Between 1976 and 1993, US Per Capita Consumption of Beef Declined by 32%, While the Per Capita Consumption of Chicken Increased by 73%

When Chickens Devoured Cows: The Collapse of National Bargaining in the Red Meat Industry and Union Rebuilding in the Meat and Poultry Industry

Revised October 26, 2012

Jeffrey Keefe School of Management and Labor Relations Rutgers University

and

Mathias Bolton Senior Coordinator at UNI Global Union Geneva Area, Switzerland

-1- This paper examines the consequences of the collapse of the national bargaining structure in the American meat industry during the 1980s. It argues the driving force behind the collapse was the substitution of chicken for beef in the American diet. The relatively high price of beef was no longer sustainable when it came into competition with poultry products that were less costly, healthier, more convenient, and more malleable to further processing. The substitution of chicken for beef, put wages back into competition as consumers redefined market boundaries. Poultry processors were nonunion, paying low wages, and had developed a high productivity growth production system, known as the broiler complex. They were located in the union hostile rural South and had grown their businesses using African American labor in the Southern Black Belt.

Prior research (Craypo 1994) identified the primary reason for the collapse of industry bargaining was a consequence of the Iowa Beef Processors (IBP) revolution. IBP's new practices that allegedly contributed to undermining industry bargaining pre-dated the collapse by more then a decade. IBP sold boxed cut beef instead of shipping carcasses; they built plants in rural areas, often in right-to-work states rather instead near urban rail centers; and instead of accepting unions and pattern bargaining, IBP resisted both and developed its own enterprise wage standard. According to this analysis, IBP was the first to combine each of these into an aggressive operating strategy aimed at existing packers and practices, and by 1976 IBP was the most profitable producer and the nation's leading beef packer (Craypo 1994).

No doubt, IBP was a potent anti-union innovator; its practices alone, however, cannot explain the collapse of industry wide bargaining. IBP was one of only two profitable red meat processors during this transition period (1980s); the other was Hormel. First, what distinguished IBP was that it invested in new facilities and new processes. The older industry-wide bargaining firms that had dominated the beef and pork industry since the 1920s, Armour, Swift, Cudahy, and Wilson had been acquired by conglomerates that were focused on capturing cash flow obtained through disinvestment, not investment and modernization. Second, while IBP never invested in the rail centered industry, the entire industry had already exited the multi-storied railhead factories by 1960, some twenty years before the collapse. Factories moved first to the Corn Belt and then beef moved further west to the High Plains. Third, boxed beef developed by Armour in the 1950s added manufacturing jobs to the plants. Tasks formerly performed in wholesale and retail establishments by unionized skilled journeyman butchers, after the introduction of boxed beef, would be performed in manufacturing plants by semi-skilled meat cutters. Boxed beef increased overall plant employment. IBP insisted on paying these meat cutters less than pattern wages, which lead to the first IBP strike in 1968. Four more IBP strikes would follow through 1978. IBP resorted to replacement workers to continue to operate; it won these strikes; and as it continued to grow, IBP opened its new plants on a nonunion basis. Nevertheless, IBP's militancy, which began in the 1960's cannot explain the breadth and depth of the 1980's descent that would produce a 40% reduction in average real wages within a decade. Instead, red meat worker wages plunged toward those paid by the poultry processors; average red meat wages would settle with a 20% premium over poultry processor wages. The union wage effect would fall to 4% by the early 1990s before rebounding to 13% today. The UFCW, particularly after RWDSU merged into the UFCW, expanded its organizing efforts in the poultry industry.

-2- National industry bargaining structures, such as the one that existed in meat packing, were a legacy of World War II. They were established by the National War Labor Board to resolve interest disputes that arose during the war effort and to provide the Board with the information and the mechanism to adjudicate wage equity disputes within an industry, particularly among the large oligopoly employers. After the war the federal government continued to encourage the stability afforded by these bargaining structures, while taking a less active role. The Korean War reinvigorated wage controls and government involvement in collective bargaining. By 1953, however, the government's policy shifted to neutrality on the issue of collective bargaining or not. During the next two decades, many once stable industries came under competitive pressure either from foreign imports or technological innovations that supplied substitutes to the traditional industry products. Managerial capitalism's culture of relatively benign corporate indifference toward collective bargaining evolved dramatically in the late 1970's into a new era that featured leveraged buyouts, an investor value focus, a neoliberal industrial and trade policy, and an identity focused employment policy that shifted the policy emphasis away from collective action into the courts. After Reagan's popular hard line response to the PATCO strike, the use of replacement workers to defeat strikes and force concessions became socially acceptable; and manufacturing employers widely adopted the use of replacements. All these factors combined to allow employers to rapidly eradicate the remnants of industry wide bargaining structures in most oligopoly industries in the United States in the 1980s, and to defeat strikes where unions and workers resisted these changes. The industry wide bargaining structures that emerged from World War II, once the government had withdrawn its active support, were poorly suited to adaptation that was necessary to survive and to evolve in a dynamic capitalist economy, even where industries remained dominated by oligopolies.

The instability of industry boundaries, whether they be domestic or global, require continual analysis. Labor and employment relations researchers need to expand their research frames to evaluate the forces shaping collective bargaining. For example, the executives in the meat and poultry industry, now speak of themselves as part of the global Protein industry, which includes red meat, poultry, fish, dairy, eggs, beans, and nuts. What they believe is that while protein consumption is essential for life and while they are protein producers, there is always the potential for one or another protein source to become a commercially successful food that erodes their position. This frame although broader than pork or beef, however, is still too narrow, since it focuses only on horizontal sources of competition. We need to include a frame that helps us understand where and why there is investment and employment growth. To do this we must know what forces are shaping supply chains and where are the stages and business units that are capturing higher than average levels of profitability and where there is subpar financial performance, and then link this analysis to labor market and employment system alternatives.

We use a value system framework to analyze meat and poultry processing. Following Porter (1985) the larger interconnected system of enterprise value chains form a "value system." From this perspective an industry's structure drives competition and profitability. A value system includes the value chains of suppliers and their suppliers all the way back to the most basic resources, and then forward to the industry itself, the distribution channels for its products, and the buyers extending through their buyers to the ultimate consumer. In meat and poultry, it begins with genetics of animal breeding and plant biogenetics for animal feed to the consumer purchases at supermarkets, Wal-Mart Supercenters and warehouse clubs, cafeteria food services,

-3- and casual dining or quick service restaurants. The value stream, however, is much more than a supply chain. A value analysis needs to examine the structural underpinnings of industry and firm profitability. This approach must analyze why and where are profits produced and captured and what is the intensity of competition within an industry. Above average profitability allows some firms in an industry to retain earnings and gain access to new investment resources at lower costs. Conversely, poor profitability in a low profit industry, may cause firm investors to seek to get their cash out of a business, often reflected in declining share prices, higher interest rates on new debt, and rising yields on outstanding debt. Profit opportunities may encourage firms to integrate horizontally, acquiring competitors, or vertically into industries that may afford firms opportunities to increase their profitability in more advantageous markets or exit low profit markets.

Industry structure and firm performance are shaped by the strength of the five competitive forces (rivalry, customer power, supplier power, potential entrants, and substitute products, Porter 1985)) that influence an industry’s long-run profit potential because they determine how the economic value is created by an industry and then how that value is divided, whether it is retained by companies in the industry or is bargained away by customers and suppliers, limited by substitutes, or constrained by potential new entrants. Industry structure is constantly undergoing modest adjustments and occasionally it can change abruptly. Shifts in structure can originate from outside an industry or from within, and these shifts can boost the industry’s profit potential or reduce it. An industry's structure can be influenced by changes in technology, declining prices of substitutes, changes in customer needs, implementation of government policy or shocks to input prices.

We put profitability and financial decision-making at the center of our analysis of firm performance and industry structure. The evolution of an industry, whether it grows or declines, is governed by financial assessments by present or future investors of each business unit and each firm that comprises the industry. The basic structure of major U.S. industries is oligopoly. This structure does not preclude intense competition and rivalry, but it does not resemble anything that looks similar to textbook perfect competition. On the other hand, it is somewhat less stable than Gereffi's global value chain analysis would suggest. In his analysis production activities are sliced into pieces and dispersed throughout the world to smaller dependent firms or contractors, that are subject to tight integration and coordination by lead firms through global supply chains (Gereffi 2005). His analysis focuses on the various alternative relationships that exist between the integrator and supplier whether they be market, modular, relational, captive or hierarchies, not dissimilar to transaction cost economics. One criticism of the GVC perspective is that it does not adequately account for the financial performance that animates the relationships among the key firms. Not all integrators are financially successful. The integrators are often subject to rivalry, competition, pricing power of buyers and suppliers, and high expectations for their financial performance, which can result in considerable ownership instability and difficulties in financing of new investments. Nonetheless, Gereffi et al have done a systematic analysis of chicken (Gereffi, Lee, Christian 2008), pork (Lowe and Gereffi 2008) and beef (Lowe and Gereffi 2009) from a global value chain perspective. His work and the work of his colleagues and students provides a clear analysis of the supply chains for chicken, pork, and beef, which will not be replicated in this analysis. The reader is encouraged to review this material.

