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The Governance Structures of U.S.-Based Food and Agriculture
Value Chains and their Relevance to Healthy Diets*
Gary Gereffi
Director, Center on Globalization, Governance & Competitiveness
Department of Sociology
Joonkoo Lee
Department of Sociology
Michelle Christian
Department of Sociology
Duke University
Durham, NC / USA
June 17, 2008
Paper prepared for the
Healthy Eating Research Program,
Robert Wood Johnson Foundation
Princeton, New Jersey
*The authors gratefully acknowledge the valuable research and editorial assistance they
received in preparing this paper from Gloria Ayee, Ryan Denniston, Kristen Dubay,
Karina Fernandez-Stark, Mary Hovsepian, Andrew Kindman, Tina Liang, Marcy Lowe,
Elizabeth Meltzer, Kristen Wintersteen, and Aileen Zhang.
1
Table of Contents
Executive Summary........................................................................................................................ 3
(1) Introduction............................................................................................................................... 4
(2) Analytic Framework – Global Value Chains and Food Consumption ..................................... 6
Global Value Chain: Concepts and Methods.......................................................................... 6
Global-Local Linkage in Agricultural and Food Value Chains.............................................. 8
Consumption-Oriented Global Value Chains....................................................................... 11
(3) The Chicken Value Chain in the United States – Scientific Management, Vertical Integration,
and Concentrated Governance...................................................................................................... 12
Chicken: Americans’ Favorite Meat..................................................................................... 13
From Labs to America’s Dinner Table: The Scientific Management of Chicken Value
Chains ................................................................................................................................... 15
R&D, breeding, hatchery, and feed .............................................................................. 17
Outgrowing................................................................................................................... 18
Processing, packaging, and further processing............................................................. 19
Distribution, wholesale, and exports............................................................................. 23
Lead Firms and Value Chain Governance: Tyson Foods and Pilgrim’s Pride..................... 24
Tyson Foods.................................................................................................................. 25
Pilgrim’s Pride.............................................................................................................. 27
(4) The U.S. Tomato Value Chains – A Bifurcated System......................................................... 29
Tomatoes: Red Gold, Hip-food, and Healthy Mediterranean Diets ..................................... 30
Fresh and Processed Tomato Value Chains.......................................................................... 34
Fresh Tomato Value Chains.......................................................................................... 36
Processed Tomato Value Chains .................................................................................. 41
Lead Firms and Value Chain Governance: Morning Star and Heinz................................... 43
H.J. Heinz Co.: A Leading Remanufacturer................................................................. 45
Morning Star: A Leading Marketer .............................................................................. 47
(5) A Revolution in Food Production and Consumption: Comparing the Tomato and Chicken
Value Chains................................................................................................................................. 48
Input-Output Structures ........................................................................................................ 49
Geography............................................................................................................................. 54
United States................................................................................................................. 55
International Linkages .................................................................................................. 58
Governance Structures.......................................................................................................... 61
Institutions............................................................................................................................. 65
(6) Conclusion............................................................................................................................... 72
Appendix A: Timeline of the U.S. Chicken Industry.................................................................. 76
Appendix B: Timeline of the U.S. Tomato Industry................................................................... 78
Appendix C: Future Research...................................................................................................... 80
Bibliography ................................................................................................................................. 81
2
List of Tables and Figures
Table 1: Market Share of U.S. Broiler (Unit: %).......................................................................... 25
Table 2: California Tomato Paste Processors: Marketers and Remanufacturers, 2007................ 45
Table 3: Company Retail % Breakdown (by Global Brand Owner)............................................ 52
Table 4: Ethnic Composition and Socio-Demographic Profile of U.S. Meat-Processing Workers,
1980, 1990, and 2000............................................................................................................56
Table 5: Differences in Farming Practices between Conventional and Organic Farms............... 69
Table 6: Future Research Agenda.................................................................................................80
Figure 1: Interaction of Global and Local Food Value Chains..................................................... 10
Figure 2: U.S. Red Meat and Poultry Production, 1990-2017...................................................... 13
Figure 3: Per Capita Meat Consumption in the United States, 1985-2015................................... 14
Figure 4: Demand Composition of Chicken Products in the United States, 1962-2005 .............. 15
Figure 5: The Broiler Value Chain for Chicken ........................................................................... 17
Figure 6: U.S. Broiler Production by States, 2007 ....................................................................... 21
Figure 7: Market Channels of Broiler Shipped Directly from Processors, 2005.......................... 24
Figure 8: Breed Supply Structure: A Brazilian Case.................................................................... 27
Figure 9: Pilgrim’s Pride’s Assets and Sales, 1996-2007............................................................. 28
Figure 10: U.S. Tomato Production by Regions, 2002................................................................. 30
Figure 11: U.S. Production and Yield Per Acre of Fresh Tomatoes, 1980-2005......................... 31
Figure 12: U.S. Production and Yield Per Acre of Processing Tomatoes, 1980-2005................. 32
Figure 13: U.S. Per Capita Tomato Consumption, Fresh vs. Processed, 1980-2008 ................... 33
Figure 14: North America Tomato Shipping Seasons by Region................................................. 35
Figure 15: U.S. Fresh Tomato Imports, 1990-2006...................................................................... 36
Figure 16: Tomato Value Chains: Fresh and Processed............................................................... 37
Figure 17: Sales Mechanisms of Fresh Fruits and Vegetable, 1994 and 1999............................. 39
Figure 18: Contribution of Shipping-Point Prices and Marketing Spread to Retail Prices of U.S.
Fresh Tomatoes, 1991-2006.................................................................................................. 41
Figure 19: Inflation-adjusted Cost of Tomato Paste Production in California, 1987-2006.......... 47
Figure 20: Degrees of Vertical Integration Among Different Types of Lead Firms in the Chicken
and Tomato Value Chains..................................................................................................... 51
Figure 21: Wal-Mart Net Sales, 1997-2008 (USD Millions) ....................................................... 53
Figure 22: McDonald’s System Unit Restaurants by Region, 1994-2007 ................................... 54
3
Executive Summary
The alarming rise of childhood obesity rates in the United States over the last twenty
years is reinforced by numerous research reports that examine the causes of the pandemic and
potential interventions. Most of these investigations focus on understanding the phenomenon
from an “energy in” (food consumed) or “energy out” (physical activity exerted) perspective.
Within the “energy in” literature, relatively little attention is given to how the structure of food
industries is shaping the types of foods available to consumers. To address this limitation, in this
paper we outline the global value chains (GVCs) of two industries, chicken and tomatoes, to
understand how the industries have changed over time, who is driving that change, and how
different segments of the value chain affect healthy diets and impact low-income populations. A
GVC perspective is a useful analytic tool to use to study childhood obesity because the concepts
used in this paradigm, such as “lead firms,” “input-output structure,” and “governance
structures,” help us to understand why certain foods are developed, manufactured, and made
available in such abundance, and which firms along the chain have the most power to influence
this process.
To highlight the power and coordination capabilities of lead firms, we pay particular
attention to the role of governance structures in both global value chains. A five part typology of
governance structures – market, captive, modular, relational, and hierarchy – is used to describe
the connections between different segments in the overall organization of the value chains. Our
main findings are that both the chicken and tomato global value chains are linked through
intricate intra- and inter-firm linkages and coordination. Both industries have become more
concentrated over time, with powerful “lead firms” driving geographical, technological, and
marketing changes. There is a diverse array of governance relationships between the different
firms and segments of the chains, and thus neither of the chains can be described with a single
governance structure. Ultimately, we address how the lead firms in the global value chains of
chicken and tomatoes are a part of the processed food revolution that characterizes the latter part
of the twentieth century and its potential impact on low-income communities.
4
(1) Introduction
Childhood obesity is a global health crisis. Since the second half of the twentieth century
childhood obesity has grown steadily in developed regions, particularly the United States and
Europe, and in developing countries since the 1980s. In the United States from 1970 to the late
1990s, the rate of overweight children jumped from 15% to almost 30%, while in England the
number was around 7% in the 1970s but surged to over 25% since 2000 (International Obesity
Taskforce 2005). The Oxford Health Alliance calls childhood obesity a “worldwide
phenomenon,” noting increases in childhood obesity in Brazil, China, Mexico and Thailand.
With obesity rates on the rise around the world, academics, nongovernmental organization
(NGO) activists, and the media have all tried to understand the phenomenon. Literature in the
United States is framed around the “energy in” versus “energy out” phenomenon. “Energy in”
focuses on the foods children consume, while “energy out” highlights active lifestyle levels.
Research on obesity in developing countries outlines how countries go through a nutrition
transition in the development process, shifting from a deficiency to an excess in the energy
(caloric) imbalance among older children and adolescents.
Much of the research on childhood obesity is still focused on medical intervention
models that advocate change at the individual level, rather than focusing on the environment that
shapes the opportunity for individuals to make healthy food and lifestyle choices. Recently, it
has been argued that to most effectively counter the childhood obesity epidemic, interventions
should take place at multiple levels – individual, household, group, society, and global (Glass
and McAtee 2006). A multilevel framework is needed to understand the varying mechanisms
that impact health. In this paper we explore the global and societal levels of such an approach.
We use the global value chains (GVC) perspective to address how large transnational
corporations are changing where food comes from and how it is produced, marketed, and priced
for individual consumption.
Because individual behavior choices are part of a social context that places “constraints,”
“inducements,” and “pressures” upon the individual’s environment and ability to operate
independently, Glass and McAtee (2006) argue that we should uncover ways to change the
structural environment. The GVC framework allows researchers to identify leverage points
within food production systems that can bring change at a structural level. To pinpoint specific
leverage points, we will examine two food value chains: chicken and tomatoes. Specifically, we
5
can determine the structure of these industries and how they have changed over time with respect
to their ability to shape what we consume. Typical medical intervention models to combat
childhood obesity are inadequate. With a GVC approach, we can understand why certain foods
are available for consumption and potentially change those foods depending on their health
impact, rather than merely encouraging individuals to make the right food choices.
We have three broad research questions. Our first question addresses overall changes in
the food industry. Specifically, what is the structure of the chicken and tomato global value
chains, how have they changed over time, and who are the “drivers” of change? Second, what
are the relationships between firms that are part of these chains; concretely, who holds the most
power in the structure and coordination of the chains? Lastly, what are the leverage points
within the chains where change toward providing more healthy food options can occur?
We argue that both the chicken and tomato global value chains encompass all the stages
from “farm to fork,” which are linked through intricate intra- and inter-firm linkages and
coordination. Both industries have become more concentrated over time, with powerful “lead
firms” driving geographical, technological, and marketing changes. The relationships between
the different firms and segments of the chains are diverse, ranging from “hierarchical” vertical
integration to “relational” and “modular” forms of coordination. Neither of the chains can be
described with a single governance structure, and thus change can arise from several different
positions within the chain. Our overall argument is not to “prove” that consumers are eating less
healthy diets today compared with the past, but rather to show how industry trends have
transformed the types of food available to consumers.
The remainder of the paper is organized as follows. First, we outline the global value
chains framework and show how it can be applied to food availability and consumption. Second,
we analyze the global value chains of chicken and tomatoes and compare them to one another in
terms of their structure and dynamics. Third, we connect the findings from the chicken and
tomato case studies to food consumption more generally, especially among low income
communities. Finally, we address the broader impact of global trends in food production
systems on consumption patterns and healthy diets.
6
(2) Analytic Framework – Global Value Chains and Food Consumption
In this section, we describe the key concepts and methods of the GVC framework with a
particular emphasis on their governance structures. We conceptualize how global and local food
value chains interact to reshape local food systems, and finally we extend the GVC approach in a
consumption-oriented direction.
Global Value Chain: Concepts and Methods
Global value chains refer to “the full range of activities, including coordination, that are
required to bring a specific product from its conception to its end use and beyond” (Gibbon and
Ponte 2005: 77). This concept is associated with a new trend in the world economy that emerged
during the 1960s and has gained momentum since then: the globalization of industrial
production.
1
This phenomenon entails a twofold process: first, production activities previously
carried out by vertically integrated firms are now sliced into pieces and dispersed into various
locations, domestically and globally. Second, these fragmented and scattered activities are
subject to tight integration and coordination by transnational lead firms through global supply
chains (Gereffi 2005).
Four key dimensions of global value chains are central to the dynamics of a particular
industry: input-output structure, geography, governance, and institutions (Gereffi 1994). Each of
these steps in GVC analysis will be described in turn.
(1) Input-output structure: This refers to the entire input-output process that brings a
product or service from initial conception to the consumer’s hand. The main segments in the
supply chain typically entail: research and design, production, distribution, marketing, and sales.
The key actors in each segment, their relative size and importance in added value, and the
characteristics and stability of their roles are examined. These actors include the lead firms of
each industry and their suppliers.
(2) Geography: The second step is to determine the geographic dispersion of an
industry’s activities. Global value chains have footprints in real places, either small or large in
size. The relative ease with which companies are able to relocate in order to gain access to raw
materials, new markets, and lower labor costs puts pressure on any spatially bounded social unit,
1
GVC-related studies are listed in the Global Value Chains website (http://www.globalvaluechains.org/).
7
either industrial districts or nation-states, to position itself in higher value-added segments of the
chain.
(3) Governance: Governance structures refer to authority and power relationships that
control the diffusion of technology, standards, and brands between firms within the value chain.
The simplest typology views value chains as either “producer-driven” or “buyer-driven.” The
former is characterized by transnational or large industrial enterprises that are vertically
integrated and control the production system through ownership or tightly knit production
alliances. The buyer-driven chain contains lead firms (retailers, marketers, and manufacturers)
that utilize a wide array of independent suppliers, which are linked to one another through
complex global sourcing networks and intermediary firms (Gereffi 1994; 1999).
(4) Institutions: The coordination, power, and linkages of global value chains would not
be complete without an analysis of the institutions that influence the activities of the chain. The
governments, unions, trade associations, NGOs, multilateral agencies, and regulatory bodies
shape a set of rules, norms, and standards in which global value chains are embedded (Hall and
Soskice 2001). Frequently, the lead firms or “drivers” of global value chains exhibit more power
to influence an industry than government laws and regulations. The latter are typically hindered
by enforcement difficulties, whereas if suppliers do not comply with lead firm standards, they
face harsh penalties or are dropped from the chain by the companies placing the orders.
Recently, a fivefold typology of GVC governance structures has been proposed to better
capture the increasingly complicated and dynamic nature of global-local linkages (Gereffi,
Humphrey, and Sturgeon 2005). The typology recognizes that there are new network forms of
organization within global value chains that involve varying degree of “explicit coordination”
between arm-length market transactions and vertical integration (“hierarchies”). This variation
leads to five distinct kinds of relationships: markets, hierarchies, and three types of networks –
modular, relational, and captive. This scheme allows the GVC researcher to explore the
variability of governance structures not only across different value chains, but also between
different segments in a single chain (Dolan and Humphrey 2004).
The governance structure of a particular value chain depends on the three major
characteristics of the chain: complexity of transactions, codifiability of information, and the
capability of suppliers. Markets prevail when transactions are less complex and suppliers are
capable to make the products with little input from buyers. Modular value chains arise when
8
product architecture is modular, technical standards can be codified, and suppliers have high
capabilities to meet the buyers’ requirements so as to need little explicit coordination between
buyers and suppliers. Modular linkages are distinctive in that they are based on codified
knowledge rather than on prices, which are the basis for market exchanges. Relational linkages
emerge if product specification is hard to codify, transactions are complex, and supplier
capabilities are high. Mutual dependence between buyers and suppliers leads to sustained
interactions and explicit coordination between both parties. If supplier capabilities are not high
enough to meet the buyers’ requirements, governance structures tend toward the captive type,
where suppliers are subject to the extensive intervention and monitoring of lead firms and
depend on resources and market access provided by the lead firms. Finally, hierarchies will
emerge if transactions are complex and hard to codify but capable suppliers cannot be found.
With this vertically integrated type of governance, lead firms internally manage complex input-
output structures and control key resources, such as intellectual property.
An industry can have various types of governance structures in a given location or across
time, as well as across varying segments of the chain (Dolan and Humphrey 2004; Sturgeon
forthcoming). In fact, agricultural and food value chains are diverse in their governance forms.
In their study of fresh vegetable value chains, Dolan and Humphrey (2004) find that the advent
of U.K supermarkets as lead firms in the 1990s tightened their linkage with U.K. importers,
African exporters, and even local farmers. It brought new network forms of governance
structure alongside preexisting arm-length market relations. Likewise, Fold (2002) recognizes
the bifurcated structure of the global cocoa-chocolate chains, each component of which is
governed by two different types of lead firms: contract manufacturers (grinders) and branded
chocolate manufacturers.
Global-Local Linkage in Agricultural and Food Value Chains
Since the 1990s, the global agriculture and food industry has undergone significant
changes. The Uruguay Round in 1986 incorporated agriculture into the multilateral world trade
system, promoting trade liberalization in this traditionally protected sector. While agricultural
trade liberalization has not progressed as fast as some governments would like, particularly for
developing country governments that complain about competition against subsidized farms in the
developed world, agricultural trade liberalization has continued to be an important component of
9
the most recent Doha Round (Bhaumik 2006). This new regulatory regime has increased
international agricultural exports for most agri-food products over the 1990s. This export growth
has brought down the prices of tradable food products. It is also striking that exported agri-food
goods travel farther now than in the past. As more countries jump into agricultural exports, more
imports from neighboring countries, albeit still crucial, are complemented by cross-continental
imports on a year-round basis (Fold and Pritchard 2005).
