Virtually all of company’s revenue comes from animal slaughter and processing, but new CEO now is pouring money into animal-free alternatives.

August 15, 2018

17 Min Read
Tyson’s quest to be one-stop protein shop
Credit: buhanovskiy/iStock/Thinkstock.

By Bloomberg News

“Now that is a beautiful belly,” Tom Hayes says, running his hand along the plastic-wrapped contours of a slab of pork about the size and shape of a Gutenberg Bible. It’s lying on a stainless steel table in a test kitchen at the Discovery Center, a laboratory for product innovation at Tyson Foods Inc. in Springdale, Ark. Hayes, who’s served as chief executive officer since December 2016, lifts and rotates the block of meat, examining the cut with loving attention. “Ever seen a pork belly, Liz?” Hayes asks his director of executive communications, Liz Coffey, who’s touring the research and development center for the first time. She has not.

“I think you should hold the pork belly,” Hayes says, his tone half-joking, half-reverent. He carries the slab with outstretched arms and lays it in Coffey’s hands, conducting what seems to be a spontaneous benediction.

Tyson produces 1 of every 5 pounds of meat consumed in the U.S. Hayes and his 122,000 employees annually process and sell $15 billion worth of beef, $11 billion of chicken, and $5 billion of pork. They also formulate, package, and sell $8 billion in prepared foods under a brand roster that includes Hillshire Farm, Jimmy Dean, Ball Park Franks, Original Philly Cheesesteak, and Aidells Sausage. Half of the products are distributed by retail grocers; most of the rest go to McDonald’s, Burger King, Wendy’s, KFC, and other food-service outlets.

Hayes, 53, is an upbeat, shoulder-punching, “call me Tom” kind of leader—“a man of the people,” as more than one member of his team describes him. All that bonhomie has emboldened and perhaps insulated the CEO, who’s positioned himself as a forward-thinking renegade in an industry many consider ethically unsound, environmentally catastrophic, and mired in old-world thinking. Since Hayes started, he’s trumpeted the promise of “sustainable proteins” and “cleaner foods” in the media (Squawk on the Street, Mad Money), at conferences (Davos, Milken), and in the Twittersphere. He’s made practiced statements such as “I took this job to help revolutionize the global food system” and pledged “to raise the world’s expectations for the good we can do through food.”

The language sounds awfully suspicious coming from a man whose company processes about 1.8 billion animals per year. Tyson operates dozens of mass-scale slaughterhouses and has been criticized for water and air pollution, animal cruelty, and labor violations. It’s also responsible for tens of millions of metric tons of greenhouse gas emissions a year, on par with the whole of Ireland. “To call it a sustainable or do-gooder company would be absurd,” says Matthew Prescott, senior director of food and agriculture for the Humane Society of the U.S. Yet Hayes, whose square-jawed face and brilliantined hair give him the look of a 1950s marketing boss, insists it’s precisely because of Tyson’s scope that he has the potential to make a difference: “We’re so big that the industry can’t change if we don’t lead.”

In his first few months at the helm, Hayes replaced 6 of 10 division heads—many with hires from outside the meat industry. He also created two roles: chief technology officer and chief sustainability officer.

Hayes and his team rolled out new sustainability goals in rapid succession: Tyson would remove antibiotics from all Tyson-branded chicken products in 2017. It would slash its greenhouse gas emissions 30 percent by 2030, not only internally but also throughout its supply chain. It would continue to improve efficiency at its plants, expand organic product offerings, and practice sustainable land management on 2 million acres of corn grown for animal feed. Hayes pledged to enhance employee welfare, improve animal treatment, and strengthen rubrics that protect a Tyson-raised animal’s right to “a life that’s worth living.”

He also began trumpeting a plan to shift his company from a grower and processor of meat to a producer, broadly, of proteins. In May the company became a seed investor in Future Meat Technologies Ltd., an Israeli startup developing “cultured meats” from cells in petri dishes. Tyson was also a major player in a recent investment round for Memphis Meats Inc., a company in San Francisco developing lab-grown beef, poultry, and fish that’s also funded by Bill Gates. And in December of last year, Tyson joined in a $55 million round of financing for the California-based startup Beyond Meat Inc., the leading brand in plant-based protein products nationwide.

Tyson isn’t the only player in the conventional meat industry making unconventional investments. Cargill Inc. bought into Memphis Meats, too. Perdue Farms Inc. is investing in humane processing equipment, slow-growth chicken breeds, and niche organic brands. Even Hormel Foods Corp., maker of Spam, is developing animal-free products. If Tyson doesn’t stay ahead of the game, it runs the very real risk of falling behind. “We want to actively disrupt ourselves,” says Hayes. “We don’t want to be Kodak.”