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Unions may want to utilize the value stream analytical approach before investing scarce resources in organizing, strikes, or comprehensive campaigns. Many unions in the United States have evolved into general unions without any particular industry or occupational focus. Larger unions have merged with dying unions with declining membership. In organizing they often respond to the "hot shop" for organizing opportunities. Aside from not necessarily resulting in any increase in bargaining power, the hottest shops are often those in failing firms or industries where employers are cutting wages and driving employees to work harder in order to avoid bankruptcy or business shrinkage. While these workers seek unions to redress their deteriorating employment conditions, the union is unable reverse the root source of their concerns, a failing business. An alternative approach for a union could be to refocus its efforts on organizing a value stream that is growing and profitable, where gaining bargaining power can result in improving compensation and worker control, while building a sustainable growing union. In this paper we apply this approach to analyze the meat and poultry value stream, a series of industries where the UFCW has organized a multitude of bargaining units and has considerable membership in a variety of stages of production and distribution.

In Part II this paper will recount the collapse of industry wide bargaining in the red meat industry. In Part III the explanations for the decline of collective bargaining in the meat industry are reviewed and evaluated. In Part IV the value stream of the contemporary meat processing industry is analyzed. Part V reviews the issues around the industry's reliance on undocumented workers and the government's difficulties in creating an enforcement regime that holds employers accountable, rather than rounding up workers. In Part VI the UFCW's comprehensive campaign against Smithfield to gain neutrality and card check in the world's largest pork plant and Smithfield's RICO civil suit against the UFCW is discussed. In Part VII the analysis concludes with a discussion of whether unions still matter in the meat and poultry processing industry and whether they can improve workers' terms and conditions of employment.

Part II. The Collapse of the Red Meat Industry and Industry Bargaining

Between 1976 and 1993, US per capita consumption of beef declined by 32%, while the per capita consumption of chicken increased by 73%. Between 1974 and 1980 beef-packers' output fell by 29%. The declining demand for beef and consumers' substitution of substantially lower cost chicken, unleashed a ferocious industrial restructuring, a process where none of the major meatpackers survived as independent firms. The consequences for the main union, the United Food and Commercial Workers, and its members were even more dire. In the decade between 1978 and 1988, real wages in meat products fell by 34%, while industry-wide union density declined from 46% to 19%. In the five year period between 1979 and 1984, meatpacking production worker employment declined by 21%, unionization declined 11%, and the union pay differential fell by half (Anderson, Doyle, and Schwenk 1990). Between 1983 and 1988, industry union membership fell by more than 40,000, declining by one-third. Overall, meat processing worker wages raced down toward those in the poultry processing industry (Chart 1). The wage equations reported later in this research show that poultry production worker wages remain 22% below those in red meatpacking and that the low wage and the relatively high productivity poultry industry has become the standard setter of employment conditions for the entire meat processing industry.

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Chart 1: Wages 1972 to 2002

Real Wages of Production Workers Red Meat v. Poultry Red Meat Wages Peaked at $19.56 per hour in 1978 in 2002 dollars

Red Meat Poultry

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Real wages peaked in 1978 in red meat slaughter and processing at $19.56 an hour using 2002 dollars. Within a decade they fell to $12.90 an hour, a one-third decline. Real wages bottomed out in 1996 at $11.26 per hour, a decline of 42%, and only 20% above the real wages of poultry workers.

This paper challenges prior analyses that the demise of the red meat industry bargaining structure and union decline in meat processing was driven by competition from within beef processing. Instead it offers an alternative analysis that the collapse of industry wide bargaining arose from competition between red meat and chicken processing, and that chickens devoured the cows. The consumer substitution of chicken for beef brought unionized red meat workers into competition with nonunion poultry workers based largely in the old Black Belt South that earned half the union wage and worked in an industry with faster productivity growth. Getting this analysis right, we believe opens the prospect for rebuilding collective bargaining in the meat and poultry industry.

The Chicken Insurrection Chicken became a substantially less expensive, a more popular healthy alternative, a more supple meat for further processing, and a more convenient substitute for beef beginning in the mid- 1970s. The demand for table cut beef declined as a staple of status and consumption for the new Post War middle class; today low-income consumers tend to eat more beef than other consumers (Davis and Lin 2005). After 1974 a change in preferences lead to the substitution of chicken parts for table cut beef (Eales and Unnevehr1988) and the process of dethroning of beef as the premier American meat commenced. While there remains a debate about what relative factors contributed to the substitution of chicken for beef, there is no doubt that chicken rapidly replaced beef in the American diet and surpassed per capita beef consumption in 1993. One line of research concludes that the demand for convenience contributed to poultry's success rather than increased health awareness (Anderson and Shugan 1991; Moen and Capps 1988). Other research finds that the shift away from red meat consumption can be explained by simply using relative

-6- prices between red meat and chicken (Chalfant and Alston 1988), that does not need to rely in changes in preferences arising from relative convenience, health concerns, or malleability for further processing. Regardless of the weighting of these relative factors, their combination increased the substitution of chicken for beef by consumers and subjected beef sales to intense pricing pressure as it was losing market share in the meat protein market.

In contrast to beef, the other major red meat in the U.S. consumer diet, pork, did not suffer this same substitution effect as beef, although it too came under considerable price pressure. Pork, however, is sold to consumers primarily as a prepared or processed meat, whether it be in the form of bacon, sausage, hot dogs, cured ham, lunch meats, or barbecue ribs. Approximately, 79% of pork sales are processed or prepared meats (National Pork Board 2009), which is apparently more conducive to the modern American diet. In contrast, beef is sold almost entirely as primal cuts and ground beef. Pork withstood the onslaught of the chicken substitution effect more readily as it was more adaptable to dietary trends and modern production techniques.

Beef Packing By 1980, the original Post War II Big Four Meatpackers, Armour, Swift, Wilson, and Cudahy, (The Beef Trust) which served as the core industry companies in national the industry bargaining structure, had disappeared as independent businesses. They were first absorbed in the conglomeration movement and then spun-off in pieces in the dis-conglomeration restructurings and divestitures of the late 1970's and early 1980's. By 1980, a new generation of manufacturers, IBP, MBPXL (formerly Missouri Beef and later Excel), Dubuque, and Land o'Lakes were the four largest steer and heifer slaughterers, supplanting the original Big Four that had moved steadily away from packing and into processing, and refrained from new investment in the packing industry, while closing plants (Cappelli 1985). The four new packers accounted for 36% of steer and heifer slaughter in 1980 (USDA, GIPSA). The decline in the production and consumption of beef in the late-1970s left the industry with excess slaughter capacity that made consolidation a more attractive necessity and triggered a wave of mergers and acquisitions lasting from 1977 to 1988 (Azzam and Anderson 1996).

The beef-packing industry structure rapidly evolved through mergers, plant acquisitions, and the building of new more productive large facilities. Cargill Inc. purchased MBPXL in 1979; renamed it Excel Corp, and in 1983, Cargill then purchased a plant from Dugdale and acquired three Spencer Beef plants owned by Land o'Lakes. ConAgra acquired 17 former Armour plants in 1983 and in 1987 it bought Monfort and Swift Independent (SIPCO). By 1996, a new oligopoly of IBP, ConAgra and Cargill dominated steer and heifer slaughter and fabrication and also pork slaughter and processing. (Cattle Buyers Weekly, Sept. 23,1996. p. 2). In 1974, there were 850 plants that were large enough to be required to report to GIPSA (Grain Inspection Packers and Stockyards Administration) by 1997, the number of reporting plants fell by two- thirds to 274 (USDA, GIPSA 1999) as the core industry built larger new facilities, closed older and smaller plants, and as marginal firms exited the industry. Plants slaughtering 500,000 head or more per year accounted for 66 percent of total beef slaughter in 1990 (Azzam and Anderson 1996). The Beef Trust companies no longer dominated beef slaughter by the mid 1970's, when per capita beef consumption peaked. As new firms entered the industry and others emerged, the four-firm concentration ratio for steer and heifer slaughter rose from 25 percent in 1976 to 36 percent in 1980, 50 percent in 1985, 72 percent in 1990, and 80 percent in 1996 (GIPSA, 1996).

-7- In boxed beef production the four firm concentration ratio was 62 percent in 1985, 79 percent in 1990, and 84 percent in 1996. While a new oligopoly emerged, ownership structures continued to change.