Agriculture and food value chains increasingly resemble manufacturing industries in one
key way: although production is fragmented and spatially dispersed, it is integrated and
coordinated by a handful of agri-food transnationals. Take french fries as an example: the lead-
firm buyers of french fries (such as McDonald’s, Wendy’s, and Wal-Mart) are supplied by food
manufacturers (like Heinz, McCain Foods, and J.R. Simplot), who purchase russet potatoes from
large growers/shippers (for example, United Fresh Potato Growers of Idaho) that in turn receive
seeds, herbicides, and pesticides from crop science firms (like Bayer Crop Science). Liberalized
foreign direct investment enables agricultural multinationals, such as Heinz and McCain Foods,
to supply fresh potatoes from New Zealand (instead of Idaho) directly to Asia-Pacific markets,
through acquired local suppliers (McKenna, Roche, and Le Heron 1999).
Fragmentation and geographical dispersion do not necessarily exclude spatial
concentration. On the contrary, specific value chain segments are likely to consolidate in the
most suitable place in terms of the climate, labor costs, or bio-diversity, as shown in production
of chicken concentrated in the U.S. South and processed tomatoes in California (see Sections 3
and 4). These food production locations are determined by the decisions of transnational agri-
business firms, the key industry drivers.
In Figure 1, we highlight the interaction of global and local food value chains. The
“local” level can be as narrow as urban low income neighborhoods, or as large as developing
countries as a group. Within the global food value chain (the top four boxes), we find global
agribusinesses, transnational food manufacturers, global fast-food franchises, and global
retailers. These segments of the chain are linked to each other at the global and local levels.
Global agribusinesses, like chicken, potato and lettuce farms, operate transnational subsidiaries
across the world or buy crops from small and medium-sized farms in local economies. They
supply transnational food manufacturers, which in turn sell their processed goods to fast-food
chains and global retailers, as shown in the case of french fries.
10
Global food value chains have an impact on local production and consumption. The
interaction between the global and local levels may be direct, such as contract farming operations
and transnational production for local markets in developing countries. The lead firms may
require the local contract farmers to adopt new breeds, growing practices, and the quality
standards that they introduce. Their control is more sophisticated but impersonal in that it relies
on formal contractual arrangements on quality standards and on biological codification through
mandates for the use of specific crop varieties, animal breeds, or feed, as our case studies
demonstrate.
Figure 1: Interaction of Global and Local Food Value Chains
Source: Authors’ diagram.
Meanwhile, local growers may supply local food producers or fast-food franchises.
However, the latter may also be under the control of global branded food manufacturers, fast-
food giants, or retail chains through ownership or supply networks. Even after Heinz acquired a
New Zealand food processor, Wattie, in 1992, 90% of Wattie’s production was still sold to
McDonald’s franchises in New Zealand. This led some observers to conclude that this
acquisition created “links between locally contracted production for a multinational organization
and local consumption through a global food chain” (McKenna et al. 1999: 45).
Global-local linkages also reshape the local food consumption system. For example,
McCain Foods, the largest manufacturer of frozen french fries, is also the second largest
11
manufacturer of ethnic Chinese foods. McCain initially brought their food technology expertise
overseas to change the way food is produced and presented to consumers in Taiwan. In addition
to the consumption of modern processed foods from the West, the developing world is creating
processed versions of traditional dishes, such as dumplings, steamed buns, and rice rolls, in
China. Global food producers serve as a template for local food processors and fast-food chains
with respect to technological innovation and marketing. These developments are changing the
traditional diets of developing countries by making more meals available for consumers in the
fast-food, calorie-rich format of developed countries, while utilizing the technological prowess
of modern food processing to make these foods both abundant and cheap.
Consumption-Oriented Global Value Chains
Thus far we have described what a global value chain is, what a GVC analysis of
agriculture and food looks like, and the role of multiple governance structures in these chains. In
this section we explore how the concepts and levels of analysis within the framework help us
understand food consumption patterns, and hence the structural environment that shapes the
opportunity for consumers to make healthier food choices. All actors in the industry try to
influence its structure in a manner favorable to their interests. This is where a public health
agenda can come into play, particularly with respect to a decrease in the availability of unhealthy
foods and an increase in healthier options, particularly for low-income communities.
We use a GVC framework to help us understand food consumption patterns. The overall
input-output structure of the food production value chain shows how different actors influence
which types of foods are available to consumers. From “farm to fork,” products go through three
broad stages: (1) farm and harvest; (2) processing and manufacturing; and (3) retail. Actors in
these stages are connected to each other in a combination of tight and loose relationships that
together shape available foods.
Global pressures shape local food industries in both direct and indirect ways. Because
these supply chains are industrialized and broad in scope, healthier foods have to compete with
the economies of scale and lower costs that characterize less healthy options. When global actors
enter developing countries, their size, strength, and technological sophistication influence how
domestic firms operate because the latter have to supply, source from, and compete with these
firms.
12
We have chosen to examine the global value chains of chicken and tomatoes for several
reasons. First, we wanted to compare two different types of food products, a fruit or vegetable
and a meat, because both are traditionally considered part of a balanced diet. Looking
specifically at how changes within these industries affect the availability of healthy foods for
consumers. Second, the relative consumption of tomatoes and chickens grew over time,
providing an opportunity to explore why this growth happened. Third, both products have strong
links to the United States in terms of harvesting, production, and retail activities and these links
are also increasingly global. Thus, understanding these industries in the United States helps to
gauge the United States’ international reach and connections to local food productions,
specifically in Mexico, China, Brazil, and Thailand. Finally, agricultural food products is a
fruitful site to explore the functioning of multiple governance structures and their impacts on
supply chain coordination.
(3) The Chicken Value Chain in the United States – Scientific Management, Vertical
Integration, and Concentrated Governance
In 1928, Herbert Hoover promised to put a “chicken in every pot” in America’s homes
during his presidential campaign (Striffler 2005: 7). Since then, the U.S. broiler industry has
rapidly expanded, and today chicken has become the “Americans’ favorite meat” (Horowitz
2006: 127).
2
Chicken is considered one of the most efficient sources of animal protein and a
healthy alternative to red meat. However, the rapid growth in the consumption of processed
chicken in the late 20
th
century, often in the form of fast-food, stands in stark contrast to the
healthy image of the whole, home-made chicken that the industry cultivated decades earlier.
This wide availability of chicken, especially processed chicken, should not be taken for
granted. It is the consequence of organizational, technological, and geographical innovations
that have revolutionized the industry over the last century, often at the expense of small farms
and labor relations (Bugos 1992; Boyd and Watts 1997; Boyd 2001). Vertically integrated
production, a consolidated market, the extensive application of scientific knowledge, and a high
degree of spatial concentration shaped how U.S. industry, and increasingly the world industry,
produces chicken.
2
"Broilers" are defined as chickens raised specifically for meat production. The terms broilers and chicken are used
interchangeably in this report.
13
Chicken: America’s Favorite Meat
Chicken is, without a doubt, the meat that Americans consume most. In 2005, 35.2
billion pounds of ready-to-cook (RTC) chicken was produced in the United States. Putting this
in historical context, the production of chicken increased by a factor of eight since 1960,
changing its position from the least produced major meat type to the most produced (Figure 2)
(USDA Economic Research Service 2008).
Figure 2: U.S. Red Meat and Poultry Production, 1990-2017
Source: USDA Economic Research Service (2008)
Not only has chicken production soared in the United States, but the average size of
slaughtered chickens is larger than in the past. The average live weight of broilers in 1960 was
3.35 pounds; it reached 5.06 pounds in 2001 (National Agricultural Statistics Service 2002).
Moreover, chickens are produced much faster with a smaller amount of feed. In 1955 a chicken
needed 73 days to reach market weight; in 1995 the maturation period had declined to 47 days.
Today, an average chicken only consumes 1.9 pounds of feed per pound weight, whereas the
feed-conversion ratio was 2.9 in 1955.
Compared to hogs and cattle, the cost and profit efficiency of chicken is striking. The
feed-conversion ratios of hogs and cattle are 3.5 and 8.3, respectively, and it takes more time for
them to reach market weight (22 weeks for hogs versus 1 to 2 years for cattle) (Boyd 2001;
Ollom 2007). This change has lowered the per unit production costs of chicken. The
“composite” price (whole bird, breast, and leg prices, weighted by estimated quantities
14
purchased) of a pound of chicken in 2004 dollars was $1.74 in 2004, down from $2.22 in 1980
(Buzby and Farah 2006).
As domestic production has expanded, so has U.S. chicken consumption. Americans
now eat more chicken than beef or pork (Figure 3). While consumption of beef and pork
declined or stagnated over the last two decades, chicken consumption almost doubled. Wider
availability, reduced prices, increasing product varieties, and consumer preference for white over
red meat have contributed to the explosion of chicken consumption (Buzby and Farah 2006).
Figure 3: Per Capita Meat Consumption in the United States, 1985-2015
Source: USDA Economic Research Service (2008)
This increase in chicken consumption is linked with a change in where and how chicken
is consumed. Americans today eat chicken outside the home more than in the past. In 2005,
45% of chicken was consumed in restaurants and more than half of that percentage was in fast-
food restaurants, compared to 1970, when only 25% of chicken was consumed in restaurants and
75% at home (National Chicken Council 2008b). The shift to away-from-home consumption
parallels the growing demand for processed products and reflects the general shift in America’s
eating habits. Demand for whole versus processed chicken (cut-up parts and further processed
products, such as patties, breaded strips, nuggets, etc.) was completely reversed over the past
forty years. Whole fresh chicken, once a dominant form of consumption, now accounts for just a
tenth of total demand, while cut-up parts and value-added processed chicken captured the
overwhelming share of the U.S. chicken market (Figure 4) (Martinez and Stewart 2003).
15
Figure 4: Demand Composition of Chicken Products in the United States, 1962-2005
Source: Martinez and Stewart (2003)
The great shift in U.S. broiler production is the consequence of enduring efforts made by
broiler producers to seek a more profitable and efficient means of production, and to both
respond to and shape consumer preferences. More importantly, the change closely relates to the
rise of new lead firms and governance structures in the chicken value chain. The increased
sophistication of processed chicken products gave rise to new types of lead firms called
“integrators,” like Pilgrim’s Pride and Tyson Foods. They integrate a wide range of value chain
activities from breeding to processing and distribution. On the demand side, the shift to away-
from-home consumption corresponded to the rise of the fast-food giants like McDonald’s and
KFC. Their sophisticated needs for processed chicken products increased explicit coordination
between these two different types of lead firms in the form of relational networks.
In the following sections, we will examine the broiler value chains with a particular
focus on how these efforts have structured the value chain in a vertically integrated and highly
consolidated form.
From Labs to America’s Dinner Table: The Scientific Management of Chicken Value Chains
In the past, chickens were raised in small backyard flocks and sold in local markets.
Farmers largely relied on their own knowledge and experience, and sales were made based on
market prices with little coordination between buyers and sellers. Today, delivering chicken to
16
the dinner table is more complicated. The entire process is tightly managed by a few large
companies that are vertically integrated from breeding, hatcheries, feed mills, slaughtering,
processing, and further processing up through distribution. The emergence of hierarchical
governance structures parallels increased coordination with contract growers as well as with
large fast-food chains and retailers. The former’s relationship can be portrayed as captive, while
the latter’s is largely relational or modular. Each of these steps is also infused with sophisticated
technological and biological knowledge that facilitates the flow of codified information and
standards across the chains. Final products travel hundreds or thousands of miles from the U.S.
Southeast, where the growers and integrators are concentrated, across the country and to
international markets as consumer products.
The broiler value chain, though complicated, consists of several distinguishable steps
(Figure 5). It diverges following initial processing by integrators, depending on the type of final
products, either fresh or processed. Most fresh chicken is supplied to supermarkets and
restaurants, directly by integrators or via distributors. Chicken for processed products, such as
patties, breaded strips, and nuggets, goes through additional stages before being sold at fast-food
chains and retail outlets. Chicken for processed products is raised and handled in the same way
as fresh-market chicken, unlike in the case of tomatoes, where fresh and processed tomatoes
market channels differ (see Section 4). The distinction between fresh and processed chicken,
however, is still critical because each involves different types of primary buyers (supermarkets
and fast-food retailers), which implies different linkages and leverage points.
17
Figure 5: The Broiler Value Chain for Chicken
Source: Authors’ diagram.
R&D, breeding, hatchery, and feed
Broiler production generally starts when integrators purchase one-day chicks from
breeders to be raised by contract growers. These breeder chicks are developed by breeder firms,
such as Cobb-Vantress, through extensive research and development (R&D) and produced in
their own hatcheries. Historically, breeding has been a key step, along with feed production,
where new technological and biological innovation occurs. In other words, today’s broilers are
the product of nearly a century of scientific efforts to create a perfect breed for meat.
In the pre-war period, seasonal outdoor growing was replaced by year-round, intensive
indoor confinement and specially formulated feeds, tripling U.S. broiler production between
1940 and 1945. Following extensive hybridization experiments, the introduction of the
“designer chicken” in the 1950s improved the quality of broiler meats because it enabled growers
to tailor their breeds to yield certain desired characteristics, such as larger breast size (Bugos
1992; Boyd 2001). As a result, “by the 1960s the broiler had become one of the most intensively
researched commodities in U.S. agriculture” (Boyd 2001: 632). The major desirable goal was,
and still is, to produce chickens with standardized size and quality, more live weight, shorter
18
maturation period, abundant white meat, disease resistance, and higher feed efficiency (see
Appendix A for a timeline of the U.S. chicken industry).
Breeding is historically highly consolidated, given that most integrators have R&D
facilities, well-equipped hatcheries, and feed mills. In 1994, the top four chicken breeders (who
handle female birds) accounted for 97% of the market (Boyd and Watts 1997). In fact, most
leading integrators, such as Tyson Foods, originated in the agricultural (hatching and feeding of
chicks) rather than processing side of the industry. Tyson’s long pursuit of Cobb-Vantress
illustrates the importance of breeding, which led to a new governance structure: vertical
integration between processing and breeding. In 1974, Tyson acquired the Vantress line of
Cobb-Vantress, the world’s oldest poultry breeder. In 1986, their relationship evolved into a
joint venture that lasted until Tyson completely acquired the breeder in 1994. Cobb-Vantress is
now a leading firm in the production, improvement, and sale of broiler breeding stock as well as
a key part of the Tyson’s global expansion strategy (see below for detail on the breeder).
Outgrowing
While the integrator purchases one-day chicks from the breeder, more than 90% of one-
day chicks are raised by independent farmers (called “growers”), who work under contract with
the integrator. Poultry production is highest among all agricultural products in terms of the share
of commodity value produced under contract (Martinez and Stewart 2003). Growers build and
maintain chicken houses and are responsible for the land, litter, equipment, taxes, and most of
the utilities and insurance associated with raising broilers. Most growers are the owners of
family-run farms and run broiler operations to supplement farm income from other products.
Meanwhile, the integrator provides the grower with baby chicks, feed, medication, and technical
assistance. The integrator retains ownership of the birds over the outgrowing phase, and the
grower is paid a return for labor and facilities.
3
After six weeks, when the baby chicks reach
market age, they are transported to the integrator’s slaughter facilities by the integrator.
The contract growing practice emerged in the 1940s and 1950s in the American South
and it was a significant organizational innovation that shaped the broiler industry (Boyd and
Watts 1997). For small independent farms, raising chickens for integrators supplements income.
3
The grower is usually paid about 3.5 cents to 4.75 cents per pound of broilers marketed. A typical farm will gross
about $50,000 to $75,000 per year from poultry ($25,000 per chicken house) (National Chicken Council 2008a).
19
With contracting agreements, they receive a guaranteed market price and avoid market risk.
Supporters argue most integrators have waiting lists of people who want to become growers as
well as those who want to build additional production capacity (National Chicken Council
2008a). Integrators make the growers compete for lower mortality, advanced facilities, and
economical growing practices by including incentive clauses for superior growers to earn extra
money. They can also protect themselves from the biological risk involved in raising chickens,
which is highest in the growing phase. Moreover, by formalizing grower-integrator contracts,
they can more easily introduce better chicks and feeds, disease control techniques, and
standardized management into the grow-out practices (Boyd and Watts 1997).
This half-century-long practice, however, is not always equally beneficial. The grower-
integrator linkage is largely governed by a captive type of governance, where suppliers face
significant switching costs, a narrow range of tasks, and dependence on the integrators’ provision
of resources and market access. For decades, many growers resented the concentrated power
held by large integrators over their production systems (Striffler 2005). They are frequently
subject to the integrator’s pressure for lowering costs and upgrading facilities, as demonstrated in
a recent suit by Arkansas growers against Pilgrim’s Pride, the largest U.S. poultry producers
(Robert 2008).
4
Despite the economic benefits from raising chickens, growers are generally in a
weak position vis-à-vis larger integrators, because they are dependent on the latter’s supply of
key inputs, including baby chicks and feed, and are required to comply with the standards
integrators unilaterally impose.
Processing and packaging
Once the broilers reach the market weight, they are transported to processing plants
where they are slaughtered and cleaned. The chickens are then cut mostly by human hands
according to demand requirements, and are packed for distribution. Integrated chicken
production firms process chicken for retailer’s brands according to buyers’ necessities as well as
for their own labels.
4
In February 2008, a group of Arkansas growers sued Pilgrim’s Pride, arguing that the largest U.S. broiler producer
had bullied them by using its power. They argued that the company required enormous investments for growers to
establish houses as exclusive providers to Pilgrim’s Pride and to further upgrade the facilities in ways causing the
greater spread of poultry disease, ammonia buildup, and an increased rate of bird deaths. If growers did not upgrade
the houses, they claimed, the company refused to provide future flocks, which would keep them from repaying the
loans for the initial investment (Robert 2008).
20
Contemporary chicken plants process an enormous number of chickens in a short period.
