Smithfield Food’s Vertical Integration Strategy : Is It Environmentally Correct ?

Presented By- Group 9

Deepak Paliwal 09IB-105

Dhananjay Choubey 09IB-017

Gagandeep Singh 09IB-018

Sahil Bansal 09IB-051

Introduction

• Based out of Smith-field Virginia• Largest hog producer and pork processor in world• Most of operations based in North Carolina• 32 acquisitions since 1982 to diversify geographically and in

products• Vertical Integration strategy- operations in hog farming, feed

mills, meat packing plants and distribution

Hog Farming Operations

• New, efficient technology• Large metal sheds with concrete floors• Large number of hogs raised, 1000 or even more• Automated feeding and waste removal, temperature control

through fans

• Carried out mostly in Eastern North Carolina• Cost reductions in logistics• Centralized purchasing

Hog Farming Operations…

• Part of vertical integration strategy in pork production

• Contract farmingLarge farms with financially solvent

farmers selected

Contract signed with set price per animal

Provision of contractor to build facility

Loan provided through Smithfield Corporation

Provision of feed and veterinarian service

Farmers’ Dilemma

Positives

• Great income opportunity

• Market risk absorbed by company

Negatives

• Too much dependence on Smithfield

• Contract cancellations and lowering of price

• High initial investment bore by farmers

Changing Conditions in North Carolina

• Eastern North Carolina- flat land, sandy oil & ample rainfall• Tobacco sales declined after 1970s due to anti-smoking

campaigns• Less costly means of raising in other states & North Carolina

suffered• In 1990s Smithfield brought the concept of factory farm• Smithfield’s central purchasing policy meant that local dealers

for hog feed, fuel, transport etc. suffered

Profits Heading North

The Other Side Of Growth

• Working conditions hard and unpleasant at farms ands slaughter houses

• No benefit to local business• Risk of contract farmers- contract cancellations and lowering

of prices• Strong opposition from local residents• Life Quality in area worsened

The Attitude

“This is the way world is going and that is what market demands. All we have done is to create a competitive system that works”

Suffering Environment

• Bad smell from animal shed and lagoons• Breakage and overflow of lagoons• Lagoons contaminating underground water: more than half

leaking• Over exposure to chemicals due to spraying of waste• Increased cases of asthma near hog farms

Waste Treatment

• Waste removal in facilities automated• Carried to and stored in a lagoon• Large area of several acres• Decomposition of bacteria through exposure to direct sunlight• Environmental Hazards

Foul smell travelling up to 1-2 miles

Leakage in lagoons contaminating groundwater

Rains often caused overflows

Frequent Spills

Smithfield’s Efforts

• Environmental improvement projects• Donation of $2m per year• Funded research project for cleaner air• Recycling of water, waste and cardboards• Environmental policy statement• Statement on company policy on responsible growth• Achieve 100 % regulatory compliance always

Contd…..

Move beyond compliance Reduce frequency and severity of injuries Transparency with external stakeholders Community involvement Code of business conduct

The Approach Shown

Unconcerned Damage Control Compliance Ethical Culture

• Established Business Code of Conduct• 100% Compliance, 100% of the time• Monitoring, Inspecting & Testing• Researches undertaken to mitigate effects

The Approach Taken

Unconcerned Damage Control Compliance Ethical Culture

• Business Code more of a window dresser• Several Violations• Attempts to hide spills & releases from state & people

Public Sentiment

• People strongly against commercial hog farming• Problems like low wages and environmental discharges are strong in

people’s minds• Working conditions in farms deplorable• Foul smell & ground water pollution being caused• Other industries like tourism, real estate etc. suffering

Key Issues

• Strategy

Low cost strategy

Supplier control• The ethical fitness of strategy• Suffering stakeholdres• Effectiveness of Smithfield’s environmental initiatives

Stakeholders

• The Company- Smithfield Foods• The farmers• The customers• Workers• Natives of North Carolina

Recommendations

• Choose contract farmers with land away from residential areas.

• Construction of better shelters and full proof lagoons• A task force to enforce a deadline on research for reduction of

smell from lagoons• Improve working conditions in processing plants and better

pay

CONTD….

• Mixed sourcing of inputs benifiting local population• Greater community involvement

Thank You