The Evolution of Meatpacking Competition and the Demise of National Bargaining

Meatpacking has a long and often romanticized history of unionism. The Amalgamated Meat Cutters and Butcher Workmen (AFL) was founded in 1897 and organized the immigrant workforce in Chicago packing plants. They struck in 1904. The union's internal dissension and lack of discipline was quickly exposed, as the employers brought in strikebreakers, and the strike collapsed (Commons 1904; Brody 1964). Packinghouse workers were militant, often walked off the job, but they found it difficult to build sustainable organization and negotiate contracts. The Amalgamated, instead, focused its efforts on organizing butchers in the retail and wholesale industry (Brody 1964) and smaller regional packers. During World War I, the elimination of immigration, an increase in demand for beef, and support from the War Labor Board, allowed the Amalgamated to organize and negotiate contracts in Chicago meatpacking . Once the war ended, however, the Beef Trust's concessionary demands were met with a strike that was defeated in 1922, destroying the Amalgamated in Chicago meatpacking (Brody 1964).

The CIO established the Packinghouse Workers Organizing Committee (PWOC) in 1937 that in 1940 secured its first major contract. In 1943, PWOC became the United Packinghouse Workers of America (UPWA). During WWII, the War Labor Board created an industry bargaining structure for the UPWA and the Amalgamated to negotiate contracts with the major meatpackers. The strength of the UPWA was in Chicago, while the Amalgamated had gained representation in regional and non-Chicago meatpacking plants. In January 1946, the packers refused the union’s wage demands, a strike was called that was immediately effective. Ten days into the strike, President Truman, still operating under wartime emergency procedures, seized the plants and ordered work to resume. The unions refused to return to work, demanding that government guarantee enforcement of any settlement reached through a board of inquiry. The Administration agreed and the settlement provided a wage increase and securely established a national bargaining structure for the industry for the post-war period. By the early 1960s, UPWA and the Amalgamated represented more than 95% of hourly workers in beef and pork multi-plant packers outside the South, as the industry moved out of Chicago to rural corn belt plants; they negotiated nearly uniform changes in pattern master agreements throughout the industry (Craypo 1994). Work stoppages involved individual companies that refused to follow the industry settlement pattern (Craypo 1994). In 1968, the two unions merged forming the Amalgamated Meatcutters. Wages and conditions of employment, however, were not identical among meatpacking firms and plants but varied depending on the industry's history, regional structures, products and production volumes (Brody 1964; Craypo 1994). In the late 1970s, in an environment of declining product demand, this structure facilitated further bargaining decentralization, since many plant-level locals retained their own contracts, they readily departed from the master agreement to make wage concessions in order to prevent layoffs and plant closings (Cappelli 1985).

On the employer side of bargaining, the corporate conglomeration movement drastically changed the ownership structure of the Beef Trust companies. The Beef Trust companies would be

-8- further reshaped by the decline of per capita beef consumption that began in 1975, the lack of total factor productivity growth in beef production in the Post World War II period (0.75% annual rate 1958 to 1980, although labor productivity rose 2.5%), and the intense price competition emanating from consumers' shift to chicken. In 1970, the Greyhound Corporation, diversifying of out intercity bus transportation, purchased Armour & Co. Swift then transformed itself into a holding company, Esmark, in 1973, making Swift a subsidiary and the second largest beef packer. Wilson was acquired by LTV in 1976. It re-emerged as a public company, Wilson Foods in 1981, when LTV spun it off as pork packer to shareholders. It was still the largest pork packer in the industry. Cudahy had been dismantled in the 1970s, after it was purchased by General Host in 1968 and was eventually closed, and then it was sold off in a leveraged buyout to a management group, who then reopened four plants without the union representation at substantially lower wages. In 1981, IBP Iowa Beef Processors (IBP) was purchased by Occidental Petroleum Corporation, the energy conglomerate. During the next six years, as a wholly owned subsidiary of Occidental, IBP, which was the only financially successful beef packer, increased its revenues 53 percent and operating income 92 percent. IBP also added 8,000 employees, while operating plants in four additional locations, making it the only thriving beef processor in this difficult restructuring period. In 1987, Occidental Petroleum sold off 49 percent of its stock in IBP but Occidental remained IBP's major shareholder.

In the early 1980s old line red meat processors were challenged by stagnant productivity, obsolete plants, excess capacity, a relatively high wage unionized labor force, and no plans to compete with the rise of chicken as a substitute for beef. These firms, however, knew they needed to reduce input and operating costs and decrease the supply of beef to the market. To cut input costs, they shifted to larger and leaner animal breeds and to larger feed lots thus taking advantage of the declining costs of corn, which fell 75% between 1975 and 1985. To reduce supply and operating costs they closed plants, consolidated ownership and restructured operations, and launched a brutal campaign to cut wages and benefits and eliminate unions. Wilson and Armour negotiated 44-month mid-term wage freezes at $10.69 an hour in late 1981 under the threat of plant closures . Other packers soon got similar concessions in return for promises not to close plants for 18 months (Craypo 1994). In 1982, Esmark closed Swift packing plants and sold the assets to a new company, Swift Independent Packing Company (SIPCO) which reopened the plants without union presentation and with wages $3.00 an hour below the master agreement of $10.69 per hour. Greyhound closed 29 Amour plants and sold most of its meatpacking operation to ConAgra, Inc in 1983, which reopened 17 plants nonunion. Monfort in 1980 after suffering a substantial loss, closed its main plant in Greely, CO, and kept the plant shut for two years. It reopened in March 1982 without union representation1.

Pork processing followed the same practices as the beef packers. LTV spunoff Wilson Foods, a pork packer, in 1981 and within less than two years it filed for bankruptcy in 1983. Wilson then terminated its master agreement and cut wages to $6.50 an hour. In October 1981, Hygrade

1 The UFCW filed unfair labor practice charges, claiming that the company refused to rehire former workers because they were union members. After a 12-year legal battle Monfort's successor, ConAgra that had acquired the company in 1987, was ordered to pay $10.6 million in back pay to 268 former workers. In 1983 workers at the Greeley plant voted against labor representation amidst a variety of Monfort's unfair labor practices. In 1992 a federal judge ruled that Monfort had committed unfair labor practices during the 1983 union vote and ordered a new vote. In September 1994 Greeley workers voted overwhelmingly in favor of union representation, twelve years after Monfort temporarily closed the Greely plant.

-9- demanded a $3.00 per hour pay cut in all Hygrade plants as a prerequisite for keeping its Storm Lake, Iowa plant open. The UFCW refused and the plant closed eliminating over 500 union jobs. In April 1982, IBP bought the Storm Lake facility, reopening it with a substantially reduced wage structure. The new IBP plant operated with 10% monthly turnover (Perry and Kegley 1989). During the same period, IBP bought an Oscar Mayer plant in Perry, Iowa, and reopened it with a starting wage of $5.80 an hour wage nearly $4.00 less than Oscar Mayer’s starting wage (Perry and Kegley 1989).

According to Craypo (1994) union decline in beef packing began with the 1969 round of bargaining at IBP's plant in Dakota City. IBP opened the unit in 1966 and began producing boxed beef the following year. This new process eliminated the shipping of carcasses to wholesalers that partially disassembled the carcasses into primal cuts for retail sales relying on skilled butchers and then shipped them to supermarkets and butcher shops for further carving up for sale by unionized journeyman butchers. With the box beef process, beef carcasses are broken, boned, and cut, then vacuum packed in plastic in the slaughter plant and then shipped in boxes to retailers, largely eliminating the need for skilled butchers in wholesale and retail distribution.

The union organized Dakota City in 1968, but IBP was adamant that it would not accept the industry wage pattern. Indeed, workers struck for several months to get a first contract and then had to settle for base wages below industry averages and accept a differential between slaughter and fabricating wages at the plant. Craypo (1994) concluded that this contract began to put meatpacking labor back in competition and was the first step toward destroying industry bargaining.

Four more rounds of bargaining at Dakota City between 1969 and 1986 completed the process of destroying the industry wage pattern according to Craypo (1994) . Each round ended in a lengthy dispute, ranging in duration from four to fourteen months. Each dispute arose from IBP's refusal to follow industry pattern settlements and its insistence on wage freezes or cuts. In three of the five contract rounds IBP locked out union workers and in all five it brought in replacement workers following the strike or lockout. IBP was one of the earliest large employers to use replacements consistently in labor disputes beginning in 1969. In December 1986, the fifth round of bargaining, another strike began, however, this strike was settled seven months later, as workers successfully resisted company demands for wage concessions. By then, however, only three of IBP's 14 plants were unionized. In part this settlement can be attributed to federal intervention. Democratic Representative Tom Lantos was conducting hearings into safety problems in the meatpacking industry. An OSHA investigation demonstrated that IBP management had lied in their Congressional testimony. OSHA imposed $2.6 million fine on IBP that was reduced when the strike was settled and joint health safety process was established with the UFCW under the supervision of OSHA (December 1996). The new agreement also provided for neutrality and card check at a new IBP plant.