The processing capacity has nearly tripled over the last 15 years, from 80 birds per man hour in
1990 to 225 in 2005 (Shelton 2005). To meet such high throughput demand, a constant and
reliable supply of standardized chickens is required. Therefore, industrialization of chicken
processing has increased the integrator’s need for vertical coordination between processing and
the grower-oriented activities in order to guarantee the seamless supply of highly standardized
birds. At the same time, increased upstream productivity allows the integrators to expand and
mechanize their processing facilities accordingly. This capital investment encouraged industry
consolidation among integrators, as the prohibitive costs of investing in R&D and upgrading
outmoded plants squeezed out small producers and left a larger market share to the surviving
firms (Bugos 1992).
The demand for “just-in-time” supply also led to the concentration of chicken production
in the U.S. Southeast, pushing independent producers in other regions out of the business. All
top five broiler-producing states are located in the region (Figure 6): Georgia (14%), Arkansas
(13.4%), Alabama (11.8%), North Carolina (10%), and Mississippi (9.4%), accounting for 59%
of total U.S. production in 2007 (National Agricultural Statistics Service 2008). This spatial
concentration is due to the availability of cheap farm labor in the region, later replaced by the
influx of immigrants, as well as demand for “just-in-time” processing and close coordination of
upstream activities. Improved inter-state transportation has facilitated the supply of key
ingredients – corn and soybeans – from the Midwest to the South. Thus, “the broiler industry
became a vehicle for channeling the increased throughput of Midwestern corn and soybeans into
high-value food products for retail supermarkets” (Boyd 2001: 646).
21
Figure 6: U.S. Broiler Production by States, 2007
Source: National Agricultural Statistics Service, USDA (2008b)
Even within the Southern states, broiler production is concentrated around major
processing complexes. Tyson’s operations, for instance, are within a 25-mile radius of large
poultry “complexes”. Each of these includes a feed mill, a hatchery, at least one processing
plant, and offices providing technical assistance to the growers proximate to the complex (Tyson
Foods 2008). While this spatial concentration increased the efficiency of broiler production, it
led to the overall decline of independent growers and producers across the country. More
importantly, it concentrates the negative social, economic, and environmental impacts of
industrialized farming and processing into nearby rural areas and communities. These negative
impacts include injured processing workers, a boom-and-bust cycle for the local economy,
appropriation of extensive amounts of land and water, and the pollution caused by manure and
animal waste.
Meanwhile, the shifts toward convenient processed foods exacerbated these problems, as
it provided a new impetus to U.S. chicken production and consumption. During the 1970s,
Kentucky Fried Chicken (KFC) thrived as the largest U.S. foodservice organization, and by 1977
Burger King was offering a chicken sandwich as part of its menu (Horowitz 2006). McDonald’s
22
Chicken McNuggets were introduced in 1983 and this processed food item revolutionized
chicken as both a convenient and a frozen food (Buzby and Farah 2006).
Responding to the rise of processed chicken, integrators have expanded their operation
into further processing. Tyson alone produces approximately 4,600 different chicken products
(Boyd and Watts 1997). Integrators generally do further processing for the fast-food industry
under contract, suggesting the emergence of a modular governance structure (Harvey 2008).
Chicken nuggets, for example, are not prepared by fast-food companies; instead, integrators send
the chicken nuggets ready to fry in the fast-food restaurants. Additionally, frozen-food
companies and retailers also process branded ready-to-eat meals in their factories or the retailers’
rotisserie section. However, less than a tenth of chickens from processors were further processed
by third parties in 2006 (see Figure 7 below).
Chicken processors, food retailers, and fast-food chains have not only responded to
changing consumer preferences, but they have actively cultivated the shift. First, processed
chicken allows producers to be less influenced by the fluctuation of feed prices because the share
of feed prices in final costs declines. Feed ingredients, mostly corn and soybean (or fishmeal),
are a significant cost factor in broiler production. According to one estimate from Pilgrim’s
Pride, feed ingredients account for approximately one-third to one-half of its total production
costs, but that share declines to 17%-24% for prepared products ( Pilgrim’s Pride 2007).
However, while producing one ton of chicken costs $220 on average for feed, a typical breaded
chicken breast, a highly processed item, is sold at more than four times the price than a chicken
griller, one of the least processed items (Holsberg and Rosenbloom 2007).
Second, the globalized nature of chicken production (see Tyson’s operation in Brazil
below) also favors increased processing. It is more cost efficient to ship one ton of high value-
added processed chicken from China, the world’s second largest poultry producer, to the United
States or Europe than one ton of fresh meat or soybean ingredient (Ollom 2007). Finally, by
increasing the share of processed chicken, producers can accommodate heightened safety
standards in advanced markets in the wake of the avian influenza outbreak. Because the virus
can be killed by applying sufficient heat, only raw (and not processed) chicken could be regarded
as a health risk (Ollom 2007).
23
Distribution, wholesale, and exports
Broilers are distributed after they are packed. As shown in Figure 7, the major market
channels of broilers include wholesalers/distributors, retail grocers, foodservices, exports, and
sale for further processing (National Chicken Council 2008b). Retailers and foodservices, two
major consumption points, purchase chicken not only from processors directly, but also through
other distribution channels. Thus, viewed from the final consumer’s standpoint, 55% of chicken
was sold in retail grocery stores in 2005, and 45% was consumed in foodservices such as
restaurants. In 1980, retail grocery accounted for 71% of total chicken consumption and
foodservice represented only 29%, reflecting a trend toward away-from-home consumption.
5
Moreover, fast-food restaurants represented 55% of foodservice consumption in 2005,
highlighting the rise of fast-food chains as key new players at the retail end of the chicken value
chains (National Chicken Council 2008b).
How does this shift in consumption points affect the broiler value chains? The shares of
large food retailers (e.g., Kroger) and non-food retailers (e.g., Wal-Mart) increased in the midst
of the declining portion of retail grocery as a whole, as U.S. food retailing became more
consolidated (Kaufman 2007).
6
Thirteen percent of Tyson’s 2007 sales are accounted for by one
giant retailer, Wal-Mart ( Hoover’s Company Records 2008). The consolidated nature of broiler
market outlets is similar in foodservice. Fast-food restaurants are also increasingly consolidated,
providing fewer options as Americans consume chicken outside the home as much as at home.
5
Foodservice refers to commercial outlets to provide food products to consumers, such as fast-food chains,
restaurants, and hotels as well as non-commercial channels such as hospitals, schools and other institutions (Calvin
et al. 2001:47).
6
By 2005, according to the USDA, 61% of total U.S. grocery sales were made by the 20 largest food retailers, up
from 40.6% in 1995. More than 4,000 stores were acquired between 1997 and 2000 (Kaufman 2007).
24
Figure 7: Market Channels of Broiler Shipped Directly from Processors, 2005
Club Stores
5%
Fast Food
7%
Export
14%
Further Processors
5%
Another Processors
3%
Broker/Trader
4%
Other Food Service
4%
Institutions/
Government
2%
Retail Grocers
21%
Distributors
24%
Pet Food/Renderer
11%
Source: National Chicken Council 2008b
Lead Firms and Value Chain Governance: Tyson Foods and Pilgrim’s Pride
In this section, we examine the governance structures of two U.S. lead firms in the
chicken value chain: Tyson Foods and Pilgrim’s Pride. They embody the general characteristics
of the chicken value chain highlighted above: vertical integration, outgrowing practices,
intensive use of scientific and technological knowledge, and a focus on high-value-added
processed products. They also illuminate a growing tendency toward globalized production, and
both are oriented to the growing and processing segments of the value chain.
The broiler industry is highly concentrated, with the three leading companies controlling
more than 50% of the market. The acquisition of Gold Kist by Pilgrim’s Pride in January 2007
made the latter the largest broiler producer, followed by Tyson Foods, accentuating their greater
level of consolidation compared with breeders. In 1996, the top five integrators accounted for
48% of the U.S. broiler market. As shown in Table 1, the top two breeders now control 48% of
the market in 2006 (Shane 2006).
25
Table 1: Market Share of U.S. Broiler (Unit: %)
Integrators 1996 2006
Pilgrim’s Pride 5 16
(Gold Kist)
*
9 9
Tyson Foods 21 23
Perdue 9 6
Wayne Farms 4 4
% of Top Five 48 58
*
Acquired by Pilgrim’s Pride in January 2007
Note:
Based on ready-to-cook (RTC) output
Source: Shane (2006)
Tyson Foods
Tyson Foods is the world’s largest meat-processing company and one of the top food
production enterprises in the Fortune 500 (ranked 86
th
). Chicken accounted for nearly half of its
operating income in 2007. Tyson’s chicken operation produces fresh, value-added, frozen, and
refrigerated chicken products. It has vertically integrated breeding (by its subsidiary, Cobb-
Vantress), hatching, broiler production, slaughtering, processing, and wholesale operations. In
each segment, Tyson is one of the market leaders in terms of U.S. market share. While Tyson’s
chicken operation is vertically integrated, the majority of the birds are raised by independent
contract growers, an industry-wide practice. As of March 2008, the company contracted with
approximately 6,500 growers, whose farms are located within poultry and swine complexes. In
the United States, Tyson Foods has 28 complexes for poultry production and processing, with
approximately 114,000 workers at more than 300 facilities, including 56 processor plants and 64
hatcheries (Tyson Foods 2008).
Tyson’s key strategy is worthy of attention because historically it has been a market
leader in devising and executing new growth strategies that later became industry wide practices.
It was a leader in the diversification of feed companies into broiler processing in the 1960s and
1970s. It also was a first-mover in developing a contractual relationship with foodservice buyers
such as fast-food chains in the 1960s. Tyson then built its capacity through the acquisition of
other processors in the 1980s. It bought Lane Poultry in 1986 and Holly Farms, the nation’s
third largest poultry firm, in 1988 to emerge from its status as a regional integrator to the largest
processor in the United States. Its leading position was solidified when it acquired Cargill’s U.S.
26
broiler operations in 1995 (Boyd and Watts 1997). Pilgrim’s Pride has followed this expansion
strategy over the last decade and succeeded in surpassing Tyson, as shown below.
Tyson’s extensive breeding operation through Cobb-Vantress and its expansion in Brazil,
the world’s leading chicken exporter and third largest producer (after the United States and
China), illustrates how Tyson has extended its market power into the global market. The
breeding business is highly concentrated and has been one of the major loci of modern
technological innovation in the industry along with feed production (Boyd 2001). Tyson first
entered the business in 1974 by acquiring the Vantress breeding lines of Cobb, expanding into a
joint venture with Cobb-Vantress in 1986 because of the breeder’s new female breed line (“Cobb
500”) and its capability to form a large, easily deboned breast amenable to fast-food product
production. Concerned about the possible ownership of this breed by competitors, Tyson took a
50% ownership stake in the breeder (Bugos 1992). Cobb-Vantress was acquired by Tyson in
1994, and Cobb 500 has remained its most popular breed (Cobb-Vantress 2008). By building a
hierarchical governance structure, the integrator manages the exchange of tacit knowledge
between breeding and processing while internalizing intellectual property (Gereffi et al. 2005).
Cobb-Vantress’s operation in Brazil indicates how its global expansion encompasses
multiple governance structures. Generally, chicken breeding starts from great grandparent stock
(see Figure 8). Cobb-Vantress has a great-grandparent breeding facility in Siloam Spring,
Arkansas. Eggs from great grandparent stock are supplied to breed grandparent stock. In Brazil,
the company operates one of four grandparent breeding facilities of its own (others are located in
the United States, the United Kingdom, and Argentina), building a cross-national vertical linkage.
At the same time, Cobb-Vantress supplies its great grandparent stock to regional distributors,
which raise the stock to supply parent stock for sale to integrators. For example, Agrogen, one of
its regional distributors, operates the largest grandparent facility in Latin America for Cobb 500.
Other distributors include the two largest local poultry producers/exporters, Sadia and Perdigao.
Sadia raises grandparent stock from Cobb-Vantress’s great grandparent stock to obtain and raise
parent stock on its own farms. “One day chicks” acquired from the parent stock are turned over
to and raised by contract growers until ready for slaughter after 36 days.
7
7
In general, each grandparent produces approximately 40 parent females and each of those generates around 130
chicks. Thus, each grandparent usually engenders more than 5,000 broilers (Ollom 2007)
27
Cobb-Vantress’s linkage with these regional distributors is characterized by long-term
relational governance, as Cobb Europe’s senior product manager’s comment suggests: “these
distributors are more than just customers … They are partners with which we have developed
deep long-term relationships, and to all intents and purposes they are an extension of the
company” (O’Hanlon 2006). However, Tyson’s recent aborted acquisition deal of a Brazilian
mid-size chicken processor, Pena Branca (Irvin 2008), suggests that the integrator aims for the
global extension of its vertically integrated governance structure into growing and processing
activities beyond breeding.
Figure 8: Breed Supply Structure: A Brazilian Case
Source: Authors’ diagram, based on Ollom (2007) and Cobb-Vantress corporate website.
Pilgrim’s Pride
Pittsburg, Texas-based Pilgrim’s Pride became the world largest poultry producer
through the hostile takeover of No. 3 Gold Kist in 2007, passing Tyson Foods. It is also the
second largest poultry company in Mexico behind Industrias Bachoco, the country’s leading
producer, and it is the largest chicken company in Puerto Rico. Compared to Tyson Foods,
which has substantial operations in beef and pork, Pilgrim’s Pride concentrates heavily in
poultry, especially chicken. In 2007, chicken production (prepared and fresh) accounted for 90%
of the company’s net sales, of which 83% was produced and distributed within the United States,
9.4% was exported from the United States, and 7.2% sold in Mexico (Pilgrim’s Pride 2007).
28
The company’s dramatic surge over the last decade, from 5% to 25% in market share
(see Table 1), exemplifies the “growth-by-acquisition” strategy common to the industry. Figure 9
shows how fast the company has grown since the mid-1990s. During the period, its net sales and
total assets have increased sevenfold. This phenomenal growth is mostly due to its three major
acquisitions: WLR Foods (2001), ConAgra’s chicken division (2003), and, most recently,
Atlanta, GA-based Gold Kist (2007). Each acquisition significantly boosted the company’s size
and market share, to occupy the top spot last year.
Figure 9: Pilgrim’s Pride’s Assets and Sales, 1996-2007
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
9
/1
99
6
0
9/1997
0
9
/1
99
8
10/1999
0
9
/2
00
0
09/2
0
01
09/2
0
02
0
9/
2
00
3
10/2
0
04
1
0/2005
0
9
/2
00
6
0
9/2007
USD Millions
Total assets Net sales
Jan. 2001
A
cquired WLR Foods, Inc.
Nov. 2003
A
cquired ConAgra Foods,
Inc.'s chicken division
Jan. 2007
A
cquired Gold Kist Inc.
Source: Compiled from Mergent Online Database
Pilgrim’s Pride, like Tyson Foods, controls the breeding, hatching and growing of
chickens, and the processing and preparation, packaging and sale of its product lines through
vertical integration. Pilgrim’s Pride owns and operates 37 chicken processing plants (34 in the
United States and three in Mexico), 12 prepared-foods plants, one turkey processing plant, 36
feed mills and 49 hatcheries, 14 distribution centers in the United States and 18 in Mexico, and
6,400 growers supply chicken for the company.
In summary, Pilgrim’s Pride and Tyson Foods now control about one-half of the U.S.
broiler market. They grew largely through acquisitions that include both breed and feed
29
companies in the chicken value chain. Vertical integration in the upstream and processing
segments of the chicken value chain can be contrasted with the prevalence of contracts in
Pilgrim’s Pride’s and Tyson’s relationships with the independent growers that raise the birds, and
with the fast-food chains and foodservice companies that sell chicken products at the retail end
of the chain. Overseas expansion has also been important to the two top lead firms in the U.S.
chicken value chain. Tyson’s has extended its breeding and feed production business to Brazil,
the world’s leading chicken exporter and third-largest producer, while Pilgrim’s Pride has
significant offshore operations in Mexico and Puerto Rico. Key to their success at home and
abroad is the ability of these processors to combine the advantages of multiple forms of
industrial governance.
(4) The U.S. Tomato Value Chains – A Bifurcated System
Although the tomato was regarded as poisonous when first introduced to the United
States, it became a popular food item in the American diet by the mid-1800s (Boriss and Brunke
2005b). Unlike the recent shift to processed chicken, processed tomato products have a long
history. Tomato sauce was introduced to the English diet by 1780, and ketchup was present in
the United States in the late 18
th
and early 19
th
centuries. In 1869, H.J. Heinz Co. established
large-scale production of processed tomatoes, which was accelerated during and after the second
World War by revolutionized food technologies (Pritchard and Burch 2003: 4-5). Recent
decades witnessed an increased popular interest in and commercial success of fresh (and now
organic) tomatoes for their advertised benefits in healthy diets. At the same time, the growing
popularity of pizzas, pasta dishes, and salsas has led to high and sustained demand for processed
tomatoes (Pritchard and Burch 2003).
The following analysis of the tomato value chain highlights both its similarities and
differences with the chicken value chain. Both are characterized by dramatic productivity gains
fueled by production innovations and the extensive use of scientific knowledge. In both cases,
the processor is increasingly involved in farming activities through contractual relations and
channels biological and mechanical innovations into farming processes. However, the tomato
value chain is distinctive in that the fresh-market and processed tomato sectors are separated in
the United States: each is characterized by different crop varieties, harvesting methods,
production locations, lead firms, and governance structures. In particular, as tomato paste
30
became an industrial bulk commodity, multiple value chains emerged, each of which was driven
by marketers and remanufacturers.
