Walmart Develops Angus Beef Supply Chain; Implications for Egg Producers?

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Pressure on the major supermarkets by Amazon Prime and deep discounter Aldi has resulted in the mega-chains reevaluating their business models. Walmart Stores has announced the result of a two-year program to build a supply chain for Angus beef to be sold in 500 southeast stores. This initiative obviously bypasses current major suppliers including Tyson Foods and Cargill.

According to Scott Neil, Senior Vice President for Meat, Seafood and Fresh Quality Control stated that the Angus beef supply chain is “an opportunity to look at it from end to end”. The program will include 44 farms and 6 Cattle Feeders in Texas. Creekstone Farms operating a slaughter plant in Kansas and a packing plant owned by Walmart to be operated by FPL Food will process cattle.

The action by Walmart follows the opening of a milk processing facility in Indiana that commenced operation in 2018 displacing Dean Foods as a major supplier. The Liberty Foods broiler complex financed and dedicated to Costco in Nebraska is a parallel development in which a retailer has integrated back into the supply chain.

If this trend continues, it is highly probable that Walmart, Kroger or Costco, may consider entering egg production through the purchase of an existing producer or developing a strategic partnership to eliminate intermediaries and stabilize prices into their DCs.

Given that many producers are now obliged to replace obsolete cage units with aviaries or other alternative systems requiring capital investment, retailers may determine the benefit of an inexpensive acquisition or financing conversion to secure a steady supply of eggs at a predetermined cost irrespective of market fluctuation. The only deterrents to integration would be considerations such as diversion of capital to farm production, becoming involved in management and assuming risks of disease and natural disasters.

 

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