Seventy percent of the meatpacking and sixty percent of the prepared meat products workers were in plants with collective bargaining agreements covering a majority of their production work force as of June 1984 . Nevertheless, relentless restructuring drove unionization to hit bottom by 1987 at 75,760 members, a density of 19% (Hirsch and MacPherson).

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Part III Explanations for the decline of collective bargaining in the meat industry

Craypo (1994) concludes that the new oligopoly industry left the union behind. All packers had to imitate IBP's anti-union model since IBP set the competitive standard and chose to operate union-free if possible and, at a minimum, to avoid multiplant, uniform contract settlements . The new firms destroyed the balance of power inherent in postwar labor relations, but the strategy they used to do so made the parties even greater adversaries and essentially precluded labor- management cooperation. The analysis presented in this paper is not inconsistent with this assessment, however, we argue it is incomplete.

Other less compelling explanations focus on the changing geography of meatpacking with the shift to rural locations, the deskilling of the labor process, the loss of the workers' shop floor organization, and a shift from the militant unionism of the UPWU to the alleged business unionism of the UFCW. These analyses focus on changes where workers lost control over the pace and conditions of work, causing a loss in workers’ bargaining power over working conditions (Gabriel 2006; Horowitz 2002, 35). Bruggeman and Brown (2003) also suggest that the collapse of industrial unionism shifted labor away from militant strategies toward business unionism that arose from the mergers between the UPWA and the AMC in 1968 and between the AMC and the RCUI in 1979 to form the UFCW. They argue that these mergers significantly diluted the union’s militant core of meatpackers and greatly weakened the union's ability to respond to the rise of IBP and its aggressive labor relations strategy (Bruggeman and Brown 2003). These assessments regrettably do not help us understand the basic shift bargaining power in this industry toward employer dominance. Unfortunately, neither the loss nor gain in shop floor control nor workplace skills translates into union bargaining power in a declining oligopoly industry, where jobs and wages are being cut amidst plant closures allowing employers to whipsaw every local union. This literature also often confuses militancy with bargaining power. There was no shortage of militancy in the red meat industry during the 1980s; futile strikes were in abundance; however, that militancy could not translate itself into bargaining power, nor could it reverse employers insistence for concessions. Instead, the defeated militant strikes demonstrated how much power and influence the union had lost in the changing economics and structure of meat and poultry processing. More union militancy was not the answer to competition from the nonunion poultry industry.2

While recognizing that IBP was the agent of change in beef meat packing, we offer evidence that it was the competition emanating from substitution of chicken for beef that was the driving force in the collapse of red meat industry-wide bargaining. It was the economics of the meat industry

2 The Hormel and the Local P-9 conflict further underscores this point. Hormel was profitable throughout this period. It had one controlling shareholder, the Hormel Foundation, which was established in the 1950s by the Hormel family for the improvement of the greater Austin Minnesota community. A broad corporate campaign was a mismatch to this ownership structure, the strike was the wrong tactic to confront a demand for concessions, a single plant contract battle was a mismatch to deal with a multiplant employer shifting to value added products, and rewriting an entire collective bargaining agreement in a highly concessionary environment created an opportunity for the employer to revise the entire relationship; each of these elements combined to defeat P-9. For all these reasons the local should not have struck. There is nothing romantic nor heroic about losing a strike, nor getting large numbers of workers fired. Furthermore, this comprehensive failure contributed to the meat packer employers' momentum and conviction that unions could be defeated rather than accommodated.

-11- that underlay the transformation. One knows price competition was intense, since labor costs accounted for only five percent of the red meat industry's costs. The boundaries of competition, rivalry, substitution, and entry were redefined in this period. If it was not IBP, it would have been some other low cost packer that would have risen to dominance in the beef industry. Between 1976 and 1998, beef’s share of meat consumption declined from 48% to 32%. Real beef prices fell by approximately 35%, and beef cattle inventories declined from 45 million head to 33 (27%) million head. The beef industry underwent widespread structural changes in attempts to reverse this tidal wave of falling demand, including the consolidation of ranching, cattle-feeding and meatpacking, elimination of collective bargaining, and the passage of the Beef Promotion and Research Act of 1985, which introduced the government sponsored beef checkoff to fund an advertising program for beef (Ferrier and Lamb 2007). Plant sizes increased sharply during the industry’s consolidation in the 1980s the shift in the plant size distribution between 1977 and 1992 reduced processing costs by 28% (MacDonald and Ollinger 2005). Complementary developments in cattle feeding enabled the exploitation of new scale economies in meatpacking by ensuring the necessary livestock volumes. The largest feedlots in Kansas, Nebraska, Texas, and Colorado marketed one quarter of all fed cattle in 1974, nearly half (46%) by 1992, and well over half (57%) by 2002. As production shifted to larger plants, the industry's aggregate processing costs fell by 35% by 2002 (MacDonald and Ollinger 2005). These newly built large plants on the High Plains recruited new, largely immigrant workforces.

The Rise of the Broiler3 Complex

During World War II, the established poultry industry based on the Delmarva Peninsula (Delaware, Maryland, and Virginia) exclusively supplied the U.S. military. This created an opportunity for other operators to develop sales to the civilian domestic market. Broiler production and slaughter capacity expanded into the Black Belt South. With the decline of the cotton industry, chicken processing plants could rely almost exclusively on black labor. This use of black labor at wage rates lower than in traditional plants kept down production costs in the new region and allowed the industry to develop a unique structure.

Contracting of the growing of chickens owned by the processor in the broiler industry grew quickly after World War II. In 1950, 95 percent of broiler farms operated independently, selling to the market. By 1955, independent producers accounted for only 10 percent of total broiler production. The market was replaced with contract growing of chickens owned by processors. Feed companies became directly involved in the broiler business by adding hatcheries, acquiring processors, and building their own processing facilities. In the 1970’s, corporate processors replaced feed companies as the integrators of the broiler system. The integrators operated broiler complexes where they control the vertical stages of the broiler life cycle through direct ownership and production contracts with broiler grow out farms. Integrators, such as Tyson, breed their own specialized parent stock, produce hatching eggs (often under contract), hatch the eggs, and contract with growers to raise the chicks (MacDonald 2008). The broiler complex is anchored by a slaughter plant that is surrounded by contract grow out farms that must operate within 30 miles of the plant (Martinez 2000). Grown to slaughter weight, chickens do not travel well. As processors have reduced the radius of their broiler sources, many contract growers have no alternative processors. In this monopsonistic relationship the asset specificity of broiler

3 Chickens grown for their meat are called broilers.

-12- houses enables an integrator to pay the grow out farmer lower compensation rates. (Vukina and Leegomonchai 2006a).

Broiler contracts are written by the integrator and offered to growers on a take-it-or-leave-it basis. Broiler grow out farmers are responsible for constructing broiler houses according to integrator’s specifications, often costing two to three hundred thousand dollars each. Growers are also responsible for labor, utility costs, clean-up costs, and disposal of any dead birds. The integrator provides chicks, feed, medication, veterinarians, and expert field services and decides on the volume of production, including the rotation of flocks and the density of birds in a given house. Production contracts set specific requirements that insure uniformity and quality standards for birds. The majority of contracts provide a base payment per pound and a bonus payment tied to the grower’s relative performance benchmarked against other local growers (Vukina and Leegomonchai 2006b). The typical payment by a processor to the grower is five cents per bird (USDA ERS 2006).

The rapid improvements in breeding genetics, animal food and veterinary services, the increasing scale of chicken houses, and the automation of the slaughter process greatly improved productivity by steadily reducing grow out time to an average of eight weeks, increasing average slaughter weight to 5.5 pounds, and greatly improving bird survival rates (MacDonald 2008). Uniformity is set in feed, medication, and breeding and grow-out conditions to help standardize and automate the slaughter process (Hennessy 2005). There are also large and extensive scale economies in poultry slaughter (Ollinger, MacDonald, and Madison 2005).

Processors have focused increasingly on product differentiation, through further processing and brand labeling. By 1988, brand names accounted for half of all supermarket sales of broilers, and brand-name broilers commanded a 14-percent premium over supermarket brands (Bugos 1992). In 2012, 47 percent of broilers were cut-up and sold as parts, and 41 percent were sold as value- added processed products, such as chicken franks, patties, nuggets, and marinated products (National Chicken Council 2012). In 1978, only 8% of chicken was sold after further processing. Then the food processing revolution began (accompanied by the obesity epidemic). The chicken processing revolution was announced with the introduction of Chicken McNuggets in 1983 by McDonalds. In 1980, McDonalds sold no chicken, by 2012 McDonalds sold more chicken than beef.

The Rise of Chicken and the Decline of Union Influence

Poultry processing firms based in the Southeast rarely faced significant union organizing, and real wages in that industry have remained unchanged for decades (Ollinger, MacDonald, and Madison 2000). As the boundaries of product substitution shifted, the highly unionized workforce in red meat with union wages and benefits began to compete with the low wage nonunion labor in the broiler industry based in the rural Black Belt South that earned half their wages, but had higher productivity growth.