Tomatoes: Red Gold, Hip-food, and Healthy Mediterranean Diets
Over the last decade, higher productivity increased the output of both fresh and
processed tomatoes in the United States, while the harvested acreage of tomatoes declined or
stagnated. In 2006, the farm value of tomato production amounted to $2.3 billion with 12.7
million tons in volume. Fresh tomatoes account for 72% of the total value, but 16% of the total
production volume (Lucier and Jerardo 2007).
8
Florida and California account for almost two-
thirds of domestic fresh-market production in the United States, and their leading position
changed little over decades. Tomatoes for processed products are primarily grown in California,
and production is concentrated in the region. Figure 10 shows the geography of tomato
production in the U.S.
Figure 10: U.S. Tomato Production by Regions, 2002
Source: National Agricultural Statistics Service, USDA (2008a)
8
While tomatoes are the second most highly valued processed vegetable after potatoes, processed tomatoes earn
about 3 cents per pound, with fresh tomatoes at 25-35 cents. This is why the volume of processed tomatoes is five
to six times greater than that of fresh tomatoes, but only generate about a fourth of the total cash receipts (Lucier
2008).
31
A substantial increase of fresh tomato production occurred during the 1980s (Figure 11),
largely driven by production innovations such as the adoption of new high-yield varieties and the
increased use of drip irrigation (Boriss and Brunke 2005b). Higher yields in conjunction with
increased imports and competition with greenhouse products pushed down the farm share of
retail valve for fresh field-grown tomatoes from 37 % in the 1980s to an average of 31% in the
1990s (Lucier 2008).
Figure 11: U.S. Production and Yield Per Acre of Fresh Tomatoes, 1980-2005
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Production (1000 cwt)
100
150
200
250
300
350
400
Yield Per Acre (Cwt)
Production
Yield Per Acre
Source: National Agricultural Statistics Service, USDA (2008c)
Growers of tomatoes for processing benefited from improved production, harvesting
technology, and advanced seed varieties, leading to higher yields (Figure 12). In addition, the
shift of production from low-yield to high-yield regions, notably in California, helps to explain
the increased yield per acre. Today, California accounts for about 95% of the harvested acreage
for processing tomatoes, up from 79 % in 1980, leaving Indiana a distant second. California is
also the world leader in tomato processing (Lucier 2008).
9
9
Processing tomatoes refer to tomatoes primarily cultivated for and sold to processors (Lucier and Jerardo 2007).
These are inputs for processed tomato products, such as canned tomatoes, tomato paste, and ketchup.
32
Figure 12: U.S. Production and Yield Per Acre of Processing Tomatoes, 1980-2005
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Production (Short tons, '000)
10.0
20.0
30.0
40.0
50.0
Yield Per Acre (Short tons)
Production
Yield Per Acre
Source: National Agricultural Statistics Service, USDA (2008c)
While Americans still consume more processed tomatoes than fresh tomatoes (by a
factor of 3.2 in 2006), the use of the latter has gone up steadily for two decades (Figure 13).
Americans consumed 65 pounds of processed tomatoes per person in 2006. This is only a slight
increase from the 61 pounds per person that was documented in 1980. During the same period,
the annual per-capita consumption of fresh tomatoes grew from 13 to 20 pounds. Tomatoes are
now the fourth most popular fresh-market vegetable (behind potatoes, lettuce, and onions) and
the second highest (behind lettuce) in total production value. The increased popularity of fresh
tomatoes is due to multiple factors: introduction of improved varieties, a growing population of
immigrants favoring high vegetable diets, the increase of restaurants and fast-food chains serving
Mexican and Italian-style dishes, and a national emphasis on healthy diets (Lucier 2008).
Tomatoes are promoted as a nutritional and functional food, often represented as components of
a “healthy Mediterranean diet” (Pritchard and Burch 2003: 8).
33
Figure 13: U.S. Per Capita Tomato Consumption, Fresh vs. Processed, 1980-2008
Source: Lucier and Jerardo (2007)
Meanwhile, the consumption of processed tomatoes was sustained by the rising
popularity of pizza, pasta sauces, and salsa in the late 1980s, which are also popular “away-from-
home” dining items. Heinz’s president for North America called processed tomato products a
key part of a “hip-food” diet for teens and young adults (Pritchard and Burch 2003). In fact,
tomato consumption is stratified sharply by age. According to a USDA survey of the mid-1990s,
men and women aged over 39 account for 39% of the population but consume 50% of fresh
tomatoes, while children under 12 represent 18% of population but consume only 8% of fresh
tomatoes. In contrast, children aged 6-11 consume twice the volume of processed tomatoes
compared to fresh varieties, and boys aged 12-19, representing only 6% of population, consume
15% of ketchup (Lucier, Lin, Allshouse et al. 2000). The per capita use of processed tomatoes
peaked in 1991 at 77 pounds per year and has leveled since then.
There are other differences in tomato consumption by social strata. Older individuals,
Hispanics, and the wealthy tend to consume more fresh tomatoes than other segments of the
population. Tomato consumption generally increases with income and is usually higher among
whites and males. Blacks, representing 13% of the population, consume 16% of tomato paste;
while Hispanics representing 11% of population consume 13.6% of whole canned tomatoes.
Tomato juice is disproportionately consumed by older, wealthier individuals, while ketchup is
34
disproportionately consumed by young males aged 12-39 and girls aged 12-19 (Lucier et al.
2000).
In terms of consumption location, 70% of fresh tomatoes are consumed inside the home,
which indicates the prominent role of grocery retailers as the primary market channel. Only 34%
of processed tomatoes are consumed outside the home, with ketchup as an exception because it is
consumed outside the home more than inside. Away-from-home consumption of ketchup
reached a level of 60% in 1994-96, including fast-food restaurants (34%), other restaurants
(15%), and school (7%) (Lucier et al. 2000).
Fresh and Processed Tomato Value Chains
The U.S. tomato industry contains separate value chains for fresh and processed
tomatoes. The value chains are different in terms of production locations, tomato varieties used,
technology employed, and governance structure. Florida is the leading producer of fresh
tomatoes in the United States, followed by California, which dominates the processed tomato
industry. Varieties with a high level of soluble solids (the concentrated content of tomato fruit),
5-9% on average, are required to efficiently make tomato paste, the basis for most processed
products. While fresh tomatoes are hand picked, processing tomatoes rely exclusively on
mechanized harvesting. Finally, spot market exchange is the major mechanism for governance
in the fresh tomato value chain, while the processed tomato value chains are based on contract
relationships, with much tighter coordination among fewer players (Lucier 2008). As a result,
the tomato value chain is characterized by the co-existence of captive, relational, and modular
governance structures.
Optimal conditions for tomato production include extensive sunlight, dry weather, and
uniform, warm conditions for three to four months (Pritchard and Burch 2003). These
characteristics shape the geography of tomato production and the seasonality of supply in the
case of fresh tomatoes (see Figure 14). The supply of fresh tomatoes peaks in the spring, when
Florida’s volume is highest and when California begins to ship tomatoes. During the winter
(December to April), when California growers are off-season, tomatoes are grown in South
Florida to serve the U.S. east coast, and western states are served by imported fresh tomatoes
from Mexico, mostly from the Sinaloa region.
35
Figure 14: North America Tomato Shipping Seasons by Region
Jan. Fe
b.
Ma
r.
Ap
r.
Ma
y
Jun
.
Jul. Au
g.
Se
p.
Oc
t.
No
v.
De
c.
Field California
grown Florida
Sinaloa, Mexico
Baja California, Mexico
Canada
Green- US
House* Mexico
Canada
* While countries produce tomatoes year-round in the aggregate, but particular locations may not
produce year-round.
Source: Cook and Calvin (2005).
The United States is a net importer of fresh tomatoes, and imports make the supply of
fresh tomatoes available year-round. In 2006, imports accounted for 36.7% of domestic
consumption. Most of the imports come from Canada and Mexico. Before NAFTA was
implemented, most fresh tomatoes imported into the United States came from Mexico, which
accounted for 98% of U.S. total imports in 1990. Mexico competed with winter production from
Florida. Under NAFTA, Canada has increased its share in the U.S. market, cutting into
Mexico’s position. In 2006, 23% of imports came from Canada, while 74% came from Mexico
(Figure 15). Canadian exports to the United States are mostly greenhouse/hydroponic tomatoes,
which compete with California production in summer.
10
Mexico is the key producer of field
tomatoes for the United States and Canada, but it is rapidly increasing its greenhouse share in the
U.S. market by taking advantage of its climate conditions, enabling winter production, which
Canada cannot compete for in winter (see below for greenhouse tomatoes). Meanwhile, the
United States is a net exporter of processed tomato products and one-half of U.S. exports go to
Canada. Tomato sauces are the leading type of U.S. export followed by paste and ketchup.
Total export volume only accounts for 7% of total domestic supply of processed tomatoes.
10
In 2003, 89% of total fresh tomatoes produced in Canada are greenhouse-grown, compared to 9% in the United
States and 8% in Mexico (Cook and Calvin 2005).
36
Figure 15: U.S. Fresh Tomato Imports, 1990-2006
Source: Lucier and Jerardo (2007)
Fresh Tomato Value Chains
The value chain for fresh tomatoes is shown in the upper part of Figure 16. Along with
farm labor, growers produce fresh tomatoes with seeds, fertilizer, irrigation, chemicals, and
machinery. These tomatoes are channeled into retail sales via shippers or grower-shippers.
11
Most fresh-market tomatoes are sold from farms on the open spot market, and prices are
determined by supply and demand, which suggests market-type governance is prominent,
although relational linkages may exist, depending on the types of products or buyers, as shown in
the lower panel of Fig. 16. Some tomatoes like greenhouse products are directly sold to retailers
or foodservice by shippers, while others are shipped to repackers or wholesalers to be resorted
and repacked for retail buyers (Calvin et al. 2001). This difference is largely due to the fact that
greenhouse tomatoes generally have a greater consistency in size and color and are produced by
larger growers (Cook and Calvin 2005).
11
“Shippers” are defined as “any shipping-point firm engaged in the business of marketing produce from growers or
others and distributing such produce in commerce” (Calvin et al. 2001:48-9). Growers may forward-integrate into
shipping and marketing of their own, and often other growers’ products, calling themselves “grower-shippers.”
Shippers may or may not import produce.
37
Figure 16: Tomato Value Chains: Fresh and Processed
Source: Authors’ diagram.
While greenhouse tomatoes still represent only a small percentage of total fresh tomato
production (9% in 2003), this portion of the market deserves attention because of its different
value chain dynamics. First, popularity in the United States is relatively new and on the rise. In
the late 1990s, greenhouse tomatoes were largely regarded as a specialty product, but are now a
mainstream item with sizable shelf-space in grocery stores. Second, imports represent a
significant portion of domestic greenhouse tomato supply. In 2003, only about 36% of
greenhouse tomatoes were domestically supplied, while 30% came from Canada and 29% from
Mexico.
Third, greenhouse tomatoes are sold more in grocery stores than in foodservice. The
greenhouse share of U.S. retail sales of fresh tomatoes was 37% in 2003, compared to 17% of
total consumption.
12
While better appearance and redder color tend to make greenhouse
products appealing to consumers, retailers are attracted by their other characteristics as well,
such as greater consistency in product quality, lower use of pesticides, and a smaller chance of
microbial contamination. These features are to a large degree attributable to a more controlled
12
Greenhouse tomatoes are less popular in foodservice because they are generally more expensive and have too
much water content for use in foodservice, compared to field-grown green tomatoes.
38
environment in which greenhouse tomatoes are supplied by larger but fewer growers capable of
high capital investment. This concentration of suppliers is another reason that the retailers who
are conscious of transaction costs are attracted to greenhouse tomatoes (Cook and Calvin 2005:
7-10).
However, consolidation is increasingly widespread in fresh tomato value chains.
Shippers are consolidated compared with shippers in other fresh fruits and vegetables. Their
numbers have become smaller, and many of them vertically integrate growing, packing, and
shipping (Strange, Schrader, and Hartz 2006: 7). According to a USDA study (Calvin et al.
2001), there were 65 shippers in Florida and 23 shippers in California in 2000; those shippers
interviewed, six in Florida and eight in California, accounted for 32% and 56% of the 1999
production of each state.
13
As of 1999, the top four shippers in California handled approximately
43% of total fresh tomatoes in the state, up from 36% in 1994. In Florida, the share of the top
five shippers of the state’s production was largely unchanged during the 1994-99 period,
approximately 45% of volume (Calvin et al. 2001: 12).
Changes in food retailing affected the shipper-retailer relationship. Consolidation in
retail grocers (e.g., Kroger, Safeway), mass merchandisers (e.g., Wal-Mart, Costco, Sam’s Club),
and foodservice buyers (e.g., McDonald’s, Burger King) mean shippers now face fewer but
larger buyers, though empirical evidence is limited compared with the relationships in other fresh
fruits and vegetables. Retailers in 1999 purchased 91% of fresh tomatoes from their top four
suppliers, second only to bagged salads (97%) (Calvin et al. 2001: 16). Consolidated retailers
favor larger shippers because it increases their efficiency in procurement and because larger
suppliers are more capable of providing a variety of produce on a year-round basis and satisfying
food safety standards.
As a result, despite the enduring prevalence of spot markets, there is an emerging trend
toward short-term and long-term contracts, as shown in Figure 17. While the statistics are not
solely about fresh tomatoes (they include grapes, oranges, and grapefruit), one can detect an
overall trend toward contract relationships and at the same time, varying degrees of reliance on
spot markets depending on the types of buyers during the late 1990s. Mass merchandisers, such
as supercenters and club stores, and foodservice outlets like restaurants, are clearly the leaders in
13
This interview data, albeit not up-to-date, is of great value given that such buyer-supplier relationship data are not
easy to come by.
39
this shift: 70% of the sales to mass merchandisers in 1999 were contract-based, either short-term
or long-term, up from 61% in 1994. The shift in foodservice is more striking; in 1994 only 24%
of sales to that category used contracts, but in 1999 the share jumped to 61%. Most fresh
tomatoes were shipped to retailers through spot markets. However, the share of spot market
sales dropped below 60%, and instead, contracts became more common after 1994 (Calvin et al.
2001: 17).
Figure 17: Sales Mechanisms of Fresh Fruits and Vegetable, 1994 and 1999
Note: Includes grapes, oranges, grapefruit, and California and Florida tomatoes
Source: Calvin et al. (2001)
Contract-based sales entail preferred supply relationships or deals, partnerships, and
programs between buyers and sellers. Both parties have incentives to enter into the contracts
since contracts provide protection from an unexpected spike or drop of prices and supply.
Retailers also benefit from contracts with shippers when a market price goes higher than the
contract price, but a lower-than-contract price gives shippers an advantage. In addition to
avoidance of risk from price volatility, retailers seek to guarantee consistencies in quality, size,
and volume of products supplied by shippers through various contract arrangements. This
pressures shippers to do the same through stable relationships with buyers. In this regard, the
40
shipper-retailer linkage in fresh tomato value chains is considered relational when transactions
are contract-based (Calvin et al. 2001: 21-24).
The growing buying power leverage of large retailers and giant fast-food chains has
become a big concern for upstream participants like growers, shippers, and repackers. A 2001
USDA study reported that shippers were more concerned than in the past about losing business
unless they complied with buyers’ requests, although tomato shippers were less worried because
they tended to deal with repackers, not directly with retailers (Calvin et al. 2001: 15-16). For
example, a recent effort by Burger King to change a tomato pricing method faced a bitter
response. Charles Porter, a tomato repacker in Florida, criticized the company for using its
buying power to force repackers and growers to reduce the cost of tomatoes brought from farms,
including service fees for sorting, grading, and packaging. He writes: “You [Burger King] take
advantage of the desperate nature of your tomato suppliers, most of which have been with you
for 10 years or more. Without you, some of them may be out of business” (Porter 2005).
In fact, the difference between the retail price and the grower-packer return (“marketing
spread”) shows that a much higher portion of retail value goes to retailers (Figure 18). In 1991,
the farm value of fresh tomatoes represented 37% of retail value; in 2006, it only accounted for
26%. The downward trend was particularly strong during the 1990s, when the share dropped
from 37% in 1991 to 21% in 1999, the lowest since 1980 (Lucier and Jerardo 2007: 110). Today
the appearance of powerful consolidated buyers in the retail and fast-food segments of the value
chain, coupled with increased supplies from other countries, is a source of great concern to
tomato suppliers.
41
Figure 18: Contribution of Shipping-Point Prices and Marketing Spread to Retail Prices of
U.S. Fresh Tomatoes, 1991-2006
Source: Lucier and Jerardo (2007)
Processed Tomato Value Chains
The processed tomato value chain is more complex, as shown in the bottom part of
Figure 16. Tomatoes are grown from seeds designed for processing purposes and are machine-
harvested. The harvested tomatoes are converted into intermediate goods, either paste or canned
tomatoes, by marketers and remanufacturers. Marketers are a specialized processor that supplies
intermediate products to remanufacturers, who turn them into final consumer products, such as
ketchup, sauces, and juice. Some remanufacturers also make intermediate products in their own
facilities for internal use.
14
As with broiler production, the processed tomatoes value chain
contains high productivity, the extensive use of scientific and technological knowledge, and
industrialized scale economies for processed goods.
Unlike the fresh tomato industry where market-type governance structures are prevalent
and relational governance is on the rise, nearly 100% of processing tomatoes are produced and
sold under contract between growers and processing firms (either marketers or remanufacturers),
14
The term “marketers” is widely used in the processed tomato industry, just as “integrators” is in the chicken
industry. In other industries the term “marketer” is used for companies that have visible consumer brands (e.g.,
Disney, Liz Claiborne, and Nike), while tomato processors (who are called marketers) do not have brand names that
are visible to final consumers. By contrast, most “remanufacturers” in the processed tomato value chain sell
branded foods. Remanufacturers also make processed tomato products for retailers’ store brands. The term
“remanufacturers” is employed because these firms use intermediate inputs to make processed tomato products.
