEO’s perspective of the broiler business
The broiler industry deserves high marks for improvements in live production efficiency and product convenience, but new challenges lie ahead.
Can we predict the future of the U.S. broiler industry? When looking forward it may be helpful to first look back and review how the industry has progressed over the last 50 years or so. Table 1 shows the industry’s annual percentage growth by decade since 1950. Table 2 shows broiler performance by decade since 1940.
In 1986, I gave a talk at the International Poultry Trade Show in Atlanta and projected where our industry’s performance would be in the year 2000. It was fun to look back at those predictions recently to see how little I really could predict the future. Table 3 shows some of my predictions and the industry’s actual performance in the year 2000.
In my comments in 1986, I also outlined six areas that would present the greatest opportunities for the industry in the future. Those areas are as follows:
✓ Labor for catching and processing
✓ Poultry housing: broiler and breeder
✓ Poultry health
✓ Live performance efficiency
✓ Product convenience and value
✓ Asset management
This article looks at those six areas and discusses how the industry has handled each of these challenges.
Labor For Catching And Processing.
I would give the industry an “A” for improvements in labor efficiency and availability. Improvements have been made in birds per man hour (BPMH) through the chiller since 1990. The only area of disappointment has been automation of catching.
Poultry Housing: Broiler And Breeder.
The industry has done a credible job not only getting new houses constructed but also greatly improving the quality of construction and level technology in new facilities. I believe, however, that the industry faces an ever increasingly difficult job in getting poultry houses constructed in the future, especially breeder houses.
The industry has done a great job controlling many of the disease problems that we faced in the past that affected condemnations, livability and bird quality (i.e. Marek’s disease, Mycoplasma gallisepticum (MG), Mycoplasma synoviae (MS), infectious bursal disease (IBD) and many others). Unfortunately, other problems seem to present themselves to continue to make poultry health a challenge (i.e. avian influenza, salmonella, listeria and others).
Live Performance Efficiency. There is no question that the industry should receive an “A+” for improvement in all areas of live production. Nobody could have predicted the phenomenal improvement that the industry has experienced in all areas of production. I am reminded of a story that Dr. Fred Moultrie tells on himself. He gave a talk to a group of industry people in the 1950s and indicated to the group that poultry breeders had at that time made about all the genetic progress that was possible going forward. He now laughs about this since we have made more breeding progress in recent time than any other time in the history of the industry.
One area of significant progress has been the genetic improvement in breeding broiler stock. Today, available to our industry, are broiler lines that have significantly more breast meat and also perform quite well at all levels of breeder and broiler production. Who could have guessed that this was possible 15 years ago? Table 4 shows some of the dramatic improvements in almost every category of live performance.
Despite all the progress made in the past half century, the industry faces at least one significant risk in the future. The dramatic consolidation of the breeding companies has greatly reduced the number of primary breeders available to supply breeding stock to the industry. If any of the remaining breeding companies were to encounter a serious disease problem, the industry might have a problem covering its needs.
Product Convenience And Value.
The industry should receive high marks for the tremendous improvements in both product convenience and perceived value. As a result, today, domestic chicken consumption exceeds both beef and pork and production continues to grow. The data in Table 5 reflect how the industry continues to add convenience for customers by deboning a greater percentage of its production.
Table 6 shows the major market channels that the industry uses to market product. Even though the industry has enjoyed significant growth in export volume, this is a volatile outlet at best. Exports represent about 17 percent of the industries production, but represent about one-third of our dark meat production. Over the years, this market has not been as predictable as the industry would like, and swings in demand have affected industry earnings.
I would like to think that our industry can improve on the reliability of the export market over time by providing better quality products and better value to our export customers. Keep in mind, however, that the USA is no longer the number one exporter of poultry in the world. Brazil now holds that distinction. Even though the industry is now providing both more boneless white and dark meat than ever before, I believe that the industry needs to be more aware of customers’ needs as it relates to product size and availability. At the National Chicken Council held in Charlotte, N.C., this year, food editors conveyed the concern that whole birds are not always available and also that breast fillets are much too thick. With increasing bird size and improved breast meat yields, this shouldn’t be a surprise.
I think the industry has done only a fair job with asset management. Table 7 indicates why the industry, in my opinion, should not be satisfied with financial performance over the last several years. It shows average pre-tax earnings for companies representing well over 70.0 percent of the industry’s total production. Except for the last two and one half years, earnings were in a downward spiral since 1983-87. During the recent period, earnings have been quite good and the industry’s financial leverage has improved as indicated by lower interest cost per pound. Can we continue recent financial performance? I doubt it.
What about the future? I’ll stick my neck out today and offer a few predictions (though not as specific as those in 1986).
✓ More consolidation of the industry is coming, even though there is plenty of room for well-managed privately-held companies.
✓ Continued movement to more convenience for our customers will occur as a way to help consumers deal with less time available for meal preparation.
✓ Growth in per capita consumption will slow significantly, but the industry will become less dependent on the export market for the movement of dark meat. Progress will be made in improving the desirability and image of dark meat with the American consumer.
✓ Improvements will continue in all areas of live production, but at a slower rate than historically experienced.
✓ Major challenges in the future will include energy cost, animal welfare, environmental issues and food safety, not necessarily in this order of magnitude.