Reasons Why the $232 Billion U.S Meat Industry is on the Verge of Collapse

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Increasing illnesses, contaminations, and low demand have devastated meat processing companies that once employed thousands of people, but are now left to crumble.

The coronavirus has taken an irreversible toll over the multi-billion industry that has impacted the entire food supply chain.

The largest meat manufacturers including Cargill and Smithfield Foods control over 16% of the North American meat industry, but had to shut down their plants after they witnessed a surge in the number of coronavirus cases. 

Smithfield executives received backlash as they forced employees to work on longer shifts which require repeating motions and standing for several hours. As a result, over 500 employees (14% of the company’s workforce) now have the novel coronavirus and at least one person has died from it.

“Food is an essential part of all our lives, and our more than 40,000 US team members are a crucial part of our response to Covid-19; we are taking the utmost precautions to ensure the health and well-being of our employees and consumers.” Smithfield CEO Kenneth Sullivan

Many of Smithfield’s employees come from immigrant backgrounds and often resort to working long hours to support their families.

The multi-billion dollar corporation actually failed to provide its employees with paid sick leave, assistance for child care, and additional health benefits which devastated several impoverished families.

Restaurant closures have contributed to over $5 billion in losses for the industry, and now farmers have been culling piglets because of plummeting sales as there is no room to hold these animals. 

In the past five years, meat processing companies have witnessed decreasing market capitalization by 0.3% annually and will face slow growth in the next several years as a result of the effect of the coronavirus. 

The entire industry is riddled with high competition, low profit margins which happen to be only around 4.4%, and high capital requirements which companies can’t seem to afford because of low cash flows.

Meat-Industry-Internet-Bull-Report
Ibis World, Report by Nick Masters

In addition, the FDA has imposed heavy regulation surrounding the processes of slaughtering animals and preparing them for human consumption which adds to the heavy burden of the companies. 

IBR forecasts that the price of feed which includes corn, soy, and wheat are expected to rise as a result of drought conditions in Texas, Oklahoma and California. As a result, the prices of red meat, particularly beef is expected to increase. 

The largest demand determinant of the industry are consumer disposable income levels.

In several countries, increasing incomes have led to a growing consumption in meat products, but as millions of Americans are left unemployed during this time, many might switch to cheaper and healthier options. 

Aside from the coronavirus pandemic, disease outbreaks including animal influenza and mad cow disease have threatened domestic animal populations and hindered industry demands.

Recently in China, millions of pigs were infected by the swine fever which left farmers to kill them immediately for the safety of citizens.

Swine fever and other diseases may have future impacts on the $23 billion pork industry in the United States and may further increased tensions between the two nations

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There has been a growing concern about animal cruelty and torture which led over 9.6 million Americans to become vegan according to a new study.

Plant based diets and products from emerging companies like Beyond Meat are highly on demand by consumers. The rise of veganism and its ambition to establish a cruelty free world will negatively affect meat manufacturers. 

The meat processing industry has already reached its maturity and is expected to deteriorate as a result of the coronavirus pandemic, environmental conditions, heavy regulation, as well as the growing concern of emerging disease outbreaks which have eradicated large populations of animals. 

IBR forecasts that the commoditization of meat and unethical practices led by corporations will result in the gradual collapse of this multi-billion dollar meat industry. 

 

Nitya Bhatt

Equity Research Analyst

Nitya is currently studying business administration at the Schulich School of Business in Canada. During his undergraduate studies he worked in several business development, sales, and leadership roles. Nitya began investing in stocks at an early age which further grew his interest in finance and trading. He has written numerous articles related to economics and politics. However, when he is not busy writing or researching, he enjoys playing badminton competitively, reading science fiction, and hiking in the wilderness.

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