42
indicating the prevalence of a relational governance structure. Furthermore, the extensive
intervention of processors in growing makes likely the coexistence of captive value chains,
depending on the extent to which growers depend on processors. Demand for standardized
tomatoes to better suit processing has increased the processor’s interest in on-farm activities,
such as the choice of seeds and varieties, thus redefining the extent to which “farming practice”
actually occurs on farms (Pritchard and Burch 2003: 34-5, 65).
Processors are keen to maintain consistency in size, color, quality, and taste, but also
other features, such as skin pulp thickness (to protect harvested tomatoes during transport),
picking ability (to allow the harvest machine to easily pick the tomatoes off the vine), seed
density, and soluble solids (Morning Star Packing Co. 2008b). Therefore, processors typically
specify the seed varieties allowable in the contracts with growers and by doing so make them
contractually committed to use particular hybrids (Pritchard and Burch 2003: 39). Finally,
through contract arrangements the processor feeds improved production technology and
knowledge into the growing process, while growers increasingly depend on the inputs given by
processors for seeds, transplanting, and harvest methods.
A historical example of co-dependence between seeds and harvest methods -- “a synergy
between the mechanical basis of harvesting and the biological basis of tomatoes” (Pritchard and
Burch 2003: 49) -- is striking (see the case of Heinz below for more about seeds and also Section
5 for the impact on farm labor).
15
Research on varieties suitable to mechanical harvesting began
as early as in 1949 by G.C. Hanna and others in the University of California at Davis. The focus
was to develop tomatoes that were thick enough to withstand stresses involving mechanized
picking and during transport, and at the same time, were uniformly ripened so as to be harvested
at one time. Their effort bore fruit when in 1956 they entered into discussion with Blackwelder,
a farm machine manufacturer, to build the first commercial harvester (see Appendix B for a
timeline of the U.S. tomato industry).
However, it was not until 1966 when the Bracero Program, which guaranteed the
presence of Mexican temporary workers on U.S. farms, was rescinded that growers actually
began to deploy the new harvesting technique,. The machine-harvested share of California
processing tomatoes jumped from just 3.8% to 95% in five seasons between 1964 and 1968.
Mechanization led to the demise of small growers. In California, there were over 4,000 growers
15
Accounts in this discussion are largely drawn from Pritchard and Burch (2003:42-52).
43
in the early 1960s, but less than 600 growers remained in 1973 when the transition to mechanical
harvesting was completed.
Tomato production using mechanical harvesting flourishes where the climate is
predictable. This partly explains the concentration of processing tomato production in California.
The state doubled its share of total processing tomato production between 1949 and 1974, from
40% to 83%. Predictable climate also accounts for a southward shift in the state’s production
since the mid-1990s.
The share of northern counties in California’s processing tomato
production declined from 44% in 1995 to 30% in 2000, whereas production in southern and
central countries increased 10% and 3%, respectively (Pritchard and Burch 2003: 52).
The introduction of aseptic packaging in the early 1970s, another major innovation in
processing, changed the nature of intermediate tomato products by bifurcating manufacturers
into marketers and remanufacturers (Pritchard and Burch 2003). Sterilizing the product and
storing it within sterilized bulk containers, either 300 gallon boxes or 55 gallon drums, allows
tomato paste to be storable for up to 18 months (Lucier 2008). This innovation eliminated
seasonality as a factor.
Increased industrialization of processed tomato products led to the emergence of a new
type of lead firm, known as “marketers.” These firms, like Morning Star Packing Co., specialize
in the scale production of tomato paste for remanufacturers. Increased industrialization led to the
divergence of the supplier-buyer relations in a couple of directions. Quality-conscious buyers,
like large branded food companies, tighten contract relationships with a small number of
qualified marketers. More importantly, increased industrialization increased the bifurcation
between specialized marketers that focus on large-scale industrial paste and sauce production and
remanufacturers that put more emphasis on brand management (Pritchard and Burch 2003: 65-
67). In the following section, we examine this new development with an assessment of one lead
firm in each group: Morning Star, the California-based leading marketer, and H.J. Heinz Co., the
leading U.S. remanufacturer.
Lead Firms and Value Chain Governance: H.J. Heinz and Morning Star
Large retailers play a major role in the fresh tomato value chain. Increased contract-
based relations reshaped the role of retailers in the governance structure over upstream players,
such as growers, shippers, and repackers in the midst of consolidation in both segments. The
44
processed tomato value chain is more complicated. Table 2 lists California’s tomato processors,
either marketers or remanufacturers, and their paste production capacity in 2007. Ten marketers
with 12 facilities have the combined capacity to produce 4,204 tons of tomato paste and diced
tomatoes per hour. Morning Star is the leader with a production capacity of 1,184 tons of tomato
paste per hour in its two processing facilities, accounting for over 25% of California’s processed
tomato production. In contrast, four remanufacturers with six facilities can produce a total of
1,122 tons per hour. Campbell Soup leads among remanufacturers, although its production
capacity is 40% of Morning Star’s. Paste marketers are more likely to be grower-owned
cooperatives, whereas remanufacturers tend to be branded food producers.
The shifting balance toward marketers is evident when these numbers are compared with
those in 2001.
16
The capacity of marketers has increased by 25%, from 3,364 tons per hour in
2001, but that of remanufacturers declined by 46% from 2,116 tons per hour. The numbers of
processors and facilities have both declined. The decline was bigger for remanufacturers; in
2001 there were six remanufacturers running 12 facility locations, but in 2007 there were four
firms and six facilities. It is unclear whether these shrinking numbers imply consolidation
among marketers or remanufacturers’ decisions to switch from making to buying, as some
suggest (Pritchard and Burch 2003).
17
16
The data of both years came from Morning Star Packing Co. The 2001 data are cited in Pritchard and Burch
(2003:68-69).
17
In fact, Heinz closed its tomato paste production at Stockton, CA in 2002. Del Monte also stopped producing
tomato paste at its Woodland, CA plant in 2001.
45
Table 2: California Tomato Paste Processors: Marketers and Remanufacturers, 2007
Processors
Facility Location
(Year Built)
Tomato Capacity for
Tomato Paste
(Tons/Hour)
Equivalent
Tomato Paste
(Pounds/Hour)
MARKETERS
Morning Star Williams (1995)
Los Banos (1990)
1,184 388,292
Ingomar* Los Banos (1983)
Los Banos (2000)
554 181,480
Los Gatos* Huron (1991) 456 149,615
Liberty Packing Santa Nella (1975) 449 147,268
SK Foods Lemoore (1990) 445 145,895
Rio Bravo* Bakersfield (2000) 318 104,174
PCP* Woodland (1943) 279 91,451
Toma-Tek Firebaugh (1989) 224 73,446
SK Foods/CCCC Williams (1982) 221 72,551
Stanislaus Modesto (1942) 74 24,278
Sub-Total 12 4,204 1,378,451
REMANUFACTURERS
Campbell Soup Dixon (1975),
Stockton (1967)
462 151,381
Conagra Grocery (Hunts) Oakdale (<1970)
Helm (1990)
410 134,128
Unilever Bestfoods (Ragu) Stockton (<1970) 164 53,697
Del Monte/Contadina Hanford (1976) 87 28,562
Sub-Total 6 1,122 367,768
Total 18 5,236 1,746,218
* Grower owned and controlled processor.
Source: Morning Star Packing Co. (2007a)
H.J. Heinz Co.: A Leading Remanufacturer
H.J. Heinz Co. is a global branded food producer that makes ketchup, condiments,
sauces, soups, beans, pasta meals, and other processed food products. Over half of the
company’s sales come from outside the United States and nearly 40% come from Europe alone.
In 2007, North American consumer products and U.S. foodservice accounted for 30% and 17%,
respectively, of its sales (OneSource 2008). Ketchup is one of the company’s three largest
product categories in the U.S. retail market. Restaurant customers account for approximately
85% of U.S. foodservice sales. About 60-70% of these sales come from fast-food chains,
although the company has had no significant business with McDonald’s in the United States for
decades (Driscoll, Lavery, and Burnette 2005: 13-14).
46
Tomatoes account for 23% of the company’s agricultural inputs, and tomato paste is its
fourth largest input (Driscoll et al. 2005: 25-26). As with many other tomato processors, the
company acquires tomatoes through pre-season contracts with growers (OneSource 2008).
Contracts require the growers to plant specific varieties of tomatoes. In fact, Heinz has its own
seed business, HeinzSeed, established in 1992. By 1995, the seed entity became the market
share leader for tomato seeds for processed products in North America. It also supplies to major
markets in South America and the Mediterranean region. HeinzSeed develops and sells branded
tomato seeds. For example, its top-selling H8892 seeds are designed for machine harvest in
California and solely for ketchup production, while H9478 is suitable for tomato juice (see,
www.heinzseed.com).
The integration of the tomato seed business by Heinz is particularly instructive with
regard to how this leading remanufacturer responds to shifting global supply and demand issues.
First, in recent years Heinz has exhibited increasing organizational and geographic flexibility in
the sourcing of first-tier products, particularly paste. More paste is now provided by external
suppliers than prior to the late 1990s when in-house production was dominant, suggesting a shift
of governance structures from hierarchy to relational networks. Geographically, Heinz is
building regional supply networks on a global scale. It produces its intermediate and final
products in southern Europe to serve customers in northern Europe. Xinjiang Tunhe, the leading
tomato paste exporter in China, supplies bulk paste to Heinz in Asia (Pritchard and Burch 2003:
77-79).
Second, its seed R&D operation plays a significant role in exerting influence into
growing operations. Heinz is one of the few food producers that breeds its own crop varieties
(Jargon 2007). Another is its rival, Campbell Soup Co., which operates its own seed business as
part of its R&D division. In 2001, Heinz introduced its hybrid seed varieties to Tunhe to
improve the quality of the state-run Chinese processor’s products (Pritchard and Burch 2003).
18
In a recent response to soaring corn syrup prices, the company is trying to develop new crop
varieties -- this time, sweeter tomatoes. Over the last three years, it increased its budget for seed
research by 40% to purchase more land for field experiments and to augment its seed research
18
The quality of supplied paste is one of Heinz’s big concerns. For example, dissatisfied with the quality of Iranian
and Chinese tomato paste supplied to Russia, the company reportedly was considering the possibility of growing
tomatoes and producing its own tomato paste in neighboring countries as part of its plan to acquire the Russian
ketchup market (WPS: Russian Finance Report 2004).
47
team. Newly developed proprietary seeds will be sold to its contract growers for sole use by
Heinz (Jargon 2007). This suggests that Heinz’s upstream strategy is directed toward tightening
coordination through the exchange of knowledge protected by intellectual property rights and
enforced by growing contracts.
Morning Star: A Leading Marketer
Morning Star was founded as a trucking company in 1970 to haul tomatoes to canneries.
In 1982, Morning Star established a tomato paste-processing plant with three grower investors.
Today, the marketer accounts for over a quarter of California’s processed tomato production,
supplying 40% of the bulk tomato paste and diced tomato markets, with sales of approximately
$350 million (Morning Star Packing Co. 2008a). It owns and operates two paste processing
plants in Los Banos and Williams and a diced processing plant in Santa Nella, all located in
California.
Cost reduction and economies of scale in paste production are crucial to Morning Star’s
success (Morning Star Packing Co. 2008a). Raw tomatoes still account for 40-50% of the total
costs in paste production. Thus, the company focuses on reducing non-farm cost factors, such as
logistics and processing. In fact, real tomato paste prices have gone down by 43% since 1987,
from 68 cents to 39 cents per pound. Hauling prices and processing margins have declined by
48% and 52%, respectively, while raw tomato prices are only down by 28% over the last two
decades (Figure 19).
Figure 19: Inflation-adjusted Cost of Tomato Paste Production in California, 1987-2006
0
20
40
60
80
100
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Inflation-adjusted Costs (cents per lb, 2006 prices)
Raw tomato Hauling Processing
Source: Morning Star Packing Co. (2007b)
48
Morning Star’s strategy is two-fold. On the one hand, the company operates highly
modernized production facilities. Its plants in Los Banos and Williams were built in 1990 and
1995, respectively, replacing the Yuba City plant built in 1975. In 2001, when the latter was still
in operation, the newest Los Banos plant was able to process almost four times the raw tomatoes
of the oldest one (Pritchard and Burch 2003: 68). Another key strategy of cost reduction is to
streamline grower-factory logistics. Morning Star focuses on the reduction of logistics and
scheduling costs. This is critical because processing tomatoes have to be transported to the
processing plant within six hours after harvest from the field (Boriss and Brunke 2005a).
Today the company is closely involved in some upstream activities, specifically
harvesting and trucking. The company maintains partnerships with the California Sun
Harvesting Company in Northern California and Lucero Farms in Southern California.
Harvested tomatoes are transported by Morning Star Trucking, the largest tomato trucking
company in California. On the downstream side, consolidated buyers help the marketer to cut its
costs for distribution and sales. Less than 20 of the company’s customers purchase 60% of the
company's total output, or one billion pounds of tomato paste. Whether the consolidated buyers
will limit the power of the major marketers (like Morning Star) or whether the remanufacturers
(like Heinz) will move further away from paste production to focus on branded food
manufacturers remains unclear at this time.
(5) A Revolution in Food Production and Consumption: Comparing the Tomato and
Chicken Value Chains
In Section 2 we outlined four key dimensions to GVC analysis. In this section we
connect those four key dimensions – input-output structure, geography, governance structures
and institutions – to findings we highlighted in the GVC case studies of chickens and tomatoes.
We further relate this discussion to labor issues and institutional arrangements that influence the
chains. These connections accentuate our main arguments: both industries exhibit diverse intra-
and inter-firm linkages and strong lead firms coordinate the supply chains; various stages of the
chains have become more concentrated, and they have co-evolved so that similar industrial
structures are replicated in other segments of the chain; and the relationship between firms along
the chains exhibit diverse governance structures, with neither chain representing one sole
49
governance structure. Below we explore these arguments in more detail. By using GVC
analysis to show how the industries’ multiple governance structures have changed over time, we
can see how transnational corporations have spearheaded the processed food revolution.
Input-Output Structures
The input-output structures of the chicken and tomato value chains are characterized by
three main similarities. First, both structures rely heavily on advanced technology and research
and development to provide stronger yields and less grow-out time at reduced costs. Second,
increased vertical coordination among the “integrators” for chicken and “processors” for
tomatoes has brought more consolidation to the industries with these lead firms dictating
technological improvements and supplier responsibilities. Third, there has been a rise in the role
of retailers, both supermarkets and fast-food chains, where chickens and tomatoes reach final
markets. Due to their immense buying power, these retailers can enter into tight contractual
agreements with the integrators and processors and, more recently, with growers/shippers of
fresh tomatoes.
Technological advances in inputs and production capabilities have spurred increased
production and efficiency for processed and fresh chickens and tomatoes. For chickens,
improvements made in breeding so chicks grow faster, withstand disease, and require smaller
amounts of feed made chicken cheaper and abundant. The advent of “just in time” supply of
chickens for retailers has streamlined the production phases and increased the need for
standardization of the chickens, which move through processing lines at about 225 birds per man
hour.
For tomatoes, technological changes in inputs have occurred in seeds and fertilizers
developed for both processed and fresh varieties. Unlike the chicken industry, the tomato’s
bifurcation between fresh and processed forms is manifested by each segment receiving different
seeds, harvesting techniques, and location specification. The use of greenhouse tomatoes also
changed harvesting techniques for vine tomatoes. In processing tomatoes, innovation in machine
harvesters, machinery for creating paste, and final goods streamlined production. Overall,
intensive agricultural research concerning seeds, transplanting, and harvest methods increased
the availability of tomato products, and resulted in more profits for integrators and processors.
50
The technological achievements in the input-output structure of both industries were
supported by vertical coordination by integrators and processors, who attempt to control every
segment of the value chain. A major difference, however, is that the chicken industry is
characterized by one key type of lead firm, integrators, who manage every stage except retail,
while there are two types of important lead firms for processed tomatoes: marketers and
remanufacturers. Notwithstanding this dual division in processed tomatoes, both sets of
processors are becoming more integrated. With fresh tomatoes, the role of shippers/growers is
expanding to meet the demands of retailers, which are requiring produce year-round.
In Figure 20, we see that chicken integrators such as Tyson and Pilgrim’s Pride are
moving into every stage of the value chain except for retail. For tomato processors, marketers
like Morning Star control the farming, processing, and distribution of tomato paste through
contract arrangements, while remanufacturers like Heinz control farming (including the inputs
farmers use), processing, and distribution. Heinz actually follows two models. Sometimes they
control all the upstream segments of the chain from growing to paste production, particularly
where there are few competent suppliers (see footnote 17). But where qualified suppliers are
available, they buy paste for end products from marketers like Morning Star.
This strategy may anticipate the growth of two separate lead firms with different
comparative advantages. Heinz can solely focus on its brand image and product development,
and outsource paste production to qualified marketers specializing in paste production. This
would stratify firms by industry segment to a greater degree than currently exists. This
segmentation has yet to occur in the chicken industry and is probably less likely to occur due to
the need of integrators to guarantee quality specifications through control over breeds and
raising.
51
Figure 20: Degrees of Vertical Integration Among Different Types of Lead Firms in the
Chicken and Tomato Value Chains
Source: Authors’ diagram.
Overall, in both the chicken and tomato value chains, control over downstream activities
helps to ensure guaranteed prices and the firm’s ability to push itself toward higher-value added
processing techniques. As economic globalization has increased over the last several decades,
these firms generate their profits by shipping high-value processed goods and by setting up or
purchasing foreign subsidiaries. These subsidiaries facilitate direct and indirect linkages in
developing countries that encourage them to adopt similar food technologies. Hence, context
assists us in understanding the current market structure: the largest five integrators held a 58%
market share in 2006, which coincided with the demise of small tomato farmers and the growing
capacity of marketers and remanufacturers. Because processing requires consistency, quality,
size, and price control while also bringing higher profit margins for firms, the trend toward
concentration and consolidation should continue.
