Tyson's Smith discusses RFS waiver, demand issues

by Joel Crews
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SPRINGDALE, Ark. – During a conference call with media on Nov. 19, executives with Tyson Foods, Inc. answered questions about the company’s fourth quarter performance and its full-year results.

In addressing Meat&Poultry.com’s question regarding how Tyson and the industry would be affected by the Environmental Protection Agency’s decision to deny waiving the Renewable Fuel Standard this past week, Donnie Smith, president and CEO said it is unfortunate for the industry and for consumers.

“The decision is a disappointment and frankly, I think it’s a disservice to US consumers,” said Smith. “Our nation just experienced one of the worst droughts in almost 50 years and yet it didn’t seem serious enough to give US consumers a relief on higher food prices.”

What it means for Tyson, he said, is doing its best to manage rising grain prices, knowing at some point, the higher cost of food production will have to be passed along. “Unfortunately for our customers and consumers, part of managing higher grain prices is going to be seeking more money for the products we make to cover the high cost,” Smith said, adding that other companies will likely also be forced to raise prices to recoup the rising production costs.

In terms of supply and consumer demand Smith said there is reason for optimism in the foodservice segment thanks to upticks in traffic, which he categorized as “stable to up.” In general, Smith said larger chains are performing better than smaller, independent operators in the current environment, which will likely continue. He said most quick-service chains saw business rally in 2012, due in large part to growth in sales of poultry items, another trend Tyson expects to see continue in 2013.

In assessing beef and pork demand at foodservice, Smith said gasoline prices seem to be an accurate barometer of performance. When the national average gas price exceeds $3.75 per gallon, “you reach a cliff on disposable household income,” that is reflected in less demand.

Meanwhile, at retail “pounds are down, prices are up,” said Smith, “and total sales are up.” Generally speaking, fresh beef and pork have declined in 2012 while pounds of fresh chicken sold has remained level for the balance of the year, with slight rallies in the last 13 weeks.

Looking forward, “Consumers are going to continue to feel higher prices.”

Jim Lochner, chief operating officer, pointed out that “The reduced, per-capita consumption of protein is not driven solely by a demand destruction, it has been driven by producer profitability,” dating back to 2008 when feed costs erratically spiked. Also contributing to lower consumption has been record-high exports of pork and chicken and curtailed imports of beef and increased exports. “A lot of people look at that and go, ‘well, demand is suffering;’ it’s really availability driven by producer profitability and exports that’s pulled back the supply.”

Smith also took the opportunity to express his appreciation to the Tyson employees who traveled to the East Coast in the aftermath of Hurricane Sandy as part of the company’s disaster relief. Between Nov. 3 and Nov. 16, more than 45 Tyson employees from nine different facilities cooked an estimated 60,000 servings of food to relief workers and victims in New Jersey and New York. Some Tyson workers were forced to live out of their vehicles or in hotels with no electricity in order to fulfill their duty to provide assistance. Meals were served from Tysons “Meals that Matter” tractor-trailer designed to cook and serve meals in disaster relief situations. The unit was driven for 22 hours to the storm-stricken area. Smith said the company is also providing financial assistance for storm victim relief efforts by matching up to $100,000 of donations made by its team members to the American Red Cross. “Tyson’s culture is to step up and help our neighbors,” Smith said. “We’re pleased to be a part of this relief effort.”

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