Red meat combined slaughter and processing production worker employment bottomed out in 1987 at 193,600. In 1986, employment of poultry slaughter and processing workers surpassed employment in red meat slaughter and in 1999 it matched production worker employment in red

-13- meat slaughter and processing for the first time. Poultry slaughter and processing could no longer be considered an employment back water. Its steady growth in output and productivity allowed it to set the terms of competition with beef. The real retail price of beef peaked in 1979 and then fell by 38% in 1986. Both pork and chicken real retail prices continue to decline, but the real beef prices started to increase again in 1999. Beef still confronts a real competitive price disadvantage with chicken and to a lesser extent with pork. In 1986, chicken output overtook pork output and in 1994, it surpassed beef output. In 2011, pork output almost equaled beef output. Beef output staged a modest growth spurt in 1999 that stalled by 2004. Beef also has a productivity disadvantage. Over the entire period (1958 to 2005 NBER and CES Series) red meat slaughter total factor productivity grew at an annual rate of 0.05%, red meat processing increased at an annual rate of 0.65%, while poultry slaughter and processing increased at an annual rate of 2.22%. Beef unit labor costs have increased considerably while poultry's unit labor costs have not. Hog producers have progressively adopted the organization and techniques of the broiler complex to improve productivity. Between 1987 and 2006, poultry labor productivity grew at an annual rate of 3.8% while red meat grew at 0.2%, Poultry has expanded its productivity and cost advantages over beef. What these productivity, value added, and output comparisons suggest is that poultry growth has continued to improve its relative operating performance and has laid a firm foundation for continued expansion.

Part IV. The Value Stream of Meat Processing: Where Are the Profits?

Value stream analysis seeks to identify where in a supply chain are profits and rents captured. The value stream is identified with respect to a particular industry. Industry structure determines profit potential within an industry (Porter 2008). The relevant industry for our analysis includes red meat and poultry (NAIC 3116), an industry where its products can serve as effective substitutes. The industry's main market segments are dominated by oligopolies in beef, pork, chicken, and turkey and three larger industry-wide oligopoly firms are Tyson (chicken #1, pork #2, and beef #1), JBS Swift (beef #3, pork #3, and Pilgrims Pride in chicken #2), and Cargill (beef #2, pork #5, and turkey #3). Smithfield, the largest pork producer, in 2008 divested its beef and turkey holdings to focus on pork. The other notable company among the leaders is Hormel, fourth among pork packers and the second largest turkey processor. The industry has increased consolidation and concentration, which is driven in part due to the strength of buyers in food services, such as quick service restaurants, causal dining chains, food service firms, and the supercenters, particularly Wal-Mart, warehouse clubs, and merged supermarket chains that compete on price, quality, convenience, and taste. The other factor driving competition is the undifferentiated nature of many of the products the industry produces.

The industry faces a number of challenges. The falloff in demand arising from the great recession affected most segments of the industry. In the last five years, rising feed costs partly attributable to increases in corn based ethanol production, has adversely affected the industry, particularly poultry, where the then largest producer, Pilgrim's Pride entered bankruptcy in 2008, followed by several other processors including Cagle and Allen Farms. Rivalry within the industry remains intense. Most of the large companies have made substantial investments to differentiate themselves by integrating forward into value-added food processing by further preparing their meats to market "ready to serve" prepared meats for either the home or food

-14- service establishments. Tyson, for example, recently established 41 test kitchens as one of its basic research and development initiatives.

Some of the broiler companies, such as Sanderson Farms, Wayne Farms, and Mountaire Farms have focused on larger and heavier broilers, weighing about 7.5 lbs, raised for deboning. These firms have departed from the conventional standard that the maximum weight of a broiler is 5.5 lbs, since above that weight the rate of nutrient to meat conversion becomes less efficient and bird mortality rises, and therefore, it has not been an historically profitable to grow heavy birds. These smaller companies have relied on heavier birds for deboning of white meat that has produced profitable performance through improved breeding, new medications, and veterinarian services. Sanderson Farms shifted to larger birds in 1997 to avoid head to head competition with the larger companies, and it has achieved superior profitability. The other firms following this strategy are privately held and therefore their profitability is unknown, but they have survived the great recession. Table 1 Value Stream for Meat and Poultry Processing - Forward and Backward Industries Ten Year Profitability Averages by Four Digit NAICS Ranked by ROI Ten Year Profitability EBITA ROA % ROE % ROI % 2011 Revenue NAICS Averages Largest Firm Margin % (Net) (Net) (Operating) billions 3114 Frozen Food Process Nestle 18.4 9.8 73.5 25.2 $27.4 Wal Mart Wal-Mart 7.4 8.6 21.5 21.8 $420.0 3253 Ag Chemical Dupont 17.9 7.4 14.2 21.5 $33.4 3115 Food Process Dairy Dean Foods 11.9 25.7 18.6 $89.4 7222 Quick Service Rest McDonalds 11.7 6.4 22.4 18.4 $169.7 4529 Supercenters-Warehouse Costco 5.9 6.3 14.6 18.3 $177.3 3252 Industrial Chemical Dow 14.2 5.2 18.2 14.9 $104.2 3254 Pharmaceutical Pfizer - Fort Dodge 21.4 7.0 16.2 14.4 $138.9 7221 Casual Dining Darden 10.2 5.7 12.4 13.5 $52.4 3119 Food Process Other Kraft 10.8 5.4 14.5 13.4 $84.0 8123 Food Service Contractors Aramark 6.7 3.2 15.9 13.4 $32.3 4451 Supermarkets Kroger 4.9 5.0 10.8 12.4 $177.2 4462 Veterinary Supply MWI Veterinary 3.9 4.5 7.9 12.4 $2.0 3116 Meat & Poultry Process Tyson 5.0 3.7 9.4 11.9 $131.5 3111 Animal Food ADM-Cargill 5.9 5.3 12.2 10.2 $50.4 3112 Grain Milling ADM-Cargill 5.9 5.3 12.2 10.2 $89.2 4245 Grain Wholesaling ADM-Cargill 5.9 5.3 12.2 10.2 $123.4 4841 Refrigerated Truck Frozen Food Express 5.9 4.8 8.3 10.1 $0.4 4471 Meat Stores Pantry Inc. 3.3 1.2 7.3 9.3 $8.6 4244 Wholesale Distribution Sysco 4.0 2.0 32.6 8.4 $89.4

3116 Hormel 10.2 9.4 16.9 21.8 $7.2 3116 Sanderson 8.2 9.5 14.1 19.9 $1.9 3116 Tyson 4.3 2.5 6.0 8.9 $28.4 3116 Smithfield 5.3 2.6 7.2 8.1 $12.2 3116 Pilgrims Pride 3.1 -1.1 -21.3 1.8 $6.9 Sources: Mergent Online, Compustat, IBIS World and author's calculations.

-15- Table 1 provides four measures of profitability for the publicly traded companies by four digit North American Industry Code for the decade 2002 to 2011.4 Following Porter (2008) we will focus on the return on invested capital. We utilize earnings before interest and taxes divided by average invested capital less excess cash as the measure of ROI. This measure controls for differences in capital structure and tax rates across companies and industries, making the return on invested capital (ROI) the most appropriate measure of profitability for value stream analysis. The average returns on invested capital vary greatly by industry (Porter 2008). Table 1 is sorted and ranked by the return on invested capital.

Over the last decade, among publicly traded companies, frozen and refrigerated food processing led the value stream in profitability, followed closely by retail distribution, in particular Wal- Mart, which is reported separately. Agricultural chemicals that include Dupont and Monsanto, but also fertilizer manufacturer CF Industries also earned above average profits. Other above average performers include fast food, particularly McDonalds, casual chain dining (Darden), and food service companies, such as Aramark and Sodexo. On the other end of the profit spectrum is food distribution industry with companies such as Sysco, (but many others that went bankrupt and were restructured) and refrigerated trucking industry, such as Frozen Food Express.

Given the relative profitability of value-added food processing, it is not surprising that firms in the below average profit meat and poultry processing industry are trying to integrate forward into food processing and develop close collaborative relations with the retailers whether they be supercenters, supermarkets, fast food and casual dining restaurant chains, or food service contractors. The recent restructuring of meat and poultry processing industry exemplifies the trend toward forward integration into value-added food processing in pursuit of higher sustainable profitability. Most of the benefits arising from the enormous advances in productivity and cost reduction in the meat and poultry industry are being captured further down the corporate value stream and by lower food prices for the final consumer.