The processed food revolution has impacted the agricultural industry just as strongly as it
has snack foods and boxed dinners. Although there is a debate regarding the impact of processed
52
vegetables and fruits on consumer health, depending on the specific product, we can expect to
see more processed food varieties available to consumers in both chicken and tomatoes. There is
a continuum of minimal processing to full-blown processing, and many nutrients are lost as the
degree of processing and age of product from farm to fork increase.
Nevertheless, the concentration of integrators and processors would not be possible
without an expansion of final markets for their products. These final markets are also
experiencing growth and concentration. Both supermarkets and fast-food chains have increased
their size and market position dramatically in the last twenty plus years. In Table 3 we see that
the top three retailers by company shares are supermarkets or superstores.
Table 3: Company Retail % Breakdown (by Global Brand Owner)
U.S. Retailing 2004 2005 2006 2007
Wal-Mart Stores Inc. 8.6 8.9 9.1 9.3
Target Corp. 2.3 2.2 2.3 2.5
Kroger Co. 2.4 2.4 2.3 2.4
Walgreen Co. 1.7 1.8 1.9 2.1
CVS Corp. 1.2 1.6 1.8 1.8
Home Depot Inc. 1.9 2 1.9 1.8
Sears Holding Group 1.8 1.7 1.6
Supervalue Inc. 0.8 0.8 1.5 1.4
Safeway Inc. 1.4 1.4 1.4 1.4
Lowe's Companies Inc. 1.2 1.3 1.3 1.4
Source: Euromonitor International (2007)
Wal-Mart in particular has dominated the competition. Over a ten-year period,
Wal-Mart’s net sales have more than tripled (Figure 21). As of 2008 the company had 2,447
supercenters in the United States that offered large grocery departments, in addition to the 112
neighborhood grocery markets. Wal-Mart’s size and market share provides unique bargaining
power with suppliers. Its ascendance has coincided with changes in procurement strategies, as
Wal-Mart began to demand cheaper prices from suppliers for the goods sold in its stores. In
order to shape and control the supply chain even further, Wal-Mart has all products go through
one of the 112 distribution centers, which are staffed by 51 transportation offices with 8,000
drivers making deliveries across the country (Wal-Mart: A Leader in Logistics 2008). Each
distribution centers serves 75-100 stores with a 250 mile radius.
53
Figure 21: Wal-Mart Net Sales, 1997-2008 (USD Millions)
Source: Wal-Mart Annual Reports
Fast-food chains have grown rapidly as well. In the case of McDonald’s, by 2007 the
company had 13,862 restaurants in the United States and 17,515 units offshore for a total of
31,377. In Figure 22, we show the restaurant growth of McDonald’s around the world since
1994. The worldwide total more than doubled over a ten-year span. In contrast to Wal-Mart and
other grocery retail markets, however, McDonald’s does not handle any of its own distribution;
these capabilities are outsourced. McDonald’s is a brand that buys all its french fries, buns,
hamburgers, happy meal toys, and other inputs from large suppliers that handle logistics
(Burrows 1993). Tyson has consolidated and concentrated its role as an integrator that supplies
McDonald’s; another lead supplier and distributor is Golden State Foods (GSF) Corporation.
GSF is a diversified supplier to the foodservice industry, providing processed foods ranging from
liquid products, meat products, produce, and bakery for over 20,000 restaurants (Golden State
Foods 2008).
54
Figure 22: McDonald’s System Unit Restaurants by Region, 1994-2007
Source: McDonald’s Annual Reports
Global retailers have greatly increased their leverage in food and agricultural value
chains. They often dictate the standards, quality, size, and price of the products in their stores
and restaurants. Because of these stringent requirements, only the largest firms can act as
suppliers. For example, fresh produce was traditionally sourced through spot markets, but now
has moved toward more contract-based transactions. To meet the demands of these large
retailers, particularly Wal-Mart, growers/shippers became more concentrated to increase their
bargaining power with buyers. Hence, concentration in one value chain segment can have
spillover effects in other segments. Only the largest integrators/processors and shipper/growers
become suppliers for the top food retailers, bringing forth interesting relational imperatives
among the big firms with regard to information technology and cost transactions.
Geography
Location dictates coordination capabilities and transaction costs in the chicken and
tomato value chains. Higher crop yields, market and labor access, and firm concentration
strategies play into the geographic locations for the industries. In the United States, Florida,
California, and the southeastern region are the hubs of the chicken and tomato industries.
McDonald's System Unit Restaurants by Region Since 1994
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Number of Restaurants
U.S. Europe Asia/Pacific Latin America
Other Regions Total - Outside U.S. Total - Worldwide
55
Internationally, significant shifts in production capabilities and trade flows are evident,
particularly with regard to the role of Mexico and Canada in the tomato industry and China and
Brazil in chicken. Within the United States, the location of the industries has shaped labor
dynamics where low-income, mostly Latino immigrant workers are part of the supply-side
equation for bolstering processed-meat varieties.
United States
For the chicken industry over the past half century, the top integrators have pushed
production to the U.S. Southeast. Cheap labor, limited unionization, rural community incentive
packages, better transportation infrastructure, and mass production techniques to meet growing
processed chicken demand accompanied the growth of poultry complexes where the steps
between outgrowing and processing are standardized and spatially close to one another.
Industrial concentration of large integrators altered the relationship between labor and
management, weakening job stability and facilitating the recruitment of immigrants. The
conditions are often abysmal for the workers who toil in the industries, who suffer from low pay,
inadequate housing, and often exploitative relationships with farmers and processors.
Immigrant labor is used as a vehicle to bypass unionization, higher pay, and safety
requirements. Since the 1990s, the poultry industry has been recruiting Mexican and other Latin
American workers in Mississippi, one of the world’s leaders in chicken production (Steusse
2003: 2), and in the Carolinas, where thousands of immigrant workers do the dangerous work of
chicken processing in the factories. Using survey data from a study by Parrado and Kandal
(2005), Table 4 shows the growth of the Latino population in the processing plants, in particular
the growth of foreign-born workers, and how the wage of the workers has decreased overtime.
The foreign-born population (mostly Hispanic) increased from 50% to 82% between 1980 and
2000, with the mean annual wage decreasing. The Charlotte Observer estimates that as of 2007,
Hispanic workers now are between 80-90% of the meat-processing work force.
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Table 4: Ethnic Composition and Socio-Demographic Profile of U.S. Meat-Processing
Workers, 1980, 1990, and 2000
Ethnic
Composition
Hispanic Nonhispanic
White
Nonhispanic
Black
Other All Workers
1980 9 74 16 2 16,239
1990 13 66 17 3 17,139
2000 29 49 18 5 22,556
Percent foreign born in each ethnic group
1980 50 4 1 46
1990 61 3 1 60
2000 82 3 2 62
Percent with less than high school diploma
1980 65 30 43 40
1990 61 17 22 36
2000 63 13 15 32
Mean annual wage income (constant 2000 dollars)
1980 26,070 30,674 21,151 24,600
1990 20,979 27,348 18,592 21,918
2000 20,807 30,286 20,517 24,008
Source: Parrado and Kandal (2005).
In chicken-processing plants, the high throughput of large quantities of processed chicken
products each day places workers under numerous restrictions. Workers are only allowed to take
limited breaks, often have their wages withheld, and experience workplace injuries at
disproportionate rates in comparison to other food industries (Parrado and Kandal 2005). The
Department of Labor’s Wage and Hour Division (WHD) conducted a survey of 51 randomly
selected poultry plants in 2000. The most common problems cited in the survey were non-
payment of employees for all hours worked, unpaid overtime, and record-keeping violations. All
51 plants were in violation for unpaid hours of work. The most recent workplace conditions
report comes from a 22-month investigation by the Charlotte Observer into poultry processing.
The authors found that feeble rules and lax oversight have made it easy for the industry to exploit
illegal workers, underreport injuries, and manipulate a regulatory system that essentially lets
companies police themselves (Charlotte Observer 2008).
There have been attempts to reign in labor abuses in the industry. In 2002, the U.S.
Department of Labor (DOL) filed a lawsuit against Arkansas-based George’s Processing, Inc. for
allegedly failing to pay its workers for the time they spent at work putting on and taking off —
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“donning and doffing”— protective clothing and other gear. DOL filed a similar suit against
Tyson’s. More common is company self-regulation via codes of conduct. However, this has yet
to bring about significant change in industry labor practices.
The tomato industry is similar to chicken in various respects, but with differences in
working conditions between the fresh and processed segments of the chain. The tomato
industry’s use of immigrant labor has benefited industry leaders in processed tomatoes in
California and fresh tomatoes in Florida. The increased yield per acre in California’s farms
explains why 95% of processed tomatoes come from the state. For Florida, locating tomato
cultivation there is tied to climate and farm cultivation. Florida provides tomatoes mostly for the
eastern region of the United States, whereas the western region of the United States receives
most of its fresh tomatoes from Mexico.
The typically short shelf life and delicate care needed for tomato production has led
management to minimize transportation costs and locate packing facilities close to farms. These
factors also spurred intensive research into crop varieties that allow tomatoes to withstand
shipping between the various stages of the supply chain before coming to the final market. As
labor played a significant role in the business decisions for integrators in the chicken industry, it
also is important for both the fresh and processed segments of the tomato industry.
In the U.S. tomato industry, technological innovation (industrial
upgrading/mechanization) is connected to the availability of cheap migrant labor. The historical
fluctuation in cheap migrant labor in the United States is an important factor contributing to both
mechanization of the tomato crop and continued dependence on hand harvesting. There are
about 2 million farm workers in the United States, two-thirds of whom are foreign born (mostly
from Mexico); more than half of the farm workers are undocumented, and 20% of all the farm
workers are women (Martin 1999: 95).
Workers in the fresh tomato fields of Florida tediously hand tie tomato plants to wooden
stakes for proper tomato growth, while workers in California use mechanical harvesters and
electronic sorters. In California, where cultivating tomatoes for processing is strongest, the
mechanization of the industry allowed growers to bypass U.S. worker grievances and demands to
increase wages and improve working conditions on the farm . Between 1960 and 1995, the
increased mechanization of the industry quadrupled tomato production to 12 million tons and
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reduced the price of processing tomatoes as well as the price of popular consumer items like
ketchup (Martin 1999: 102).
In contrast to California, the tomato industry in Florida maintained its dependence on
manual workers due to the labor-intense production practices necessary for fresh tomato
cultivation. The Florida tomato workers today continue to fight for better working conditions,
treatment, and wages, which are below the minimum wage rate. Florida tomato workers
typically earn 45 cents for each 32-lb bucket of tomatoes. The price has not risen appreciably
since 1978, forcing workers to pick twice as much to get the real wage received in 1980.
The plight of tomato farm workers has received a growing amount of media attention.
Unlike in the chicken industry, this attention resulted in concrete improvements for workers,
particularly with regards to pay. The Coalition of Immoakalee Workers (CIW), a tomato picker
activist group, claimed their members were underpaid and instead of picketing the growers who
hired the workers, they chose to picket in front of Taco Bell’s parent company Yum! Brands. As
highlighted in our tomato global value chains section, this was an important strategic move by
the group, since more power within the industry is coming from retail buyers like fast-food
outlets. Similarly, labor unions like the Farm and Labor Organizing Committee (AFL-CIO labor
union) have been working since the 1970s toward giving Hispanic immigrant farm workers more
rights. In 1978, FLOC voted to strike Campbell’s tomato operations in Ohio to promote the use
of mechanical harvesters. More recently, in North Carolina FLOC is working with Mt. Olive
Pickles on a new campaign against RJ Reynolds to give labor workers higher wages, more
reasonable hours, and better benefits.
International Linkages
The international dimension is expanding its impact in the chicken and tomato value
chains. Although the focus of this paper is on the two industries in the United States, it is
necessary to briefly mention their international reach. Within the tomato industry, Canada and
Mexico are the United States’ leading tomato trading partners -- mostly imports of processed
varieties from Canada and fresh tomatoes from Mexico. China and Thailand are connected to
the U.S. chicken industry more through ownership-based joint ventures with U.S. firms rather
than through trade.
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Trade statistics of North America highlight the direct links between the three countries in
the tomato industry. As shown in Figure 15, the total volume of U.S. fresh tomato imports has
more than doubled since 1990, while U.S. exports have declined from $171 million in 1990 to
$152 million in 2006. Imports from Mexico in 2006 were 74% of total U.S. tomato imports,
down from 1990, but still strong. The impact of the United States as a net importer of fresh
tomatoes on agricultural production in Mexico is particularly strong. Once a product suitable for
sustainable farming in Mexico, tomato farming was industrialized in the 1980s. Even before
NAFTA, “Mexican companies adopted American industrial practices such as Taylorization,
assembly line production, and standardization” (Barndt 2002: 14). Similar to the bifurcation of
geographical locations for production in the United States, most of the tomato production in
Mexico comes from the states of Baja California and Sinaloa. In order to meet the demands of
foreign buyers, these regions adopted the practices of drip irrigation, fertigation, plastic mulch,
and planed stakes, and they have worked with Israeli seed firms to create extended shelf life
(ESL) varieties. Mexican ESL tomatoes are qualitatively different from Florida’s typical mature
green varieties.
As in the United States, the leading producers are driving the technological push in
Mexico. They are also spurred by foreign technology support. Companies like Empaque Santa
Rosa buy their seeds from foreign companies and hire consultants to recommend how their
operations can use “technological packages” – seeds and agrochemicals – to better increase their
yields in the name of Western technological advancement. The agrochemicals are then bought
from U.S. transnationals, such as Du Pont, Monsanto, and Cargill (Barndt 2002: 15). The
Confederation of Agricultural Associations of the State of Sinaloa, a consortium of Mexican
producers, is investing in intensive research and technology for tomato production. The growth
of the export industry in Mexico is making fresh tomatoes available to American consumers on a
year-round basis, but like in the United States, this change is pushing out small farmers and
cultivating the use of low-income immigrant labor. The tomato pickers in Sinaloa and Baja are
typically former subsistence farmers from southern states like Oaxaca who were pushed off their
land due to Mexico’s liberalization policies.
The trade story for the chicken industry is different than that of tomatoes. The strongest
international connection in chickens is through integrators in Thailand and China adopting U.S.-
style strategies of concentration, integration, and increased processing. The duplication of the
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U.S. poultry model by food producers in developing countries (Burch 2005) has globally
diffused the Western style of food production and consumption and sparked local interaction
effects.
For example, Charoen Pokphand Foods (CPF) is a Thailand-based manufacturer. Like
Tyson and Pilgrim’s Pride, it covers the entire cycle of the agro-industrial sector, including the
sourcing of raw materials for animal feed, producing feeds, breeding animals, farming animals
for commercial purposes, manufacturing processed food products, and distributing final goods to
domestic and international consumers. CPF has operated the KFC franchises in Thailand and 13
of China’s largest cities and its own fast-food chains – the “Chester Grill” chain in Thailand and
the Thai-themed “Bua Baan” restaurants in Thailand and China. It has also supplied Pizza Hut
and McDonald’s in Thailand.
Another example is DaChan Food, the largest integrated chicken meat and feed producer
in mainland China with a 25% market share. The company owns and operates 12 feed plants,
seven chicken meat plants, and four processed food production facilities in China. It also owns
feed plants in Vietnam and one in Malaysia. It is the largest chicken supplier to KFC and the
major supplier to McDonald’s, Dicos, and other fast-food restaurants in China.
At the same time DaChan Food and CPF are embracing the food production system of
the United States to supply chickens for Western-based companies conducting business abroad,
they also are changing the way chicken and meat products become available to their domestic
markets. The same type of chicken found in foreign retail and restaurant outlets is being sold at
local stores and restaurants. Further effects are witnessed in staple food products, like soy beans.
Soy beans are now being used as livestock feed to bolster the growing meat-processing industry
which is increasing demand for imported soybeans and decreasing demand for domestic
suppliers. Hence, farmers are changing the products they grow to meet international rather than
domestic needs (Huang et al. 2006).
Mexico, Canada, Thailand, and China are important international links in the global value
chains of tomatoes and chicken. They demonstrate the influence of global actors in changing the
local food markets offshore and they facilitate the growth of Western-based forms of food
production and consumption.
.
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Governance Structures
Explaining governance structures over time within the chicken and tomato value chains
helps us to understand how and why certain foods became available to consumers. While both
industries are led by large food processors and are impacted by the growth of retail buyers, they
differ in the level of concentration and consolidation amongst the upstream activities. The
integrators for chicken control every segment of the chain, while three important actors are
dominant in the case of tomatoes: marketers, remanufacturers, and growers/shippers.
Nevertheless, although there are more segments in the tomato value chain, actors in those
segments have become more concentrated. Ultimately, our analysis shows that the chicken and
tomato value chains both deploy multiple forms of governance structures to meet industry needs
as defined by the lead firms. This generates various leverage points along the chain for those
seeking to improve their position in the industry.
In both industries, there is a dramatic shift over the last half century from market
governance structures to “hierarchy,” where lead firm processors take on research and
development, procurement, production, and often distribution capabilities (Gereffi et al. 2005:
86-87). In addition to the ownership entailed by hierarchical governance, the integrators for
chicken and processors for tomatoes also established “captive” relationships with growers in
their respective value chains. This was an important change in industry governance. The
integrators and processors give detailed product specifications that allow them to control how the
chickens are grown and fed and how the tomatoes are planted and harvested in order to contain
costs and ensure product quality. The captive relationship limits the grower’s ability to negotiate
with the lead firms because the latter maintain the technological advances and market power that
permit them to dictate and enforce their specifications.