He won’t disclose how much money he’s plowing into alternative proteins, but for now, it’s far less than he’s putting into status quo meat production. The entire fund Hayes established for sustainable technology investment is $150 million—about half the cost of a poultry complex Tyson is building. But even his fiercest critics say these investments are a worthwhile start.

At the Discovery Center, Tyson’s test cooks have been formulating protein bowls made from ingredients such as quinoa, lentils, and chickpeas for the company’s vegetarian brand, Green Street, set to hit stores in 2019. Hayes points out a new refrigerated product that contains a hard-boiled egg, a handful of almonds, and a few slices of cheese—the kind of meatless snack you might see in the cold case at Whole Foods, but this one bears the Jimmy Dean logo. Wouldn’t the carnivorous, country-crooning Mr. Dean be turning over in his grave at such a sight? No, Hayes counters. Dean would understand that for a tradition-steeped company such as Tyson, success over time “means keeping a boot in the past but putting the other one in the future.”

During the Great Depression, John Tyson had a one-man trucking company. In 1935 he started transporting chickens to farmers in crates bolted to the floor of his rattletrap truck. He slowly built his own hatcheries and, in 1958, entered the chicken processing business. It was his son, Don, who led the company through 16 acquisitions and transformed a local Arkansas business into a poultry empire.

Until Hayes, all but one of Don’s five successors were educated at Southern colleges and elevated through the Tyson ranks. The new CEO is from Merrimack, N.H., and graduated from Northwestern University’s Kellogg School of Management, after which he spent 20 years in Chicago. Despite his urbanity, Hayes calls himself a “small-town boy” who got his first job in the food industry at age 14, washing dishes at a local restaurant, and whose grandfather tended a 200-acre potato farm in Vermont. His dad, Warren, was an electrical engineer for Wang Laboratories, an early manufacturer of desktop computers. When Wang went bankrupt, Hayes Sr. founded a company that processed aluminum components for the computing industry, waking up before dawn every morning and working past dark. Hayes’s mother, Patricia, helped run the company while raising three kids.

After college at the University of New Hampshire, Hayes became a sales rep for the dairy giant HP Hood, then moved to sales positions at ConAgra Foods and Kraft Foods before he became chief customer officer at Sara Lee. The company at the time had both a bakery and a meat division. (The latter split off to become Hillshire Farm in 2012.) As Hayes’s affection for pork might suggest, his career hit its stride in the sausage sector, where he learned everything from hog-farming logistics to, well, how the sausage is made. He was eventually promoted to become Hillshire’s chief supply chain officer.

Tyson’s big pivot began in 2014 when it acquired Hillshire —and Hayes. “That was when we began to transition from an operational-based company to a branded company,” says John Tyson, grandson of the company founder and current board chairman—in other words, from a business centered on animal processing to one focused increasingly on direct-to-consumer brands. Before the acquisition, Hayes had pushed for product diversification and helped develop so-called hand-held breakfast items at Hillshire, including Jimmy Dean Delights sandwiches, which drove up the brand’s frozen product sales by 25 percent. John Tyson likes that Hayes understands the way consumers think and what they want. “That’s integral to our future,” he says.

He adds that “Tom is comfortable talking about the hard issues”—and the company was facing a lot of hard issues when Hayes stepped in. In May 2016 the antipoverty organization Oxfam International released a report titled “No Relief,” exposing grim working conditions inside the poultry industry. It quoted 10 Tyson plant workers saying their managers had denied or reprimanded them for bathroom breaks. “I Had to Wear Pampers” read a headline on the Washington Post’s Wonkblog about the report. That same month the advocacy group Mercy for Animals released videos showing farmers at Tyson chicken facilities kicking and stomping on chickens, some of which appeared to have congenital deformities. In September, New York-based food distributor Maplevale Farms Inc. brought a class-action antitrust suit alleging that major poultry producers, including Tyson, had colluded to limit supply, drive up prices, and overcharge customers. (Tyson has disputed these allegations, along with others brought against it.)

In November 2016, in the immediate wake of all this, Tyson announced that Hayes would replace Donnie Smith, who’d served as CEO since 2009 and tripled the company’s gross profit. Some analysts were up in arms. “We are not at all happy to see Mr. Smith step down,” Timothy Ramey of Pivotal Research Group wrote. “[His tenure] has been the best period of Tyson’s history.” Tyson’s stock stagnated in the three months after Hayes took over, but it soon rallied and by December was up 30 percent. Trade disputes and an abundance of domestic supply have since hurt big U.S. meat producers, and in July, Tyson lowered its yearly profit forecast.

John Tyson insists that the CEO change had “nothing to do” with the public-relations challenges. But he also says, “Our name is on the door, and when people raise concerns about are we doing enough, it becomes a little bit personal.”

