Tyson, meat industry fear sequester will be disruptive

Tyson Foods, the nation’s largest meat processor, says pending budget cuts or the so-called sequester threatens to disrupt its supply chain.

Trade groups have been vocal about the impact on meat inspection as the U.S. Department of Agriculture and its Food Safety Inspection Service will face worker furloughs if the $85 billion cuts take effect on Friday (Mar. 1).

Last month the Obama Administration warned the FSIS could have to furlough all employees for approximately two weeks.

Tyson’s chief operating officer Jim Lochner told analysts yesterday (Feb. 26) that meat inspection is mandated by law and a federal requirement.

“We will have to see how USDA handles the field staff because the supply chains are essentially set up for generally around a 5-day production cycle,” Lochner said.

He says if furloughs are extended over a period of time to have one day out, it will put a kink in the pipeline, creating some negative influences along the supply chain.

Lochner said both sides of its supply chain could likely feel the burden, as live animals would back-up in the system and products would be delayed getting out to consumers, creating a high degree of market disruption.

He said the probability of that happening is low.

“I do believe USDA Food Safety will work to find a way around this issue because it would impact both consumers, processors, retailers, foodservice, as well as livestock producers,” Lochner said.

Secretary of Agriculture Tom Vilsack said if the sequester is triggered, every budget line item at the USDA will have to be reduced somewhere in the neighborhood of 5% to 6%.

Vilsack has said there may be a degree of flexibility for those parts of the USDA with “lots of lines,” but in agencies such as FSIS, where most funding is for food safety inspection personnel, there may be no recourse with regard to furloughing personnel.

The White House says USDA's meat safety agency would have to furlough its 8,400 inspectors for the equivalent of 15 days to compile the savings required under the automatic cuts. But those days off could be structured in various ways.

Tyson chicken competitor Sanderson Farms said recently the impact from furloughed inspectors could wreak economic and environmental havoc on the poultry industry.

CEO Joe Sanderson told analysts during a Feb. 21 earnings call that holding birds in houses for just two or three extra days greatly increases feed costs and bird mortality.
He said birds coming out hatcheries have no where to go for three or four days because the grow-out houses are still full.

“What do you do with 160 million chicks a week? Are you going to destroy eggs or macerate baby chicks, that becomes an animal welfare issue,” Sanderson told analysts.

“We’re supposed to have our best and brightest up there in Washington. I’m hopeful they will work something out,” Sanderson said.