To understand the challenges of the meat and poultry industry we will review the changes in the pattern of ownership and investment. We will begin by examining the entry of JBS SA, the large Brazilian meat processor, into the US through acquisitions, and ConAgra's exit from meat processing, and the restructuring of Hormel Foods. In July 2007, JBS purchased the U.S. beef processor Swift & Co. (now known as JBS-Swift &Co.), then the third-largest U.S. beef processor from ConAgra, which exited meat processing to focus on its branded food processing business. Swift accounted for 12.6% of the 2006 commercial slaughter (about 4.8 million head) and had U.S. beef sales of $5.6 billion in 2006 (four U.S. plants). In early 2008, JBS signed agreements to acquire the fourth- and fifth-largest U.S. beef packing companies, National Beef Packing Company and the Smithfield Beef Group. JBS’s share of the U.S. cattle slaughter market increased to 19% with the Smithfield Beef acquisition. JBS also acquired of Five Rivers Ranch Cattle Feeding, which was part of the Smithfield deal, making JBS the largest cattle feeder in the United States. The acquisition of National Beef would have given JBS Swift 30% of the cattle slaughter market, and it was blocked by the Justice Department in February 2009

4 The profitability measures are Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a percent of net sales, Return on Assets, measured as net income as a percent of assets, Return on Shareholder Equity, measured as net income as a percent of shareholder equity, and the Return on Invested Capital, measured as adjusted operating income as a percent of invested capital.

-16- (Johnson 2009). What set this chain of acquisitions in motion, was ConAgra's decision to exit the lower profit meat processing industry to focus on its assets in the branded refrigerated and frozen food industry. ConAgra was one of the second generation major meat processors with its acquisitions in the 1980s. Poorly performing Smithfield Foods, restructured to focus on pork processing and its prepared foods, shedding all of its other meat processing business units to JBS. The largest chicken processor, Pilgrim's Pride went bankrupt after acquiring Goldkist and making it unable to adapt to rising corn prices given its heavy debt load. In 2009, JBS acquired a controlling interest (67%) in Pilgrim's Pride and shutdown excess and obsolete capacity, making it the second largest poultry processor.

Hormel Foods, the most stable and profitable meat processing corporation over the last 40 years, has emphasized the shift to manufacturing branded, value-added consumer items rather than the commodity fresh meat business. The Company has three plants that slaughter hogs for processing. A facilities manager, Quality Pork Processors, Inc. (QPP) operates Hormel's largest slaughter facility at Austin, Minnesota. All of the fresh meat QPP processes goes to Hormel providing more than 50% of Hormel's fresh pork material needs. QPP currently employs over 1300 people to slaughter 19,000 hogs a day. QPP is a privately held company started in 1989 by a retired lifelong Hormel manager. Hormel Foods Corporation, also, transformed its Rochelle, Ill., plant from a hog slaughter operation to a value-added product processing facility in 2002, as part of its shift to processed food, and it has gone on to make a number of acquisitions to bolster its shift to value added processed food products. In contrast to Hormel's value added strategy, the largest meat processor, Tyson, had a difficult decade after acquiring IBP, outbidding Smithfield. While becoming the largest meat processor in the world, Tyson's profitability (ROI) was substantially below average.

Part V: Immigration: Undocumented, Falsely Documented, and Legal Workers without Documents

Tyson was also the target of the most important federal immigration case in the last thirty years. Under Immigration Reform and Control Act (IRCA), passed in 1986, it became unlawful to hire, recruit, refer, or continue to employ an alien who is unauthorized to work in the United States. Prior to IRCA’s enactment, employers bore no legal responsibility for the work authorization of their employees. In 1996, Congress created a “good faith” affirmative defense for employers who failed to properly verify the status of new hires in accordance with IRCA. Under the exception, an entity is considered to have complied with employment restrictions if there was a “good faith” attempt to comply (Tanger 2006).

In order to establish a highly visible, employer prosecution for employing undocumented workers under IRCA, the Immigration and Naturalization Service (INS) carried out a two-and-a- half-year undercover investigation of Tyson Foods, Inc., starting in 1997. They gathered evidence that the company was regularly hiring undocumented workers. When the government filed a criminal suit against Tyson, the evidence included 422 undercover audiotapes, 36 videotapes, and 360,000 pages of documents subpoenaed from Tyson. In December 2001, a grand jury issued a thirty-six-count indictment charging Tyson with conspiracy to smuggle illegal aliens into the United States, provide them with fraudulent work papers, and employ them unlawfully (Tanger 2006).

-17-

In its efforts to hold the corporation criminally liable, the government argued that Tyson’s top management knew that the plant managers arranged transportation and false papers for illegal aliens to work at the company’s processing plants. An undercover agent testified that Tyson knowingly accepted 26 deliveries of illegal immigrant workers during the two-and-a-half years of the undercover investigation. Tyson managers paid INS agents posing as smugglers $100 to $200 for each worker brought from the border. The fees were paid using official Tyson corporate checks. The lead prosecutor argued that Tyson officials had deliberately imported and hired undocumented workers to keep up with rapid turnover at its poultry plants without having to raise pay. In its defense, Tyson maintained that the plant managers were breaking company rules and acting on their own outside of the scope of their employment (Tanger 2006).

The government alleged that each manager was acting within the scope of his corporate management duties and sought to further the company’s financial interests. The government also alleged that Tyson cultivated a corporate culture which condoned the hiring of illegal alien workers in order to meet production goals and cut costs to maximize profits, thereby facilitating the conspiracy. The government argued that Tyson preferred to hire undocumented workers because their illegal status created a sense of fear of being arrested and deported, which allowed Tyson managers to pay less, pressure workers, speed up conveyor belts, and allow fewer bathroom breaks. Tyson managers knew that undocumented workers were less likely to complain, to file a grievance with governmental agencies, to seek workers’ compensation benefits, to organize a union, and to be absent from work (Tanger 2006) because of their vulnerable undocumented status. Tyson's starting hourly wage in 2000 was seven dollars an hour, which was too low to attract legal workers, especially because Tyson did not normally give pay increases until a worker completed three years.

Tyson denied all of the charges, insisting that it had consistently cooperated with the INS in its investigation and claimed that the few company officials involved in employing undocumented workers were operating on their own authority in violation of company policy. Tyson cited a history of cooperation with the INS and maintained that company policies demonstrated a commitment to abide by the law. In response to the lawsuit, Tyson fired the managers who pled guilty, (and who testified on behalf of the government), and claimed to redouble its efforts to avoid hiring undocumented workers by auditing the employment authorization documents of all employees and terminating anyone whose papers were found to be questionable. Tyson’s attorney acknowledged that the company had hired about 200,000 low-skilled workers during the three years of the government investigation, and he claimed they had done the best they could to hire only legal workers.

The company was acquitted of all charges that alleged that they criminally conspired to recruit and smuggle unauthorized workers to work in their poultry processing plants. No fines were imposed, and no one went to jail. There was no evidence presented that the managers were directed from the top to smuggle or hire illegal workers. The company according to the jurors had made a "good faith" effort to comply with the law. It had strict polices, it cooperated with the INS, and it had participated in a voluntary INS program. Tyson evaded criminal liability despite the tremendous evidence presented against them (Tanger 2006).

-18- The Tyson case reflects the failure of the government to develop an employer focused enforcement regime under IRCA. The government was apparently ready to follow through on its obligation to prosecute companies for immigration violations, but the courts were not (Tanger 2006). Instead, ICE returned to the pre-1986 IRCA, immigration enforcement strategy of raiding work places and deporting workers, particularly in meatpacking.

In December 2006, about 1,300 undocumented and falsely documented immigrant workers employed at six meat processing plants owned by Swift & Co. were arrested in the largest immigration enforcement action in U.S. history. Other workers, fearful of future raids, stopped reporting to work. An estimated 23% of Swift workers were undocumented. Swift's hourly wages then rose, and employment of native born workers and legal immigrants increased. (Kammer 2009). The high visibility raid at Swift was followed by others throughout the industry.

For example, Agriprocessors, the owner of the largest kosher meat-packing plant in the United States, was raided by the U.S. Immigration and Customs Enforcement (ICE) in May 2008. Nearly 400 illegal immigrant workers arrested. The raid then stimulated a further investigation into the company and one corporate officer was charged with fraud and sentenced to 27 years in prison in June 2010. Agriprocessors shut down in October 2008, and filed for bankruptcy. In an effort to reduce the likelihood of ICE raids, the current employer employment practice has shifted to an increasing reliance on the INS e-verify system to decrease any potential liability for hiring immigrant workers illegally, to demonstrate "good faith," and eliminate disruptive raids.