The shift from market transactions for procuring chicken to the new role of lead firm
“integrators” coincided with the rise of fast-food retail giants like KFC and McDonald’s. Similar
to the case of processed chickens, spot-market exchanges no longer exist for processed tomato
varieties. The marketers and remanufacturers in the tomato value chain engage in contract
relationships with their growers, providing seeds, fertilizers, pesticides, and transportation.
However, this bifurcation between marketers and remanufacturers distinguishes the processed
tomato chain from the processed chicken value chain. The industrialization of processed
tomatoes brought about the emergence of marketers that specialize in the large-scale production
62
of tomato paste supplied to remanufacturers that mainly focus on brand image and product
development. However, both marketers and remanufacturers pursue contract relationships with
growers, indicating that these roles are not entirely separate at the company level.
This is an important difference between the processed chicken chain and tomatoes.
Within the processed tomato value chain, marketers emerged as major players by specializing in
the most important input for remanufacturers: tomato paste. Some marketers define the product
specifications for their growers and also expand their value chains into neighboring segments,
such as harvesting and transportation. By streamlining the stages from the farm to the processor,
they have been able to minimize costs, raise product quality, and grow in strength. Their
technical expertise in a key stage for processed tomatoes puts them in a position of co-
dependence with large remanufacturers, a relational governance structure. Meanwhile, because
both marketers and remanufacturers need large quantities of tomatoes that meet their standards
and because of harvest mechanization, small growers have difficulty surviving in the industry.
Although both industries possess dominant processors and contract relationships with
growers, processed tomato growers tend to have a relational governance structure with buyers.
This is because the process tomato growers can enter into different contracts and are not
necessarily bound to one buyer. The trend seems to be moving toward a captive relationship
because of the rigid requirements remanufacturers might have, such as with Campbells and
Heinz both specifying seed variety. Nevertheless, these growers appear less constrained than
chicken out-growers. In 2008, for example, growers received a higher price for their tomatoes
from Morning Star due to precarious weather conditions.
The last difference in the governance structures of the two industries pertains to the
contrast in how fresh tomatoes and fresh chickens are commercialized. Unlike in the chicken
value chain, fresh tomatoes are still sold through spot market exchanges between growers and
shippers or wholesalers of fresh tomatoes. Different shipper/growers sell or trade their products
on the spot market, where price drives standard exchanges. On the other hand, fresh chickens
are still controlled by the same integrators that handle processed chicken. Tyson or Pilgrim’s
Pride sell fresh chicken varieties simply by having the chickens go through limited processing
techniques at the plant (cutting, adding additives, preservatives, packaging, etc.).
Nevertheless, there are key similarities in the governance structures for chicken and
tomatoes. First, although spot market exchanges still exist in the fresh tomato chain, this may be
63
slowly ending due to the concentration of growers/shippers to meet the needs of retail buyers,
particularly mass merchandisers like Wal-Mart. Developing short and long term contracts
directly with shippers/growers cuts out wholesalers and can bring about more abundant and
cheaper fresh tomatoes for consumers over time as growers adjust. This could be positive for
consumers. However, Wal-Mart’s reputation for pressuring all of their suppliers to meet
particular price points may create further problems in the downstream segments of the chain.
For example, as we discussed in the geography section, growers/shippers may be tempted to
further cut back on labor costs and put tomato pickers in precarious labor situations.
Hence, more abundant, cheaper fresh tomatoes might have deleterious consequences for
labor. Increasingly, the plight of farm workers advocated by activist groups pressured firms to
increase labor rights and benefits -- such as Yum! Brands which owns KFC, Taco Bell, and Pizza
Hut -- to pay a higher wage to their suppliers.
The role of Wal-Mart and fast-food buyers marks another key similarity of both
industries. These lead retailers have the power to impact upstream activities in both the chicken
and tomato value chains. The consolidation of this retail segment parallels the consolidation in
the integrators/processors segments of the two chains, and more recently the advent of direct
contracts with shippers/growers. Tyson and Pilgrim’s Pride both have key brands and expert
production skills that provide leverage vis-à-vis the retail buyers. The same can be said about
Heinz and Campbells. It will be interesting to find out which lead firm, the suppliers (Tyson,
Heinz, etc.) or the buyers (Wal-Mart, Kroger, McDonald’s), will gain the upper hand in the
future. We hypothesize that the market power of the retail buyer within the overall supply chain
will continue to grow due to their proximity to consumers and their sheer size and growth,
particularly Wal-Mart.
In this paper, we have identified multiple governance structures in the chicken and
tomato value chains. As shown in Figure 5, there are three key governance structures in the
broiler value chain. The breeder/R&D, hatchery, and feed mill stages are all controlled by the
lead integrators, which also control processing and packaging. This is a hierarchical relationship
because each stage is directly owned by the integrators. While the integrators own, design, and
operate all inputs to production, out-growers have some autonomy because they are critical to the
design of the chicken as a product. However, the relationship between integrators and growers is
captive because the growers are provided with all of the inputs (chicks, feed, antibiotics) and
64
given detailed instructions on how the chickens should be raised from the integrators. The
growers have limited ability to change harvesting inputs or techniques and they are subject to the
requirements of the integrators.
The final governance relationship in this chain is the one between the integrators and the
various retail outlets. This relationship could be characterized as either relational or modular.
Some facts indicate a relational structure, namely the integrators are brands themselves and their
control over upstream activities provides some influence over the buyers. The strong capabilities
of the integrators in the technological precision of processing and breeding activities represent
core competencies that retailers do not possess. Nevertheless, the market power of the largest
retailers, like Wal-Mart or McDonald’s, gives them the capability to set standards and price
points with the threat of supplier replacement.
As with chickens, the strength of processors in the tomato value chain is evident in their
power to dictate to farmers which seeds and fertilizers should be used and how transportation
should be organized (see Figure 16 above). However, this chain is more detailed and complex
than the chicken chain because of the bifurcation between two different kinds of processing firms
(marketers and remanufacturers) in the production stage of the processed tomato chain segment
and the growth of growers/shippers as a distribution channel in the fresh tomato value chains.
In the fresh tomato segment, the governance structure between growers and
growers/shippers, wholesalers, and retailers is predominantly characterized by market structures,
with evidence of a shift toward relational ties. Markets dominate because of the variability of
fresh produce supply and quality due to weather and yield factors. The structure of retailers and
growers/shippers is more concentrated, which could change this relationship toward a modular
form between the growers-shippers and the retailers, with mass merchandisers (like Wal-Mart)
moving toward long-term and short-term contracts with growers/shippers, bypassing
wholesalers.
Contracts for Wal-Mart typically do not go beyond one season or a year because the
company wants to base orders on consumer demand. Shippers/growers are asked to guarantee a
particular line of fresh tomatoes at the retailer’s given price. In addition, Wal-Mart introduced a
standardized returnable plastic container for suppliers that is used both for distributing fresh fruit
and vegetable products to stores and for in-store product display. If retailers continue to pursue
contract relationships with fresh produce suppliers, the latter will be more likely to consolidate to
65
meet the demands of buyers. They also may begin to develop more contract relationships with
foreign growers in order to control for seasonality. Increased trade liberalization supports this
development.
A distinctive feature of the processed segment of the tomato value chain is the production
of tomato paste, which is an essential ingredient used by the branded lead firm manufacturers.
This key input for processed tomato products became relatively easy to make without specialized
knowledge and thus it was less necessary to keep branded production internal. However, the
brands did not completely forgo this stage, and many still do all their processing in-house,
including intermediate products.
The relationship marketers and remanufacturers have with each other can either be
relational if the marketer is a lead firm or modular if it is not a lead firm but has high capabilities.
The governance structure both marketers and remanufacturers have with growers can be captive,
if growers have limited negotiation and innovation capacities, or relational, if large grower farms
have multiple marketers or remanufacturers they can source for. Finally, the relationship
between remanufactures and retailers is hard to determine, but we believe it is relational due to
the brand strength of some remanufacturers. As witnessed numerous times before, retailers such
as Wal-Mart are known to pressure food manufacturers (e.g., Vlasic pickles) to alter their
production volumes and prices to fit Wal-Mart’s standards (Fishman 2006).
Institutions
The final aspect of our GVC analysis is the role of institutions. Within the chicken and
tomato value chains, there are several types of institutional mechanisms – legal regulations of
safety and health standards, direct government industry support, free trade agreements and the
growth of intellectual property, and immigration laws – that directly affect industry structure and
firm decision-making processes. Some institutional mechanisms have stronger impacts for one
industry than the other, such as free trade agreements for tomatoes and government subsidies for
chicken inputs; but others, like immigration laws, have dramatically shaped both. Nevertheless,
despite these institutional structures, lead firm behavior is often the ultimate arbiter of
implementing change that can shape the entire value chains.
Both the chicken and tomato industries are regulated by safety and health standards. For
tomatoes, safety guidelines come from the U.S. Department of Agriculture’s Animal and Plant
66
Health Inspection Service that monitors packaging and disease prevention in the harvesting and
transportation stages. Rules are particularly stringent for imported tomatoes (see
http://www.aphis.usda.gov/newsroom/content/2006/08/tomatoim.shtml
). In the chicken
industry, the USDA’s Food Safety and Inspection Services inspect all chickens bought at retail
outlets. All chicken and internal organs are inspected for signs of disease. This is particularly
important in the light of the recent outbreak of diseases in meat products, such as the avian flu
epidemic in Asia. Chickens are then given the label "Inspected for wholesomeness by the U.S.
Department of Agriculture" to guarantee their quality. Integrators may also have chickens
graded, but this is purely voluntary. Grading measures the appearance of chickens, ranging from
its meatiness to signs of defects.
19
The need to ensure that chickens pass safety inspections
supports integration within the industry because quality control straddles multiple industry
activities.
In addition to product safety standards, there are also standards for workers in the
industry. Since the enactment of the Occupational Safety and Health Act (OSHA) in 1970,
employers are responsible for the provision of a safe and healthy workplace for all employees.
Poultry processing is regulated under the General Industry OSHA Standards 29 CFR 1910.
20
OSHA has standards that dictate machine guarding, ergonomics, and lockout/tagout programs.
Though there are no standards unique to this industry, all aspects of each operation must
carefully be evaluated for compliance with appropriate standards. OSHA standards dictate
worker safety and on-the-job guidelines, but lax enforcement causes worker accidents to go
unchecked, particularly in the chicken industry.
The Charlotte Observer series on chicken processing plants reported that OSHA’s
enforcement has plummeted over the past 16 years. According to the figures, “in 1990, Federal
and state OSHA cited companies for record-keeping violations more than 10,000 times. By
2006, that number had fallen to fewer than 4,000” (Hall 2008). The fact that many of the
workers were part of a marginalized immigrant class allowed poultry integrators to continue
harmful business practices with impunity.
19
For more information, see USDA Food Safety and Inspection Services’ Fact Sheet on chicken preparation
(http://www.fsis.usda.gov/factsheets/chicken_food_safety_focus/index.asp
).
20
See the following web site for the standards
(http://www.osha.gov/pls/oshaweb/owastand.display_standard_group?p_toc_level=1&p_part_number=1910
)
67
In contrast to the prominence of worker safety standards, health standards for food are
weaker and less visible. It was not until 2005 that the U.S. Department of Agriculture issued
dietary guidelines that suggested that partially hydrogenated oils or trans fats are harmful to the
body. The federal government then forced food companies to specify the level of trans fats on
product labels. In 2007, Tony Mendoza of the California Assembly successfully sponsored a bill
banning trans fats. A similar bill passed in New York. This change was brought on by greater
public awareness of the health risk of trans-fat. Research studies from the American Heart
Association show that trans fats cause- impairments in blood vessel dilation, which could lead to
heart disease.
Immediately after these nutritional studies and government issued positions on trans fats
were published, major fast-food restaurants were targeted for their use of trans fat in food
products. While the FDA recommends less than 2 grams of trans fats, McDonald’s large fries
have 8 grams, apple pie has 4.5 grams; KFC’s popcorn chicken contains 7 grams, chicken pot pie
has 14 grams, and a typical 3 piece extra crispy combo meal has about 15 grams of trans fat (see,
http://everything2.com/title/Hydrogenation).
In 2005, Campbell Soup Co. became trans fat free. Other major food brands like Kraft
and Crisco also announced campaigns to reduce or eliminate trans fats shortly thereafter. By
April of 2007, KFC publicly announced that it no longer uses trans fats to fry its chicken. It was
the first of many fast-food restaurants to begin an extensive campaign toward healthier food
options. McDonalds, Burger King, Popeye’s, and Wendy’s all followed with announcements of
healthier frying oil options for fast-food products.
In recent years, many corporations have published Corporate Sustainability or Corporate
Social Responsibility Reports. This effect is intended to address public accusations against
corporations regarding the impact of business practices on a bevy of social issues such as
unsustainable environmental practices, inhumane treatment of animals, and exploitation of
workers. There is a recent push toward the “triple bottom-line,” whereby companies base their
success on economic, social, and environmental performance. However, this is cause for
contention. Some say it is not in the best interest of companies to usurp the regulatory role of
government or to pursue any initiative that may counter their primary bottom line of shareholder
value. Others argue, on moral grounds, for initiatives such as sustainability for future
68
generations, addressing all stakeholders (rather than just shareholder) needs, and an improved
reputation as part of new business models (Porter and Kramer 2006).
Organic standards, the push by supermarket retailers to carry organic lines, and the
growth of Trader Joe’s and Whole Food retailers, also acts as a conduit for healthier food
options. In 1990 Congress passed the Organic Foods Production Act to establish national
standards for organically produced commodities, and the USDA implemented the standards in
October 2002. However, it is important to note that the term “organic” is complex. Since the
early 1990s, organic foods have moved into the consumer mainstream. What was once a small
scale farming method practiced by environmentally and health conscious “hippie” farmers has
now turned into a highly commercialized, industrial, and profitable sector of the food industry.
Michael Pollan, in The Omnivore’s Dilemma (2006), explores the modern “Big Organic”
phenomenon that features similar factory models to conventional farming. Under the current
USDA regulation, the conditions for organically grown produce and organically raised animals
are intended to benefit large-scale operations, such as the Cascadian Farm and Earthbound Farm
brands.
In contrast, some organic farmers who have grown local produce for decades feel that the
USDA regulations are too lax to make an impact on the environment and people’s health.
Originally, the intention underlying organic farming was the promotion of local sourcing of
foods in order to decrease food mileage, transport via trucks, and carbon emissions. It promotes
sustainable communities and is environmentally conscious of the contaminants used in pesticides
and herbicides. Instead, these Big Organic farms have adopted conventional transport methods
and economies of scale to supply supermarkets across the country.
Environmentally conscious consumers can no longer assume that organic foods are
necessarily linked to local sourcing and environmentally sustainable operations. In Table 5 we
highlight some basic differences between conventional and organic farming in terms of recent
USDA standards for certified organic products.
69
Table 5: Differences in Farming Practices between Conventional and Organic Farms
Conventional farmers Organic farmers
Apply chemical fertilizers to promote plant
growth.
Apply natural fertilizers, such as manure or
compost, to promote plant growth.
Spray insecticides to reduce pests and disease. Use beneficial insects and birds, mating disruption
or traps to reduce pests and disease.
Use chemical herbicides to manage weeds. Rotate crops, till, hand weed or mulch to manage
weeds.
Give animals antibiotics, growth hormones and
medications to prevent disease and spur growth.
Give animals organic feed and allow them access
to the outdoors. Use preventive measures — such
as rotational grazing, a balanced diet and clean
housing — to help minimize disease.
Consumers should be wary of the many labels that now exist in natural food stores.
Labeling a product as “natural” only implies that there are no man-made additives within the
foods. However, it does not imply anything about the conditions under which they were raised
or grown. The labeling also has no bearing on how far the foods have traveled. The USDA
loosely regulates other labels such as “Free-range” for livestock. The Department of Agriculture
standards labels merely say that chickens must have access to outdoors for an undetermined
period each day. Thus, free-range broilers have no criteria for environmental quality, size of
outdoor area, or indoor conditions. “Free-range” beef, pork, and other non-poultry products are
defined as coming from animals that ate grass and lived on a range. No other criteria, such as the
size of the range or the amount of space given to each animal, were applied.
Although minimal health and safety regulations facilitate the increasing number of firms
that aim their business strategies to cater to new health and socially conscious consumers, other
policies promoted the growth of the highly industrialized and concentrated structure of the
chicken and tomato industries, such as public subsidies (particularly for chickens). For tomatoes,
federal price and income support programs affect the industry through agricultural programs that
are not necessarily crop specific. For example, policies like the Federal Production Assistance
Programs, Federal Crop Disaster Assistance, Western irrigation subsidies, and the export-
promoting market access program (MAP) include provisions for a variety of products, including
tomatoes.
While the impact on the tomato industry is indirect, the chicken industry has been the
welcome beneficiary of continuing corn subsidies. Subsidies have been part of the Farm Bill
since the Great Depression. In 2006 corn subsidies totaled $5 billion. Chicken integrators take
70
advantage of this cheap input cost with feeds based predominately on corn. Hence, the
government subsidy of an agricultural product (corn) assisted the rise of chicken processing, as
well as many other meat and fish products that rely on corn for feed (Pollan 2006). The recent
increase in corn prices due to its use for bio-fuels, however, may change the corn equation in
poultry feed.
