At Chicken Giant Perdue, Animal Welfare Helps the Bottom Line

(Bloomberg) -- When Niman Ranch, the boutique meat company known for its high-welfare pork, announced it was being acquired by chicken giant Perdue Farms Inc., which had snapped up Coleman Natural Foods in 2011, cries of “sell out” bounced across the Internet.

Three years later the sky hasn’t fallen. Instead, the floor has been lifted.

“Perdue learned from Coleman and Niman,” said Josh Balk, vice president of farm-animal protection for the Humane Society of the U.S. “There could be cases where a parent company pushes values on the company it purchased, but everything I’ve seen is that Niman’s and Coleman’s social responsibility concerns have actually trickled into Perdue.”

Balk would know. After building consumer interest in farm animal treatment and releasing an undercover video in 2015 showing abuse on a Perdue farm, welfare organizations like HSUS have been working closely with the company, often to the chagrin of farmers who wonder why it’s collaborating with groups they see as anti-meat.

“You have to keep an open mind,” Jim Perdue, chairman of the 98-year-old company, said in an interview. “Their deal was about caring for the animals in a better way, which is something we had an interest in also.”

Humane Slaughter

That interest has played out into a corporate strategy that includes annual animal-welfare summits, regular auditing, multiple certifications, major upgrades to chicken housing and humane slaughter, and a commitment to meet customers animal welfare demands.

The moves, combined with its transition to antibiotic-free production, come at a time when chains like McDonald’s Corp. and Subway Restaurants joined Chipotle Mexican Grill Inc. in sourcing more humanely, and organic and higher welfare meats are now regulars in most grocery stores. Competitors like Tyson Foods Inc. offer these options now, too.

It’s paying off, both for the namesake lines and the subsidiaries. Perdue’s organic brand is its fasting growing. It now slaughters one million organic birds each week out of 13 million. Niman just committed to doubling its farmer network in the next 10 years. Coleman’s pork division alone reports a sales jump of $30 million in 2011 to $111 million this year so far.

Farmer Welfare

Strong branding had always made it a top seller in the coveted northeast region, where shoppers spend more money, said Jeremy Scott, a senior research analyst at Mizuho Americas. “Commitments on welfare help reinforce” that brand, he said.

But farmer advocates say Perdue has barely made a dent in the welfare of its farmers.

This all began with a 10-year process, spurred by consumer inquiries, to go antibiotic-free. Then Coleman’s organic chicken pushed Perdue further. “We do a lot of taste testing in our sensory labs,” Perdue said. “And we detected a difference.”

Following Coleman, Perdue added health-promoting herbs to the feed and enrichments, like windows and perches to barns to encourage more bird activity. Twenty seven percent of its farms now have them, and the company says all will by summer 2021.

Slower Growing

The company is lining up customers for its more active, healthier, slower growing breeds. “By the end of the year we will have some in commercial production,” Perdue said.

In pork, though, Niman Ranch, with its requirements of pasture or spacious bedded pens, sets the standards. Niman General Manager Jeff Tripician became senior vice president of Perdue Premium Meats in May, and now oversees Coleman, pushing it further toward Niman standards.

Coleman, whose hog operations were already antibiotic-free, now has American Humane Certification and is 100 percent crate-free, with zero gestation or farrowing crates—small stalls that don’t allow pregnant and lactating sows to turn around—on its farms.

“You lose production area,” Bart Vittori Sr., vice president and general manager of Coleman’s pork division, concedes, before wincing at the mention of the crates.

Higher Prices

That means higher prices for consumers, but higher pay for Coleman farmers, and a new set of customers, too. When Shake Shack’s growth outpaced Niman’s bacon supply, for example, Tripician introduced them to Coleman.

It required some animal husbandry changes on the supplying farms, but for Jeffrey Amoscato, vice president of supply chain at Shake Shack, that was part of the appeal. Today, 68 percent of Shake Shack’s bacon is from Niman. The rest comes from Coleman.

At Niman’s recent Hog Farmer Appreciation Dinner in Des Moines, Iowa, “I wouldn’t be farming hogs if it wasn’t for Niman Ranch,” was a common refrain. The pay structure, based on quality and production costs instead of commodity prices, offers an atypical stability.

Perdue said its improving farmer livelihoods, too. It’s facilitating communication, it says, and paying for the window installments, and running as contest for farmers to design new enrichments with a $5,000 first-place prize.

But the company still uses a tournament system, which proponents say encourages good animal husbandry but critics say pits farmers against each other in a zero-sum game they have little control over.

“Just trimming at the edges of the reality through small shifts in contract structure is not even close to where we need to be and to establishing more fairness in this industry,” Alicia Harvie, advocacy director at Farm Aid, said. A Perdue spokesperson said the organization doesn’t represent a significant number of its farmers and is not familiar with its policies.

Chairman Perdue, however, hinted that those policies, like its animal welfare standards, could change. “One thing we learned from Niman is that meat quality is one of the things that a farmer is paid” for, he said. “That’s one of the things we should be thinking about. So we’re very open to enhancing the existing payment system or replacing it completely.”

©2018 Bloomberg L.P.