The Impact of Immigration The meat packers that have integrated forward into value-added food processing have increased their demand for unskilled labor. Despite automation in the meat slaughter process, the nature of deboning and disassembly requires hand work. This deskilled, dangerous, highly repetitive work in a refrigerated work environment has created a demand for labor that is cheap, replaceable and non-union. Employing large numbers of immigrants of suspect legality meets these goals and has the tendency to minimize the risk of unionization. Undocumented workers have little bargaining power, while they have "rights," these rights are without remedy, since Hoffman Plastics (2002), which makes unionization more difficult, keeps turnover high, allowing wages to remain at entry level, and removes any pressure on the industry to improve working conditions. Current immigration policy and enforcement makes workers vulnerable to employer pressure while simultaneously making it easier for this industry to find its low-wage labor as supply. (Bollerup 2004; Horowitz & Miller, 1999; Champlin and Hake 2006)

The economics, sociological, and demographic research literature yields ambiguous results on the impact of low skilled Hispanic immigration on employment and wages of domestic workers. Borjas (2006) finds that the supply shock of immigration results in the out-migration of native workers and lower wages. In contrast, Parrado and Kandel (2011), applying segmented labor market theory (Piore 1979), found a lack of overlap between jobs held by immigrants and natives. Rather than the substitution of immigrants for natives, they argue that low-skilled immigrants often occupy distinct and non-overlapping niches in US labor market.

-19- From this perspective, unattractive meat processing plant jobs repel Black and other native workers who are pursuing better paying and safer work (Parrado and Kandel 2011). While Blacks and other native workers tend to move away from local areas with a sizeable meat processing industry, Hispanics appear to be attracted to the opportunity to earn above minimum wages (Parrado and Kandel 2011). This empirical finding, however, is also consistent with the Borjas supply shock prediction (2006) that the native low-skilled Black workers migrate out, when Hispanic immigrants enter the local labor market, but for Borjas migration is induced as wages and workings condition deteriorate driven by the increased immigrant worker supply.

According to Parrado and Kandel (2005) meat processing plants reap efficiencies by locating in rural areas near livestock production. Not surprisingly, large, rural-based processing plants have difficulty filling employment vacancies and retaining employees. Estimates of annual employee turnover in the meat processing industry range from 60 to 140 percent. The changes in the organization of production, plant relocation, and relatively unattractive working conditions have increased demand for low-skilled, often foreign-born Hispanic workers. Parrado and Kandel (2005) conclude that their findings suggest that immigrants are not substitutes for native workers. Instead, immigrants appear to be taking unstable, unpleasant, and often low-paying jobs in sectors of the economy that better-educated native residents find unattractive. (Kandel and Parrado 2005)

In contrast to Kandel and Parrado, Schwartzman (2011) argues against the notion that immigrants (and particularly the undocumented) fill jobs that nobody wants. She contends that the substitution of undocumented immigrants arises from a response to rising labor conflict. Immigrant hiring is a management strategy to deal with rising native labor organization where workers unionized, sought both better compensation and improvements in working conditions. Management then deliberately began hiring immigrant workers to keep wages low and undermine unions that were lead by African American workers (Schwartzman 2011).

Empirically, while the quality of research assessing the impact of immigrants on low wage workers has greatly improved, it is still unable to disentangle the supply shock effect, labor market segmentation, or management's strategic substitution effect of undocumented immigrants workers for native born workers. In meat and poultry processing the evidence leans toward a supply shock that has been deliberately constructed and assisted by corporate management. The immigrant-native labor substitution effect was an element in the campaign to unionize the Smithfield plant in Tar Heel, North Carolina.

Part VI: Comprehensive Campaign: Smithfield, Immigrants, and RICO

In 1994, Smithfield opened the largest hog slaughter plant in the world in Tar Heel, North Carolina, population of 67. The plant eventually employed 5,000 workers, and slaughters up to 32,000 hogs a day. Although North Carolina is not in the Corn Belt, the center of the hog industry, it was particularly attractive place for Smithfield. Since the company wanted to operate union free, North Carolina has the lowest unionization rate in the country, and has well- know business culture for encouraging union-free business development. Secondly, North Carolina permitted large numbers of CAFO's, (Concentrated Animal Feed Organizations), that enable big farms to raise large numbers of hogs. These farms guarantee a geographically

-20- proximate year round supply of hogs for the Tar Heel plant. The main problem created by hog CAFO's is the massive amounts of hog manure produced in its normal operation that requires treatment and disposal to preserve clean water, and it often brings these farms into conflict with the EPA (Lowry and Gereffi 2008). Starting in 2000, North Carolina ceased permitting new hog CAFO's, because of their pollution problems.

In December 2008, workers at the Smithfield Tar Heel plant voted to be represented by the United Food and Commercial Workers Union by a vote of 2,041 to 1,879. A new contract was negotiated and ratified. This was the third vote at Tar Heel. The UFCW's early organizing attempts resulted in NLRB supervised elections in 1994 and 1997. The UFCW lost both NLRB elections. Smithfield engaged in the what have become the typical employer unfair labor practices during the election campaign period, including threatening employees with plant closure, threatening pro-union employees with discipline, interrogating employees about their attitudes toward the union, maintaining surveillance of employees distributing pro-union handbills, suspending and firing pro-union employees, and even assaulting and arresting at least one pro-union employee (Garden 2011). The NLRB ordered Smithfield to reinstate with back pay those employees who had been wrongfully fired, issued a cease and-desist order, required Smithfield to provide UFCW with a list of names and addresses of current employees, and ordered Smithfield to post notices. Smithfield appealed the NLRB's decision. The appeal process was not completed until 2006, which meant that the Board-ordered remedies were not implemented until nearly a dozen years after the first election (Garden 2011).

During this period of time Smithfield grew through acquisitions In 1997, it was ranked the 7th largest pork producer. By 2000 Smithfield was largest pork producer; it was also the biggest hog raiser (Barboza 2000). Its increased size, however, did not translate into improved profitability.

In 2005, Joe Hansen president of the UFCW announced the initiation of a comprehensive campaign against the financially vulnerable Smithfield Foods. The union sought Smithfield's neutrality during a union organizing drive and card-check to demonstrate its majority representation status, instead of another NLRB-sponsored election. In January 2007, Immigration and Customs Enforcement (ICE) agents raided the Smithfield pork plant in Tar Heel, N.C. In Tar Heel, more than 500 Smithfield employees walked out on November 16, 2007, to protest the company's decision to fire several dozen immigrants who the company said had presented false Social Security numbers when applying for a job. The walkout coincided with the United Food and Commercial Workers comprehensive campaign to unionize Smithfield workers, about two-thirds of them were Hispanic immigrants. Workers discontent stemmed not just from the recent firings but also from the speed of the production line and widespread injuries (Greenhouse 2007). As a result of the ICE raids and their fallout, Smithfield hired native American workers, mostly African Americans, to work in the plant to replace Hispanic immigrants who left employment at Smithfield.

The UFCW's comprehensive campaign broadened its focus, in this period, to link to religious, civil rights, consumer advocacy and human rights organizations. The union produced campaign literature, which criticized the Tar Heel plant's safety record. The union together with religious, civil rights, immigrant rights, and consumer advocacy groups organized protests at grocery stores selling Smithfield products, some of which stopped carrying Smithfield products. One protest

-21- group marched to the home of the president of a store that sold Smithfield products to deliver a large father's day card, which was signed by the children of Smithfield workers and stated that Smithfield workers were abused and mistreated. The campaign attempted to convince Smithfield's celebrity spokesperson, Paula Deen, to end her relationship with Smithfield. They encouraged religious bodies and city councils to boycott Smithfield or to pass resolutions condemning the company. The campaign sent letters criticizing the company to financial analyst and organized a protest at Smithfield's annual shareholders' meetings. They also filed regulatory complaints and opposed Smithfield's regulatory applications, such as Smithfield's application for a water permit, which would have allowed Smithfield to expand operations at the Tar Heel plant (Garden 2011).

Smithfield responded to the UFCW's comprehensive campaign by filing a civil RICO complaint, alleging the union was engaged in extortion. According to Smithfield, the UFCW's goal was to force Smithfield to voluntarily recognize the union as the bargaining unit's representative, whether or not a majority of Smithfield employees wanted the union's representation (Garden 2011); the extortion was the UFCW's comprehensive campaign, which would continue until the company voluntarily recognized the union. Smithfield's complaint was scheduled for trial. On the eve of the trial the parties negotiated a settlement that permitted a fair election process for the Tar Heel workers to decide whether they wanted UFCW representation.

In December 2008, UFCW won the election. Ironically, the 2007 immigration raids may have tipped the balance toward the union (Kammer 2009). Smithfield had to hire legal workers, and new workers, were mostly black workers. African-Americans are among the strongest supporters of unions. In contrast, many Hispanic workers were afraid of being seen as union supporters, because they feared deportation (Greenhouse 2008).

On July 1, 2009, the UFCW and Smithfield announced their first contract covering the Tar Heel facility. A year later, an AP article reported that the parties were working together cooperatively and had greatly reduced workplace injuries, voluntary turnover, terminations, and absenteeism at the plant (Dalesio 2010). Approximately, two-thirds of the 32,000 employees in corporate parent Smithfield Foods' pork division are now covered by union contracts (Dalesio 2010). Although the UFCW eventually prevailed in its organizing drive, there remains enormous uncertainty about the boundaries of union speech in a comprehensive campaign and the applicability of civil RICO suits alleging extortion, which may deter union use of comprehensive campaigns.