Twenty minutes from Springdale, Tyson’s state-of-the-art hatchery produces 1.8 million chicks per week. Racks of eggs rotate slowly on automated incubation trays as digital sensors monitor their temperatures. Behind a window covered by a steel door, 40,000 newborn chicks sit on shallow plastic trays. They look cramped, but clean and dry, some with tiny chips of eggshell clinging to their down.

Tyson isn’t directly involved in raising livestock; most of the hogs and cattle slaughtered at its plants are purchased at feedlots. By contrast, the company’s chicken supply chain is vertically integrated, meaning Tyson owns its birds from birth. Eggs are laid by hens at breeder farms, and the chicks emerge at the company’s hatcheries. The animals are then raised to processing weight at contract farms, using feed Tyson supplies.

Hayes has endorsed a sort of animal bill of rights that espouses “freedom from hunger, thirst, discomfort, pain, injury, disease, fear and distress, and freedom to express normal behavior.” Hayes acknowledges that these criteria aren’t enough for many critics. “Some people are going to hate what we do, and I appreciate that,” he says. “It’s what makes our country great. You don’t have to buy our products. You don’t have to believe it aligns with your ethos. But to the extent that the animals are under our care, we want to do the right thing, and we have lots of work to do.” The animals should have “only one bad day under our care,” adds Justin Whitmore, Tyson’s new McKinsey & Co.-trained sustainability officer—the day they become meat.

In his first month as CEO, Hayes brought many of Tyson’s critics—including representatives from the World Resources Institute, the World Wildlife Fund, the Humane Society, Oxfam, and the poultry and livestock unions—to Springdale, to hear their concerns before he and his team crafted Tyson’s sustainability goals. He later announced plans to improve conditions and safety measures for plant workers, in collaboration with Oxfam and the United Food & Commercial Workers International Union. He raised wages “by a double-digit percentage over three years,” as Hayes puts it. After the Mercy for Animals videos, Tyson expanded its third-party monitoring program, which now tracks animal health and evaluates human-animal interaction points using cameras installed in the company’s chicken plants. Whitmore also hired a team of 53 full-time “animal well-being specialists” to train Tyson farmers in better animal care. So customers can see that its birds are hardy and healthy, Whitmore is running live video on Facebook from some chicken farms.

Raising and slaughtering millions of chickens per week safely without antibiotics is both costly and logistically challenging, but Scott Gustin, a Tyson veterinarian who specializes in chick care, says much of the risk can be mitigated in the first hours of a chick’s life with good nutrition, steady warmth, immune support, and absolute sterility. Tyson’s poultry scientists revised the practices for hatcheries and feedlots, replacing antibiotics with probiotics and developing feeds enhanced with, of all things, essential oils.

The antibiotic-free program added 3¢ to the cost of every pound of feed initially—a major investment for a company that churns out billions of pounds of feed per year. But Hayes calls the program a success: Feed costs have come way down since the program began, and less than 1 percent of the chickens developed for Tyson-brand products have succumbed to illness. When that happens, they’re treated with medication and sold without a Tyson-brand label.

Prescott, of the Humane Society, questions Tyson’s sustainability efforts overall. “I’ve seen very little real progress at the company when it comes to changing its animal welfare policies or even basic measures to avoid the worst abuses that the animals in their supply chain suffer,” he says. Tyson’s chickens grow too big too fast, Prescott adds, which can cause heart failure and leg injuries. “The University of Arkansas did a study showing that if a human baby grew at a rate equivalent to these fast-growth chickens, it would be 660 pounds at the age of 2 months,” he says. (The widely cited 2013 study assumes the baby was born weighing approximately 6.6 pounds.) Tyson is also one of the only meat companies that doesn’t have a policy for eliminating the use of “gestation crates” for hogs, metal cages only slightly larger than the animal’s body that severely restrict movement, Prescott says.

Hayes is staunch in his commitment to fast-growth chickens, noting that many small organic farmers raise these breeds, too: “From a resources standpoint, it means growing the chicken with half the water, half the feed, half the environment impact.” Where the pigs are concerned, Hayes insists that he’s pushing to reduce the use of gestation crates; he says that increases production costs, and for now there just isn’t a critical mass of customers willing to pay more for pork that’s “gestation-crate-free.”

In early 2018, Whitmore ate a multi-thousand-dollar serving of meatballs. They were made from pan-seared duck meat harvested fresh from the petri dishes of Memphis Meats. “It tasted like duck, because it is duck,” he says. “At a molecular level, what I had was duck” but grown without the bones, organs, skin, and feathers.

