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