All is not well on the farm.
It’s no secret that Tyson Food’s (TSN) incredible success has been built on the backs of struggling chicken farmers, the majority of whom live in conditions teetering on poverty. The average Tyson chicken farmer makes about $17,000 per year, according to industry professionals.
Tyson-contracted farmers sell chicks to the company under a so-called performance-based, and in some cases labelled “exploitative,” “tournament system” that encourages competition amongst the local farmers.
To keep up with Tyson demand these farmers are also forced to take on insurmountable debt. Simply put, the playing field is tilted in the favor of Tyson at the expense of local farmers. That’s changing.
“Chicken producers, in general, face a changing landscape,” says Consumer Staples analyst Shayne Laidlaw in the video above, an excerpt from a recent institutional conference call discussing our short call on Tyson. “The government will assist these local farmers in finding a better way of doing business.”
In a sign that the landscape is, in fact, changing, Tyson announced in May that the Florida attorney general was investigating Tyson for anticompetitive behavior, alleging that the company and other chicken processors conspired to fix prices by reducing supply.
We think this legal pressure forces Tyson to change its business model. That will prove a costly affair.
Investors take note. Buyer beware.