The growth of free trade agreements, particularly the North American Free Trade
Agreement (NAFTA) that was implemented on January 1, 1994, made procuring fresh produce
year round more feasible and cost efficient, allowing the concentrated retail markets to service
the needs of their consumers. The liberalized trade rules between the three countries of the
agreement (the United States, Canada, and Mexico) assisted the concentration of the two
industries, since smaller producers could no longer compete with large corporations like Tyson
and Pilgrim’s Pride and tomato processors competing in the market. NAFTA further increased
labor migration from Mexico to the United States because many Mexican farmers were pushed
off their land. The trade impact of NAFTA is particularly apparent for tomatoes, as shown in
Figure 15 above.
Another by-product of free trade agreements and economic liberalization was the
strengthening of intellectual property rights of corporations. During the Uruguay Round
negotiations of 1986-1993, which resulted in the creation of the World Trade Organization in
1995, the intellectual property rights of corporations were fiercely protected. This was
particularly important for developed countries. An example of this is the Trade-Related
Intellectual Property (TRIP) guidelines that cover all intellectual property concerns. According
to Bhaumik (2006), “innovation was given precedence over welfare,” and the primary focus on
the TRIPs Agreement was on minimizing the incidence of infringement of intellectual properties
of transnational corporations.
The protection of intellectual property rights benefited those lead firms, in both the
tomato and chicken value chains, who had the ability to invest in high-tech research and
development in seed varieties, fertilization, breeding, and feed. In order for firms in developing
countries to compete with these corporations with respect to production, they need to follow the
same production procedures. However, lead firms in developed countries hold the patents to the
technologies, hence ensuring that the firms in developing countries must buy from developed
countries rather than generate their own technologies. The hold over intellectual property rights
71
and patents points to the power of these firms to shape trends in the industry domestically and
internationally. The NAFTA agreement is a testament to this phenomenon, as witnessed by the
strong influence of U.S. multinationals that sell their seeds, pesticides, and fertilizers to Mexico.
Concretely, NAFTA pushed many subsistence farmers in Mexico off their land, and the
growing jobs on large farmlands in the Sinaloa region in Mexico, southern Florida, and in
chicken processing plants in the Southeast of the United States became major pull factors for
migrants. The use of immigrant labor was bolstered not only by NAFTA, but also by the
numerous immigration laws in the United States. Originally, the United States initiated
unilateral and bilateral agreements with Mexico under the Bracero program – a program
spanning the years 1942-1964 under which 4.6 million Mexican Farm workers entered the
United States (Martin 1999: 95). In the 1960s, the Braceros made up 80% of the harvest workers
in California’s processed tomato industry, and 60% of the Braceros employed in California
picked tomatoes (Martin 1999: 102). The lack of government oversight left employers free to
violate government regulations, such as minimum wage and inspection of labor conditions,
housing, and other worker issues, which were enforced under the original Bracero program, and
thus worsened the labor conditions in the industry (Martin 1999: 98).
The guest worker program, H2 Section of Immigration and Nationality Act of 1952,
also referred to as the H2 Program, made importing Mexican workers more expensive and
difficult compared to the Bracero Program. The H2 Program allowed the U.S. Attorney General
to import workers after consultation with the appropriate government agencies, which entailed
consultation with the Department of Labor (DOL). This labor market, unlike the Bracero
program, is less subject to U.S. control, since the U.S. government is not the one sanctioning the
recruitment (Martin 1999: 102). Under the H2A program, the employers fill an application 60
days in advance of their need for the farm worker, and both employer and DOL start a search for
U.S. workers. The tomato growers’ incentive to mechanize coincided with the termination of the
Bracero program in 1964, when the H2 Program became the sole way to receive foreign labor.
Mechanization was thus accelerated, particularly for the production of processed tomatoes that
were less dependent on manual picking of crops.
The passing of the 1986 Immigration Reform Act made over a million immigrants
available for citizenship but also tightened conditions for legal residency. This forced growers to
find new ways of meeting labor needs. Farm labor contractors (FLCs) are middle men who, for
72
a fee, will recruit, schedule, supervise, and pay for farm workers. Migrant workers are mostly
Latinos and have limited resources. Contractors act as middlemen for employers by doing the
work for them. They are not held accountable for hiring illegal immigrants, and the growers and
integrators can simply say they did not know that FLCs were hiring illegal workers. Hence, U.S.
immigration laws spurred growth by making cheap immigrant labor available in both legal and
illegal channels. Because of limited resources and the problem of unstable legal status for
immigrant workers in the United States , harmful working conditions, long hours, and meager
pay is the norm for laborers in the U.S. tomato fields and chicken-processing plants.
(6) Conclusion
In this paper we laid the foundation for a GVC analysis of the U.S. chicken and tomato
industries. Although we did not focus on connecting a GVC framework directly to an
explanation of rising rates of childhood obesity, we argue that a GVC analysis allows for an
understanding of some of the constraints, pressures and inducements individuals face in making
healthy food choices (Glass and McAtee 2006). We found that various stages of the global
value chains became more concentrated, especially for food processors and retailers, and the
relationship between segments of the chain can be conceptualized via a variety of governance
structures. With these broad findings, the divergence in the dynamics of processed versus fresh
chicken and tomatoes is acutely apparent. Firms are proactively pushing toward more processed
food varieties in order to control for price variation, standardization, and to gain value-added
benefits.
This push toward industrialized food production has spearheaded a processed food
revolution that has redefined the stages in the food value chain from farm to fork. The
implications for health derive from how production shifts affect consumption patterns in these
chains. As Rickman et al. argue, “understanding nutritional differences between fresh, frozen,
and canned foods is complex” (2007: 931). Research is now needed to better comprehend a
further series of questions: What are the health consequences for individuals, particularly
children, due to the abundance of cheap processed food varieties? How does the concentrated
structure of the food and agricultural industries directly impact low-income communities? How
can leverage be exercised against the lead firms in the chicken and tomato value chains to pursue
business strategies that provide healthier food options?
73
This second trajectory is particularly pertinent. While we have shown that there is an
economic and cultural shift in how food is produced and made available in the United States by
brands and retailers, low-income children, in particular those from select racial and ethnic
minorities, disproportionately are considered overweight or obese (Anderson and Butcher 2006).
Low-income individuals, particularly immigrants, are not only disproportionately involved as
workers in the production of foods, but they are also consuming the inexpensive foods that are
available at fast-food outlets, convenience stores, and grocery retailers. These communities
confront different constraints in their daily lives from those faced by higher income
communities, which put them at greater risk of making unhealthy food choices for themselves
and their children.
Research has shown that families in these communities spend less time at home.
Children have more unsupervised time and are exposed to high rates of television marketing;
unhealthy food is cheaper to buy; they live in neighborhoods with limited green space; and they
go to schools with restricted resources (Yancey & Kumanyika 2007). Factors such as adequate
kitchen space and appliances that allow for food preparation and transportation (to pick up food
in bulk), which are often taken for granted by middle-class consumers, are hurdles in lower
income communities (Ehrenreich 2001). Researchers studying the nutrition of low-income
communities in London found that “achieving a nutritious diet on a low income requires
extraordinary levels of persistence, flexibility, and awareness” (Hitchman et al. 2002).
Intentional or not, leading food manufacturers and retailers have benefited from this
phenomenon and implemented business practices that cater to low-income communities. Fifty to
sixty percent of U.S. fast-food franchise restaurants are located in predominately black
neighborhoods (Powell et al. 2007). Block et al. (2004) found that fast-food density in shopping
spaces with one-mile buffers was independently correlated with median household income and
percent of black residents. Black neighborhoods had 2.4 fast-food restaurants per square mile,
rather than the 1.5 ratio in white neighborhoods. Minority communities also have a reduced
number of supermarkets, which encourages the growth of convenience stores that sell high-
calorie, low-nutrient-density processed snack foods. Additionally, “pouring rights” contracts and
soft-drink availability are stronger in their community schools because these schools lack other
forms of adequate school funding (Johnston et al. 2007).
These conditions shape consumer choices for low-income communities. As our GVC
74
analysis of chickens and tomatoes shows, both industries are experiencing consolidation among
integrators in the chicken value chain and processors in the tomato value chain. In our GVC
approach, retailers and producers occupy opposite ends of the supply chain. Both have become
more concentrated, particularly supermarkets and mass merchandise marketers like Wal-Mart, as
well as fast-food outlets. The industrialization of food production has brought vast amounts of
processed foods and fast-food to low-income communities.
We also found that outlets like Wal-Mart may be able to procure larger amounts of fresh
tomatoes through direct contracts with shipper/growers, hence providing cheaper and more
abundant fresh produce for consumers. This can be a positive development for consumers.
However, consumers face a vast variety of foods to choose from. Without even realizing it, their
food choices are often already made for them – particularly those consumers who have less
money, less time at home, and limited cooking facilities.
A recent trip to a Wal-Mart Supercenter in Hillsborough, North Carolina demonstrates
this point. As a consumer enters the main entrance to the store, she immediately walks down an
aisle of products that is laid out in such a way as to entice consumers to buy the products. Above
the products are large yellow signs proclaiming Wal-Mart’s trade slogan, “Always Low Prices.”
The chosen products for this set-up are mostly food items. The four brand food items are:
Hamburger/Tuna Helper, three for $3.00; Little Debbie sweet boxes including Nutty Bars, $1.30
each; Little Debbie Mini Frosted Donuts, six packages of donuts in one box, $1.30 a box; and a
variety of the largest bags of Doritos, $3.00. These products are the first things consumers see.
They do not see low-priced tomatoes or other fruits and vegetables. If you are a single mom,
working two jobs with limited time and kitchen space, these prices and choices are hard to beat.
It is in this context that consumers are expected to make the right decision. In the era of
industrialized food production where energy-dense, high-caloric foods are made enticing, cheap,
and instant, the “right” choice seems more and more allusive.
To bring about change at a structural level, firms need to change their practices. GVC
analysis allows us to identify the lead firms that have the ability to shape the entire value chains
of chickens and tomatoes. Future research should explore how leverage can be pursued with
those lead firms, both at the production and the retail ends of the chain. Activists, academics,
and NGOs are exhorting these firms to change their corporate governance, sourcing, and product
development strategies, as witnessed by the trend many food manufacturers are making to
75
provide new healthy food options. However, more research is needed to fully understand the
best route to leverage change, and to sustain positive results over time. Are these firms seriously
trying to change their business model or are they simply appeasing fickle consumer or health-
advocate demands?
Ultimately, we need to move beyond an individual-based approach to counter the obesity
pandemic. The GVC perspective is a step in that direction and allows us to understand why we
are currently living in a processed food revolution that shows no signs of slowing down. Having
multiple instant food options is not necessarily a bad thing, but when those options limit agency
and make healthy options more precarious, it is time to reexamine how we, as a society, view
food, diverse choices, and sustainable living.
76
Appendix A: Timeline of the U.S. Chicken Industry
1873 – American Poultry Association formed
1903 – American Breeders’ Association established
1910s-20s – Poultry science flourished, at least two decades ahead of other animal sciences
1920-23 – Studies at the University of Wisconsin enabled year-round confinement with the
discovery that Vitamin D prevented leg weakness, leading to the use of cod-liver oil in poultry
feed
1928 – Herbert Hoover’s Republican Party campaign slogan was, “A Chicken in Every Pot and a
Car in Every Garage”
1930 – Harland Sanders opened his first restaurant in Corbin, Kentucky, later becoming
Kentucky Fried Chicken (KFC)
1930s – Broiler industry emerged in the Delmarva Peninsula; chickens prepared in U.S. homes
were increasingly purchased at market instead of housewives’ using “fowl”
1940s – Advances in poultry nutrition concerning amino acids and protein synthesis led to the
increasing use of corn, soybean, and later fishmeal in poultry diets by the 1950s; quantitative
genetics widely applied by poultry breeders
1940-1945 – U.S. broiler production nearly tripled during this period
1940s-50s – electric power became widely available in rural areas, further enabling controlled
growing environments
1947 - Tyson Feed and Hatchery was incorporated by John Tyson
1948, 1951 – “Chicken of Tomorrow” contests held to encourage improvements in hybridization
for the production of “meat-type” chickens
1950s – Era of the “designer chicken” began; technologies led to increased scale of broiler
production: high-protein feeds
1951 – FDA approved the use of penicillin and chortetracycline as feed additives;
oxytetracycline approved by 1953, significantly increasing the use of antibiotics for the weight
gain of chicks
1952 – The first KFC franchise was awarded Pete Harman of Salt Lake City
1957 – Poultry Products Inspection Act mandated USDA inspection of broiler plants, leading to
improved sanitation and plant upgrading, also leading to increase in size of plants
1957 - Tyson built its first processing plant in Springdale, Arkansas
1959 – First hybrid female broiler “introduced” by Arbor Acres breeding farm
1960s – The era of “the new branded processor,” which was “epitomized” by Perdue; growing
number of chain supermarkets in U.S.; a trend towards vertical integration; poultry science had
largely shifted from public to private sphere by this time
1964 – Tyson sold U.S. Armed Forces Commissary precooked, portion controlled chicken
77
1968 – Perdue, the largest broiler producer then in the U.S., began an advertising campaign using
major media in the U.S. northeast to build a brand image; Pilgrim’s Pride Incorporated in Texas
1970s – Kentucky Fried Chicken became (briefly) the largest U.S. foodservice organization
1974 – Tyson Foods acquired the Vantress breeding lines of Cobb, the world’s oldest poultry
breeder; Upjohn bought Cobb Breeding Company, later acquired by Tyson Foods.
1978 – Burger King introduced chicken sandwich as part of its "Specialty Sandwich" line
1983 – McDonald’s introduced the Chicken McNugget, soon making the firm the second-largest
user of chicken, after Kentucky Fried Chicken
1985 – Pilgrim’s Pride bought Pluss-Tex Poultry
1986 – Tyson Foods acquired Lane Poultry; formed joint venture with Cobb-Vantress
1988 – Tyson Foods acquired Holy Farms, the nation’s third largest poultry firm, becoming the
largest chicken processor in the U.S.
1980s-1990s – major outbreaks of avian influenza in North America: early 1980s in
Pennsylvania; 1990s in Mexico; and widespread concerns over sanitary conditions of chicken
(e.g., salmonella)
1994 – Tyson Foods acquired Cobb-Vantress, a poultry breeder
1995 – Tyson Foods acquired Cargill’s U.S. broiler operations and McCarty Farms, Inc.
1997 – An outbreak of avian influenza in Hong Kong
1998 – Tyson Foods acquired long-time competitor Hudson Foods
2001 – Pilgrim’s Pride bought WLR Foods
2003 – Pilgrim’s Pride acquired the chicken division of ConAgra Foods, Inc
2007 – Pilgrim’s Pride acquired Gold Kist, Inc, the third largest U.S. chicken producers
78
Appendix B: Timeline of the U.S. Tomato Industry
1868 – H.J. Heinz Co. established large-scale production of processed tomatoes
1949 - Research on processing tomato varieties suitable to mechanical harvesting began by G.C.
Hanna and others in the University of California at Davis (UCD)
1956 – G.C. Hanna and his engineer colleague, Coby Lorentzen entered into discussion with
Blackwelder, a farm machine manufacturer, to build the first commercial harvester; The
California Tomato Growers Association (CTGA) funded UCD’s research on the mechanical
harvester
1958 – Lester Heringer, a board member of CTGA offered his farm for pilot studies of
mechanized harvesting of processing tomatoes
1960 – The first public demonstration of mechanical harvesting in the Heringer farm; the VF-145
tomato variety were developed for mechanical harvesting
1964 – The Bracero Program discontinued by U.S. Congress, which made cheap Mexican
temporary workers no longer available in farms.
1968 – Mechanical harvesting became dominant in the Californian processing tomato industry
1970s – Aseptic technology was introduced to packaging of processed tomato, enabling out-of-
season storage and year-round supply of tomato paste
1970 - The Morning Star Company was founded in 1970 by Chris Rufer, mainly to haul
tomatoes to other canneries in California
1975 – Electronic sorters for tomatoes first came into commercial use
1976 – The UC-82, the so-called ‘square tomato,’ became available
1978 – The Farm Labor Organizing Committee (FLOC) lead a strike of tomato harvest workers
in Ohio, targeting at contract farms for Campbell Soup and Libby’s
1980s – New high-yield varieties were adopted; the use of drip irrigation increased
1982 - Chris Rufer founded a tomato paste processing plant at Las Banos, California
Late 1980s – transnational corporations including Unilever and ICI moved into the seeds
industry
1980s-90s – Pizzas, pasta sources, and salsas gained popularity
1990 – The Morning Star Packing Co. built the first specialist tomato paste facility at Los Banos
1991 – Heinz Co. acquired Copais Canning Industry, S.A., a tomato processing company, and
Escalon Packers, Inc., a specialty processor of tomato products for the foodservice industry
1992 – Heinz Co. established its own tomato seed operation, HeinzSeeds
1996 – Heinz Co. joined the Campbell Soup Co. and Hunt-Wesson to fund the Tomato Research
Council’s activities of promoting the public awareness of health benefits of tomatoes
79
Late 1990s: green-house tomatoes gains sizable share in U.S. retail grocery; increasing
consolidation of retail grocery stores; mass merchandisers have become important outlets for
fresh produce
2000 – The first Internet auction of standard-grade tomato paste occurred
2001 – Heinz Co. introduced its own hybrid seed varieties to Xinjiang Tunhe Corporation, the
largest tomato paste exporter in China; Del Monte close its tomato paste plant in Woodland, CA
2002 – Heinz Co. closed its tomato paste production at Stockton, CA
80
Appendix C: Future Research
Table 6: Future Research Agenda
Analysis of firm corporate social responsibility behavior
Analysis of how leverage can be pursued with food processors and food retailers
Analysis of how firm behavior and value chain organization caters and markets to low-income
communities
Analysis of the health consequences for children due to the abundance of cheap processed food
varieties
81
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