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All I have to do is reference the case study (pdf document) below to answer the 6 questions on the word document! As long as the answers are around 2 paragraphs of sufficient, valid information that will fulfill the questions asked it should be good… I’m thinking the whole thing can be between 3-4 pages max. Unfortunately we weren’t provided with a grading rubric but if the requirements listed above are met, it should be good to go!
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FSM4160 – Food & Beverage Strategies & Logistics
Perdue Case Study Questions
Answer the following questions as they relate to the Perdue Case Study assigned in class.
1. Should Perdue Farms proceed with eliminating antibiotic use in its hatcheries by
weighing the given costs? What is the connection between profits per bird and using
antibiotics?
2. Does Perdue have a moral or societal obligation to eliminate antibiotics from its poultry
given the public health concerns associated with their use? Use the case details to
reinforce your position. Is it about public relations?
3. Should Perdue advocate for higher standards in the poultry industry or differentiate its
own product by going antibiotic-free?
4. What is the role of the government where corporate interests intersect with pivotal
industries like food? Given the political climate regarding reducing the use of antibiotics,
should Perdue simply adhere to mandatory government relations regarding their use?
5. Detail how a decision to raise consumer costs to pursue an antibiotic-free initiative would
be assessed by the various stockholders in the processing firm.
6. Create a proposal that demonstrates how Dr. Stewart-Brown would persuade Chairman
Jim Perdue to make industry-leading changes toward antibiotic-free poultry.
case 1-429-418 February 27, 2015
Perdue Farms Inc.: Antibiotic Use in
Hatcheries
Dr. Brady Smythe,​i ​senior vice president of food safety, quality, and live operations at Perdue
Farms Inc., was on his way to a meeting to discuss the use of antibiotics in Perdue’s hatcheries
with company executives, including Chairman Jim Perdue, the grandson of the company’s
founder.​1 ​Thinking about his role in food safety and quality oversight, Smythe felt the mounting
pressure from health organizations and consumer groups to reduce antibiotic use in the
company’s chicken hatcheries;​2 ​however, previous attempts to do so had failed.​3 ​Perdue Farms
had discussed reducing antibiotics in 2002, with a completed phase-out of growth-promotion
antibiotics occurring in 2007.​4
Despite this initiative, the company remained distant from its goal of completely eliminating
antibiotic use from its hatcheries. Smythe was experienced in prescribing antibiotics to hatcheries
and understood the effects on the birds and overall food safety. Having worked as both a poultry
veterinarian and a health services director throughout his tenure with Perdue, Smythe was now
responsible for managing the overall health of chickens and turkeys in all Perdue hatcheries.
Included in his responsibilities was the design and oversight of drug programs that treated
company animals for illnesses, which usually involved the practice of administering antibiotics.
Smythe pondered what to present to company executives. He considered there was a case to be
made for eliminating antibiotic use in Perdue hatcheries, but was now the appropriate time to
undertake such an endeavor? Eliminating antibiotic use could provide an added risk to Perdue’s
profitability due to its likely cost to the company. However, there may also be a marketing
opportunity to advertise the elimination of antibiotics, which would benefit the company’s public
relations with many health organizations and consumer groups calling for reduced antibiotics.
With this to think about, Smythe wondered if Jim Perdue would be receptive to such a change
that could affect the quality of the food products Perdue sold. As Smythe prepared his talking
points, he questioned what the responses from company executives might be. ​i Dr. Brady Smythe is a
pseudonym created to disguise the identity of the case protagonist.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. ©
​ 2015 Julia
Ruedig, Jeremy Good, Sijia Scarlett Qiu, Meredith Reisfield, and Alexander J. Thompson. This case was written under the
supervision of Andrew Hoffman, the Holcim professor of sustainable enterprise, by graduate students Julia Ruedig,
Jeremy Good, Sijia Scarlett Qiu, Meredith Reisfield, and Alexander J. Thompson at the University of Michigan. This case
was created to be a basis for class discussion rather than to illustrate either the effective or ineffective handling of a
business situation.