The production of cultured meats, or “cell-based meats,” as Memphis Meats CEO Uma Valeti calls them, begins with the extraction of tissue samples from a live or recently slaughtered animal. Those “starter cells” are replicated using a protein medium that stimulates growth inside a bioreactor, essentially an ultrasophisticated Crockpot. “The cultured cells are alive, just not attached to the animal,” Valeti says. They’re so alive, in fact, that the mature muscle tissue produced in the bioreactor will actually respond—as in flex, or spasm—when stimulated with electricity.

The notion that a serving of cultured meat had once been flexing in a laboratory might send some consumers running to the tofu section, but not Hayes. He declined to do the tasting, but only because the sample cost hundreds of dollars per ounce of meat, and he needed Whitmore’s team to compare the product to the dozens of meat alternatives they’d already tasted. (“It was not because I didn’t want to try it.” Hayes says. “I do!”) Within a few weeks of sampling Memphis, Tyson had agreed to back the company.

Hayes says lab-grown protein can be every bit as nutritious and flavorful as meat. It can be used to produce all manner of animal and fish products, and it requires a fraction of the resources. He especially likes that cultured meats eliminate concerns about E. coli and other pathogens that can contaminate animal meat during processing. The single biggest risk in his business, he says, is contamination. The major hitch with lab-grown meat is cost, but Hayes notes that in three years, it’s already come down from more than $100,000 per ounce.

Although lab-grown meats are a few years from hitting the market, plant-based proteins have already proved commercially successful. In April two major burger chains, Shake Shack and White Castle, introduced plant-based burgers. The latter’s Impossible Slider, a $1.99 offering mixed with synthetic animal blood, made by Beyond Meat competitor Impossible Foods Inc., was heralded as “one of America’s best fast-food burgers” by online magazine Eater.

Beyond Meat has more than doubled its sales since Tyson’s first investment in late 2016, and it’s spread to 20,000 grocery stores, including Kroger, Walmart, and Target. Last December, Tyson led another round of investment to help Beyond Meat triple its production. “We got attacked when we signed a deal with Tyson. People said I personally have blood on my hands,” says Beyond Meat founder and CEO Ethan Brown, a lifelong vegan. “Tyson took a big risk, too. I mean Hayes didn’t get any love letters when he backed us. But I’d much rather try to get things done than throw stones, and the people at Tyson know how to move the needle.”

Beyond Meat products use less land and water than animal-based meat and produce far lower greenhouse gas emissions, but Hayes doesn’t pretend to be making these investments out of the goodness of his bacon-loving heart. His driving motivation, he says, is the consumer. In the last year, according to Nielsen data, retail sales of plant-based foods have jumped 24 percent—quadruple the growth of meat sales and more than 10 times that of retail food sales generally. A study by market research firm NPD Group found that 70 percent of meat eaters are substituting non-animal proteins at least once a week.

“If you can’t beat ’em, join ’em, right?” Hayes says. He acknowledges that ethical consumption “has just begun to build momentum and will grow as the younger generations increase their purchasing power.” Some of his suppliers aren’t so gung-ho about so-called plant-based meat. The U.S. Cattlemen’s Association filed a petition with the Department of Agriculture to block plant-based protein companies from labeling their products as a form of meat.

For now, “90-plus percent of the world eats meat,” Hayes says, “and the global population is expected to surge by about 2.5 billion people in the next 30 years,” while the world’s growing middle classes demand diets richer in protein. The combination of population growth and rising environmental pressures means the new protein demand will have to be met by more than animals.

Today, virtually all of Tyson’s $40 billion in annual revenue still comes from animal slaughter and processing, and the company may be in talks to acquire chicken-nugget maker Keystone Foods. The new offerings Hayes touted in the Discovery Center—the nut-and-cheese snack from Jimmy Dean, a home-delivery meal kit that bundles Tyson’s organic meat with misshapen fruits and vegetables that would otherwise go to waste, and a protein snack released in May under the brand ¡Yappah! that’s made from chicken trimmings, spent grains, and upcycled vegetable pulp—are creative, but will hardly disrupt America’s demand for animal meat.

Hayes says he “can’t imagine a world where there aren’t animals raised and used for human consumption—in my lifetime, anyway.” Nothing from a petri dish or a soy extruder, he reasons, will ever fully conjure the eating experience of crispy fried bacon or a grilled T-bone steak. But he does see animal-free proteins eventually becoming “a substantial part” of the $200 billion market for meat. Hayes says the variety of approaches to meatless meat production will be crucial to the sector’s long-term success: “Just as you see many different electric car models on the market right now, there won’t be a silver bullet—customers love choice.” Tyson plans to remain an investor rather than a producer of these products “until they mature a bit more,” he says, but alternative meat production will likely happen in-house down the line. “If we can grow the meat without the animal, why wouldn’t we?”

Amanda Little with Megan Durisin

© 2018 Bloomberg L.P

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