Part VII: Do Unions Still Matter in Meat and Poultry Processing?

In meatpacking, heightened competition, new entrants, declining unionization, bargaining decentralization, and hard bargaining on the part of employers all contributed to the “meltdown” in bargaining power and a fall in the union compensation effect. Belman and Voos (2004) estimated that the union wage differential fell by 25 percentage points, from 29 to 4 percent in meatpacking between the late 1970s and the early 1990s according to evidence based on CPS data.

In this research, we examine the union impact on wages between 1990 and 2008 using the CPS IPUMS March Supplement. The industry includes both meat and poultry processing workers.

-22- The means are reported in Table 2. During this period 19% of the meat and poultry processing workers were union members. Some 88% of workers had a high school diploma or less. Women accounted for 39% of the workforce. The labor force was racially and ethnically diverse. Hispanics were 37% of workers, White non-Hispanic were 37% of the workforce, Blacks accounted for 24% of employees and Asians accounted for 2% of the employment. The average work week was 39 hours, the weekly average earnings were $326 using 2008 dollars and annual income was $17,118 with 15% of workforce earning wages that place them below the federal poverty line. Most of the workers are employed by large firms; over half of the workforce is employed by firms with more than 1,000 employees. Employers provide 57% of the workforce with health insurance and 33% of employees participate in pension savings. One-third of the workforce are employed as meat cutters. Other workers are employed in production worker occupations and materials moving. Two better paid occupations are truck driver and maintenance worker. Educated adjusted work experience is 18 years. Poultry plants account for 49% of employment and red meat accounts for 51% of the jobs5.

Table 2 The Means from the 1990 to 2008 CPS IPUMS March Supplement for Meat and Poultry Processing (5087 obs) Union 19% Firm 100-499 employees 16% Firm 500-999 Employees 9% Female 39% Firm More than 1000 Employees 53% Black 24% Asian 2% Health Insurance 57% Married 53% Health Insurance Paid All by Employer 8% Hispanic 37% Health Insurance Paid Partly by Employer 44% Veteran 6% Pension Participation 32%

Less than High School 43% Meat Cutter 34% High School 45% Production Worker 28% Some College 10% Truck Driver 6% College 2% Laborer-Materials 24% Maintenance Worker 9% Weekly Hours 39 Annual Earnings $17,118.78 Poultry 49% Weekly earnings $326.48 Percent Below Poverty Line 15% Years of Experience 18

We estimated a standard wage equation using OLS. The dependent variable is the natural log of the annual wages. After we control for relative poultry output, demographics, work experience, educational level, hours, occupation group, we find the union wage effect was 13% during this period. Neither experience nor educational attainment had much effect on earnings; however, the lack of a high school degree carries a 14% penalty. The college premium was 6%. Poultry primarily located in the rural Southeastern US pays 22% less than red meat, all else equal. Women earn 15% less; black workers earn 10% less; and Hispanic employees earn 6% less, all else equal. Truck drivers earn on average 18% more than production workers and the best paid

5 Poultry industry employment is not a CPS variable, instead it is derived by calculating the percent of output in each state verses red meat output and then merged into the CPS sample as a critical control variable.

-23- employees, maintenance workers, earn 35% more all else equal. In this period overall real wage levels were stagnant.

We then estimated probit equations to determine the likelihood that an employee had employer provided health insurance. We then estimated OLS equations, cross checked the estimates with the probit results. As expected employees in the better paid occupations were more able to participate in health insurance. Surprisingly, being employed in poultry increased the likelihood of participating in employer health insurance all else equal. Being a union member increased the likelihood of participating in health insurance by 10% also else equal. There has been a 2% annual rate of decline of employee participation in employer provided health insurance in this industry for the last 20 years.

As with health insurance, we estimated probit equations to assess the likelihood the employee has an employer provided pension. We then estimated OLS equations, cross checked the estimates with the probit results. As expected employees in the better paid occupations were more able to participate in pensions. Asian employees were significantly more likely to save in the pension plan than any other racial or ethnic group. Employees in large firms were more likely to participate in pension plans. Union membership increased pension participation by 11%, all else equal.

Conclusion: Unions Still Matter

According to our calculations, the median worker in the extended meat and poultry food value stream earns an hourly median wage of $9.61, (less than $20,000 per year for full-time work) many of these workers receive neither employer provided health insurance nor pensions (BLS Occupational Employment Statistics May 2011 and the National Compensation Survey). Ironically, there is tendency for profits to rise and the hourly wage to fall, the closer that value chain gets to the final consumer. Unionization does change the terms and conditions of employment; however, its impact could be magnified by greater unionization that could establish the structures that could shift bargaining power.

The UFCW represents almost a half million workers in the supermarket-grocery industry and another 200,000 workers in the food processing industry (of which about half are in the meat and poultry processing), providing it with a substantial base in the food value stream. Nonetheless, many growing segments of this value stream remain almost union free from industries such as agricultural chemicals to retail supercenters, warehouse clubs, high end supermarkets (Wholefoods, Wegmans, and Publix), chains for casual dining, to quick service restaurants. The union has supported a comprehensive campaign to pressure Wal-Mart, while it continues to rebuild its strength in the food processing industry. With the entry of JBS into the meat and poultry industry there have been several large plant recognition victories that have produced contracts. In addition, the UFCW has greatly expanded its efforts and recognition in the poultry industry, see Table 3 below.

Table 2 Chicken Processing Plant Union Representation Chicken Plants UFCW (250+ workers) Market Share Representation Tyson 22% 33%

-24- Pilgrim'sPride 17% 31% Perdue 7% 0% Sanderson Farms 5% 23% Koch Foods 5% 63% Wayne Farms 4% 68% Mountaire Farms 4% 33% House of Raedford 3% 75% Foster Farms 4% 53% Peco Foods 3% 20%

Source: Watt Poultry Guide and UFCW Large Plants Database, Dec 2010

As the UFCW has addressed one source of instability in the meat industry arising from competition from the poultry industry, bargaining still takes place at the plant level as employers seek to take advantage of labor market differences, demographic shifts, and other local vulnerabilities, including local monopsony advantages. There is still considerable compensation variations among the union represented workforces. With the strike rendered almost completely ineffective as the result of employer use of replacements, right to work legislation, high unemployment, and private security forces, unions need to use softer power coupled with long term determination to exercise influence over compensation and working conditions. Cooperative relationships based on mutual respect and recognition is not on the near term agenda of the meat production industry. Most employers in the industry, even those with good relationships with their unions, resist unionization of their nonunion facilities, making multiple campaigns necessary to gain recognition in this high turnover industry.

While highly visible comprehensive campaigns, such as the UFCW's Smithfield Tar Heel campaign, gain attention and recognition, most union rebuilding goes on at the local level out of sight without either the drama or the militancy often highlighted in the narratives of union building. In part, the success or failure of union rebuilding is tied to whether employers reassess the costs and benefits of their low skill and high turnover employment model and decide that constructing a more stable relationship with their workforces and their representatives yields net benefits to their long term survival and performance. On the other hand, with production worker unemployment averaging 9.5% over the last decade, ranging from a low of 6.2% in 2007 to a high of 15.4% in 2009, it is difficult to anticipate any reason why employers would change their low wage and high turnover employment system. There are over 10 million low wage workers employed in the food value stream from farm to check out. Workers who directly grow, process, sell, or serve food are mostly low paid, even though many of them work for highly profitable firms.

In this paper, we applied a value stream analysis to the meat and poultry industry at a relatively high level of analysis to determine the appropriate analytical boundaries of this industry. Our goal in this paper was to demonstrate that there has evolved one meat and poultry value stream as each of these protein sources can serve as substitutes, which means they need to be analyzed together and organized conceptually and practically together. A more appropriate level of

-25- analysis, for most labor and employment researchers would be the business unit, the basic operating division of a firm that governs the operating relationships within an industry and is the basic unit of profit generation. The business unit operates within an industry, and research focus needs to be on an industry's profitability and what forces contribute to profitability, what forces are changing, and whether the business unit can capture the value it creates. Firms may not be the appropriate unit of analysis, because many firms span multiple value streams confounding a profitability analysis. Unions may want to utilize the value stream analytical approach before investing scarce resources in organizing, strikes, or comprehensive campaigns. A union could refocus its efforts on organizing a value stream that is growing and profitable, where gaining bargaining power can result in improved employee compensation and worker control, while building a sustainable growing union. In this paper we applied this approach to analyze the meat and poultry value stream, a series of industries where the UFCW has organized a multitude of bargaining units and has considerable membership in a variety of stages of production and distribution. A more detailed value analysis, however, is required before investing scarce resources.

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