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Perdue Farms Inc.: Antibiotic Use in Hatcheries ​1-429-418
Company
Background
Perdue Farms has remained privately held and family-run since its founding in 1920 by Arthur
Perdue and his wife, Pearl. Beginning with only the sale of eggs, Arthur Perdue moved into
selling both chicks and layer chickens to expand business operations. Arthur’s son, Frank
Perdue, joined the business as the budding organization’s second employee in the 1930s, just as
operations were beginning to gain the trust of local farmers as a family-oriented business. The
operation steadily grew over the next several decades.​5 ​Frank Perdue incorporated A.W. Perdue
& Son in the 1950s and began operating the company’s first poultry processing plant in Salisbury,
Maryland, in 1968.​6
Despite growing up with the family-oriented Perdue Farms, Jim Perdue did not initially think he
would end up working there. Instead, he pursued a Ph.D. in fisheries with the dream of becoming
a marine biologist. However, once out of school he was offered a job with Perdue Farms, which
he ultimately took. Working his way up the company ladder, Jim Perdue became chairman and
advertising spokesman in 1991. Since then, Jim has upheld the family values set forth by his
father and grandfather in running Perdue Farms, stating that he was “proud of [Perdue Farms’]
heritage and proud to be carrying on [its] commitment to quality.”​7
In 2010, the corporate structure of Perdue Farms changed. A holding company, FPP Family
Investments Inc., owned by the Perdue family, had become the controlling entity for Perdue
Farms.​8 ​By 2011, Perdue Farms had grown to become the third-largest company in the American
chicken processing industry, with annual sales in excess of $6 billion and 3.13 billion pounds of
ready-to-cook broiler meat produced annually.​9
The Poultry
Industry
The US poultry industry had consolidated over time among processors and, to a lesser extent,
poultry growers. From the 1960s to the 1980s, local and regional poultry processors declined and
had nearly vanished, leaving market control to a handful of large companies that dominated the
competitive landscape.​10 ​In the 1970s, as many as 36 companies were responsible for 50% of
total poultry market share.​11 ​By 2013, three companies, Tyson, Pilgrim’s Pride, and Perdue
Farms, accounted for about half of US chicken production (see ​Exhibit 1​).​12 ​These poultry
mega-processors were highly vertically integrated and controlled breeding, hatching, processing,
and marketing functions.​13 ​In general, processors used short-term contracts with poultry growers
to raise birds from chicks to adults of slaughtering weight.
With the radically changed processing industry, poultry growers had changed substantially as
well. Prior to 1990, a family farm may have hosted a couple of chicken houses in conjunction with
other farming operations, such as dairy. With the consolidation of processors, the pressure to
provide low-price production contracts forced smaller producers out of the market due to the lack
of an economy of scale that a larger operator could achieve. Despite the increasing scale of
producers, there was little opportunity for any to exert significant influence on the market. This
was partly due to chickens being a commodity product and the existence of a large number of
producers competing for contracts with large poultry processors.​14
The poultry industry faced volatile revenue streams (see ​Exhibit 2​). Revenues were highly
dependent on grain prices (feed) and affected by disease outbreaks. For example, in 2006 the
avian flu epidemic significantly reduced demand for poultry, causing industry revenue to drop by
8.3%.​15 ​Concurrently, the overall financial outlook with demand for the poultry industry was
positive, largely due to the expectation that meat consumption in the United States would
continue to rise.​16
2
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Perdue Farms Inc.: Antibiotic Use in Hatcheries ​1-429-418
Exhibit ​
Perdue’s ​Market ​Market ​
Exhibit ​Share ​Share 1

1​
in 2013 ​in 2013
Other
47%
The author adapted the information in Exhibit 1 from the source: “Tyson Fact Book.” Tyson. Tyson Foods Inc., 2014. Web. 2 Dec. 2014.
.
Poultry
Exhibit 2 ​
Industry
Revenue
Revenues ​20
15
10
5
0
-​-15
-​-20
2006

-​-5
-​-10
2008
2010
​Poultry Industry
2012
2014
2016
2018
2020
The author adapted the information in Exhibit 2 from the source: McKitterick, Will. “Chicken & Turkey Meat Production in the US.” ​IBIS World Reports​. IBISWorld, n.d. Web. Sep.
2014.
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Perdue
Farms
7%
Tyson
Foods
Pilgrim’s
Pride
Sanderson
21%
18%

7%
3
Perdue Farms Inc.: Antibiotic Use in Hatcheries ​1-429-418
As shown in ​Exhibit 3​, the largest cost category for the poultry industry were purchases, which included
chicken feed inputs, antibiotics, and buying chickens from hatcheries in cases of nonintegrated growers.
