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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

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