Sanderson urges shareholder “No” vote on ABF proposal

by Erica Shaffer
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Sanderson
The company cited lack of customer demand, oversupply of antibiotic-free chicken as reasons.
 
LAUREL, Miss. – Shareholders in Sanderson Farms Inc. will vote on a several proposals during the company’s annual meeting Feb. 15, including a request for the company to transition to antibiotic-free (ABF) chicken production.

The Sanderson Farms board is recommending a “no” on the ABF proposal. The company remains the only large poultry processor that has not committed to transitioning to antibiotic-free chicken production.

In a securities filing, Sanderson said an oversupply of ABF poultry was among the reasons the board advised against adopting the proposal. Citing industry data as the basis for its claims of oversupply, the company said consumers of antibiotic-free chicken primarily seek boneless breast meat and chicken tenders, while wings and dark meat of ABF chickens are sold into conventional markets.

“As a result, while ABF chickens represented an average of 40.5 percent of all US fresh chicken production for the first 10 months of 2017, only 6.4 percent of total US fresh chicken sales were attributable to product marketed and sold as ABF,” the company said in the filing. “This means that only 15.8 percent of all ABF chicken produced was actually marketed and sold as ABF, and that 84.2 percent was sold as conventionally raised chicken at conventional prices, despite being more expensive to produce.

“These supply and demand dynamics have worsened compared to last year,” the company added. “For the same period of 2016, an average of 26.4 percent of all ABF chicken was sold as ABF. Thus, while ABF production is significantly increasing (from 20.5 percent of total production in October 2016 to 42.1 percent in October 2017), demand for the product is not keeping pace with supply.

“If we could not pass on our higher cost of goods sold for ABF products to customers in the form of pricing premiums, our profitability and shareholder value would suffer.”

Sanderson further argued that price, quality and service drive purchasing decisions of the company’s customers and consumers.

“ABF products are more expensive to produce and appeal primarily to shoppers at high-end specialty stores,” the company argued. “We do not market our product to these kinds of stores or to restaurants that have adopted ABF menu items. Further, we believe the market for ABF products is currently oversupplied, and supply and demand dynamics have worsened.”

The company’s position isn’t new. In a presentation at the Goldman Sachs Staples Forum in May last year, company executives discussed their rationale behind continuing the use of antibiotics in Sanderson Farms’ production.

Lampkin
Lampkin Butts, president and COO of Sanderson Farms

“We have five veterinarians on staff, and we talked with them first, and of course all of them have heartburn over this issue,” Lampkin Butts, president and COO, said at the time. “They've taken an oath to take care of the animals, and some of them would not work for us if we told them they couldn't use antibiotics and take care of the animals. They would leave because they consider it a violation of their oath not to do it, not to use antibiotics to prevent disease or treat sick animals.”

Executives also argue that changing operations to produce ABF products would increase Sanderson’s environmental footprint and undermine the company’s sustainability efforts.

“To adjust for the higher rates of bird mortality and morbidity that occur in ABF operations, we would need to grow more birds and use more land, feed grains and natural resources, and generate more waste,” according to the filing. “Moreover, scientific studies on bans of antibiotics in food animals have concluded that such bans have not decreased antibiotic resistance in humans.”

Company leadership contacted shareholders of approximately 70 percent of Sanderson’s outstanding stock to explain the company’s use of antibiotics and to solicitate feedback from shareholder.

“Following this engagement, we continue to believe that we should maintain our current responsible use of Food and Drug Administration (FDA) approved antibiotics,” the company said. “However, as a matter of good business practice, we have developed a detailed contingency plan to transition our operations to ABF, should that be in our company’s best interest in the future. We estimate that if we determine to adopt an ABF program, we could implement it throughout our entire operations within a 12-month period.”

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