The cost of medications and vaccinations accounted for approximately 2.16% of total production costs.​17
Poultry
Industry
Exhibit 3 ​Poultry Industry ​Percent
Cost
of
Breakdown
Revenue
Cost Structure (percentage of revenue)
Pro^it
Wages
Purchases
Depreciation
Rent
&
Utilities
Other
r adapted the ​The IBISWorld, ​information ​author n.d. adapted Web. the Sep. information 2014.
in Exhibit i​ n Exhibit 3 ​3 f​ rom ​from t​ he source: ​the M​ cKitterick, ​source: W​ ill. “Chicken ​McKitterick, ​& Turkey Meat Production ​Will. ​in
“Chicken t​ he US.” ​IBIS World ​& R​ eports​.
Turkey
Perdue Farms Industry Competitors
Tyson​Based in Arkansas, Tyson was the largest US-based poultry producer, with an output of 21% of the
nation’s ready-to-cook chickens by weight.​18 ​Tyson contracted with 5,500 family poultry farms in over a
dozen states and had significant market shares in the beef, pork, and poultry markets, making it a
formidable player in the meat industry.​19 ​Tyson possessed enough market influence in late 2008, when
poultry demand decreased and feed prices increased due to the national financial crisis, to enact a
20-cent rise in chicken market prices by cutting its output by 5%.​20
Pilgrim’s Pride
Pilgrim’s Pride was the second-largest chicken producer in the United States. Unlike Tyson, Pilgrim did
not handle the 2000s recession well and filed for bankruptcy in late 2008.​21 ​Brazil-based JBS S.A., which
was the world’s largest meat producer, gained a majority stake in Pilgrim’s Pride operations in September
2009.​22
Sanderson Farms​23
Sanderson Farms was a Mississippi-based company that had an almost equal domestic market share as
Perdue at 7%. Sanderson’s retail distribution focused in the southern US region, where a majority of its
products were used by prepared-food companies, resulting in an end product under a less-recognized
brand name than Perdue. Also similar to Perdue, Sanderson had strong original-owner ties as its
chairman and CEO were third-generation family members. Unlike Perdue, Sanderson was a publicly
traded company. As with other major poultry players, Sanderson was vertically integrated, controlling
hatcheries, feed, and all other aspects of poultry raising and processing.​24
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19%
5%
19%
17%
33%

​7%
4
Perdue Farms Inc.: Antibiotic Use in Hatcheries ​1-429-418
Antibiotic Use in
Poultry
Origins of Antibiotic Use in
Poultry
In the mid-1950s, agricultural scientists discovered that antibiotics could improve animal growth.​25
Feeding low doses of antibiotics to chickens led to larger birds with a lowered rate of disease that
arose from the conditions of industrial-scale farms,​26 ​such as coccidiosis, a parasitic disease
found in animal intestines.​27 ​Antibiotics were useful in preventing infections post-vaccination. The
use of antibiotics surged when the poultry industry began vaccinating chicken embryos for the
prevention of Marek’s disease, which was a deadly herpes virus commonly found in chickens.​28
Current Industry
Practices
Eighty percent of all antibiotics used in the United States in 2013 were given to livestock.​38 ​As of
2014 estimates, roughly 30 million pounds of antibiotics were sold annually for animal
agriculture.​30 ​Antibiotics were used on poultry for therapeutic use for the treatment of diseases,
prophylactic use to prevent disease, and to enhance production by increasing the growth rate and
feed efficiency. According to the National Academy of Sciences, the majority of antibiotics were
used prophylactically or to enhance chicken meat production.​31
In hatcheries, both antibiotic feed and injections were used to increase the survival rate of chicks.
