Thursday, January 7, 2021

Vertical integration thriving

Vertical integration is thriving in the food industry with the recent introduction of huge retailers such as Costco, Walmart and H.E.B. that is the largest supermarket chain in Texas and environs.

But in Canada there has also been vertical integration led by farmers, such as the Quebec-based Agropur dairy co-operative, Conestoga Meats pork packer in Ontario and Quebec-based Olymel meat packer.

But in recent months, Costco has launched a $400-million conglomerate in Nebraska to produce its own chicken, including hatchery, farms through both ownership and contracts, feed mill and processing plant.

Walmart has opened a $90-million beef-processing plant in Georgia.

Aholt Delhaize U.S.A., which owns Shop and Stop and several supermarket chains, is building a $100-million case-ready meat-processing plant in Rhode Island that will be managed by Cargill. It has plans to open another one in Pennsylvania.

H.E.B. is investing in beef packing at Monterey, Mexico. Its partner there is PROBOCA.

The meat-industry deals are outlined in a recent issue of Meatingplace Magazine which found that the retailers were interested in having an inside information about its supply chains.

It will be more difficult to, for example, boost prices with a claim that feed costs have increased.

There are already widespread concerns about concentration of meat-packing in the United States and Canada, and the move by the big retail chains into this supply chain will further weaken the bargaining power of their competitors and farmers.

Conestoga Meats is an example of how vertical integration increased understanding among those involved in the supply chain, with hog farmers now directly aware of what makes for the most desirable and profitable hogs beyond the farm gate.

In Canada’s dairy and poultry industries, marketing boards break domination by either farmers or retailers of the supply chain.

But there are examples of Ontario farmers getting into chicken processing and egg grading. There are also examples of feed companies, processors and feed mills either aligning or merging.

These moves to vertical integration may seem frightening, yet there is the potential to improve efficiency and quality and to woo consumers with greater reliability at affordable prices.

There are also examples from history of failed efforts at vertical integration when it turned out that large, centrally-managed corporations couldn't compete with dedicated family farmers, processing plants and smaller-scale retailers.