“Poultry producers incubate[d] eggs for 21 days…in a temperature-controlled environment.” On
day 18, the eggs were transported to a hatchery and injected with vaccines that prevent two
common diseases. Those injections left a hole in the eggshell, leaving it exposed to potential
infection. To combat this, the use of the antibiotic gentamicin was deployed to prevent infection in
the hatchery. Purdue Farms previously tried to discontinue the use of gentamicin in its hatcheries
in 2002, but many of the chicks became infected with disease and died.​32 ​This led to a higher cost
in the hatchery production stage for Perdue Farms.​33
Antibiotics were administered via chicken feed in hatcheries and throughout all other phases of
poultry growth. This was standard practice at five major poultry companies: Tyson, Pilgrim’s,
Perdue, George’s Inc., and Koch Foods.​34 ​While the growing of poultry was contracted out, these
five companies maintained complete control over both the growing environment and inputs used
by their respective growers. Thus, several antibiotic varieties were commonly used in low doses
in animal feed.​35
Health Concerns with Antibiotic
Use
Since the mid-1970s, scientists have raised concerns about the potential for overuse of antibiotics
in livestock. The use of antibiotics at low doses for growth promotion rather than for the purposes
of treating illness was at the core of those concerns. This regular antibiotic administration to
poultry ultimately led to the emergence and spread of antibiotic-resistant bacteria. A 1976 study
by microbiologist Stuart Levy displayed that potentially deadly bacteria from poultry had
developed resistance to many antibiotics. For example, E. coli was a resistant bacterium easily
transmitted from poultry to humans.​36
As scientists with the US Centers for Disease Control and Prevention (CDC) explained, “the use
of any type of antibiotic, not just medically important ones, contribute[d] to resistance…Whenever
an antibiotic [was] administered, it kill[ed] weaker bacteria and enable[d] the strongest to survive
and multiply.”​37 ​Frequent use of antibiotics in low doses intensified the effect, creating the risk that
any resulting bacteria might develop cross-resistance to medically important antibiotics. Since
many of the antibiotics used in raising poultry were also used with humans, the risk of high
drug-resistance prevalence in humans increased.
5
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Perdue Farms Inc.: Antibiotic Use in Hatcheries ​1-429-418
Antibiotic-resistant bacteria had the potential to spread directly from the farm or from the
consumption of a meat product. A ​Consumer Reports s​ tudy from 2014 tested chicken from US
supermarkets and found multidrug-resistant bacteria present “in about half of the chicken…tested,
from stores across the country… [where] 49.7 percent of [the] samples contained at least one
multidrug-resistant bacterium, and 11.5 percent had at least two” (see ​Appendix A​).​38
Public Health Advocates Pressuring for Reduced
Antibiotic Use
The poultry industry faced mounting pressure from public health advocates to reduce antibiotic
use for poultry growth. The CDC estimated in September 2013 that each year, a minimum of two
million Americans become sick from antibiotic-resistant infections, and at least 23,000 die from
their infections.​39 ​The CDC criticized the use of antibiotics in meat production, calling the practice
“unnecessary” and “inappropriate.”​40 ​According to the World Health Organization, the total annual
bill in the United States to fight antibiotic- resistant infections was estimated between $21 billion
and $34 billion.​41
These statistics prompted the first changes to US Food and Drug Administration (FDA) policies
on antibiotic use in meat production in almost 20 years. The new policy, proposed in 2012, would
phase out the broad-based use of antibiotics in cows, pigs, and chickens raised for meat, and
required that licensed veterinarians supervise the use of antibiotics, effectively requiring farmers
and ranchers to obtain prescriptions to administer the drugs to animals.​42
Then in December 2013, the FDA asked 26 pharmaceutical companies to discontinue the use of
pharmaceuticals for treating infections in humans as an acceptable method to increase growth
production in animals. The 26 firms had the option of withdrawing the use of these
pharmaceuticals entirely for animal use or changing the labeling so use was limited to
administration to animals after a prescription was obtained from a veterinarian.​43 ​Some consumer
health advocates were skeptical that the new regulations would reduce the amount of antibiotics
consumed by animals. They pointed to a loophole that allowed animal producers to keep using
the same low doses of antibiotics, thereby evading the FDA-promoted phase-out of antibiotics, by
asserting that the antibiotics were needed to keep animals from getting sick.​44
Consumer Demand for Antibiotic-Free
Brands
Consumer demand for antibiotic-free meat increased in accordance with the public’s awareness
of antibiotic use by poultry suppliers and the risks related to multidrug-resistant bacteria.
According to a ​Consumer Reports s​ urvey, 86% of customers claimed that antibiotic-free meat
options should be available in local supermarkets and more than 60% agreed with a willingness
to pay at least five cents more per pound for it. In addition, nearly 40% polled claimed a
willingness to pay $1 or more per poultry pound.​45
Perdue Farms and Tyson Foods responded to this market shift by offering antibiotic-free chicken
brands. Perdue’s first advertising campaign for its antibiotic-free product line, known as
Harvestland, launched in February 2014, urging consumers to “eat like our ancestors.” In a
similar move in the fast-food industry, Chick-fil-A announced in February 2014 that it would
completely phase out the use of chickens raised with antibiotics within five years. As Urvashi
Rangan, director of the food safety and su …
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