Jan 28

The meat industry's labor shotage is an onslaught by many conspirators, and a problem that will require many approaches. This is the fourth in a series of articles exploring labor issues in the meat industry.

Some call it the "Monday blues," those days at a meatpacking house when worker attendance commonly dips and drags on production. Managers don't exactly thank God it's Friday, either, for the same reason. Absenteeism on those days has come to be expected. It's nothing new.

But when 70 people, or about 10 percent of the workforce at Agri Beef's meatpacking plant in Toppenish, Wash., skipped work on the Friday following this past Thanksgiving, Brad McDowell was alarmed. 

"I have never seen in my entire career that many people gone," says McDowell. The president of AB Foods, Agri Beef's processing unit, his career in the industry spans nearly four decades. " And they were gone because they wanted a four-day weekend."

There's a one-two punch working against McDowell and his management team. One: many of the new hires they do manage to attract away from the region's less bloody, arguable more attractive fruit farm jobs aren't looking to settle down, work their way up and build a career in the meat industry to support families like employees or yesteryear; instead, they place greater value in "Me time." Two: the state of Washington is among an increasing number of those that are mandating paid sick leave.

"It's had an enormous impact on our operations," McDowell says. "It's caused us to have to change our production schedules, relook at our overall ability to achieve certain production levels and sales commitments and shipping commitments. It's had an impact on what we look like as we plan our business."

Ditto other beef, pork and poultry processors all over the country, and of all sizes. If Agri Beef, at more than $1 billion in sales, is the middle, consider a giant like Cargill also is trying to boost benefits to address the 1,000 unfilled jobs it reportedly has on any given Monday, and that RJ's Meats little retail shop in St. Paul, Minn., spent 98 percent of sales on a bad day in early December on labor after the city upped minimum wage to $15 per hour.

State laws and changing generational values in the workplace are just a couple of many factors conspiring to make labor the largest challenge facing the industry. A record-low national unemployment rate, hawkish immigration policies, competition for workers from other industries with similar or better pay rates, and short staffing in customer channels are piling on, too.

The hard job behind producing historic amounts of product is getting harder. Consumer demand is high, and consumers are highly demanding. They and meat industry customers increasingly need more specialization - and more of the work cut out for them. So far showing minimal restraint, however, the meat industry is more likely to accelerate its development of alternative solutions to its need for more hands now and rethink its structure to address overhead and efficiency issues in the future. Think everything from raffling off cars to re-sizing and focusing new plants on core competencies.

A macrocosm

Labor crunches in the meat industry, and those of many other industries, are at the most basic level an ironic result of a robust U.S. economy. Its health shows, for example, in a gross domestic product growth rate now at 3.5 percent, compared with the Great Recession nadir of -2.5 percent and the highest rate since 2014. It also shows in a decade-low unemployment rate of 3.7 percent, the bottom of a steady descent from the Great Recession high of 9.8 percent and the lowest since 1969.

Put simply, more Americans are working and fewer are available for hire.

In agriculture as a whole, the solution for decades has been new immigrants willing to do heavy manual labor on the cheap. But, as a recent Iowa State University study noted, the generations of immigrants that anchored the load for decades now are, like American baby boomers, retiring. And their younger generations are looking for other options here, if not remaining in their countries to enjoy improving economies there. Further exacerbating the issue, hawkish immigration rules under President Donald Trump have also drained on that end of the labor pool. They have manifested in the meat industry in Immigration and Customs Enforcement (ICE) raids this past year, for example, at Southeastern Provision in Tennessee and Fresh Mark in Ohio.

The current temperature isn't likely to inspire growth in the meat industry's foreign-born workforce, which is already slumping. The U.S. Census Bureau forecasts that pool will grow only 0.1 percent in the decade ending in 2020, compared with 0.6 percent growth in the decade that ended in 2000. The timing is unfortunate, as the meat industry still is adding more jobs - 35,000, or 8 percent more, in the past three years, according to Rabobank senior analyst Christine McCracken.

The industry is adding jobs because there's a hell of a lot of work to do. Consider that U.S. red meat and poultry production, as projected by the USDA, will have surpassed 100 billion pounds by the end of 2018 for the first time ever. Bolstered by efficiency gains in production and cheap grain prices, the industry is feeding growing appetites all over the world, particularly in Asia and Latin America, where rising income is growing a new middle class.

The historic production surge has forced the construction of many new large production facilities, particularly in the pork and chicken industries. The pork industry has created an additional 9.7 percent of the new processing capacity, and the chicken business is expected to add as much as 10 percent capacity in the next two years, according to McCracken.

Tight labor has tempered the ramp-up - but only to some extent. Seaboard-Triumph Foods' new Sioux City, Iowa, pork plant, for example, was forced to delay the start of its second shift this past fall for lack of full staffing, and chicken industry executives report anecdotally that some chicken plants built in the last two years still haven't reach full capacity due to labor constraints.

"My observation is any labor-related reduction in growth rates has been more than made up for in productivity gains," says Steve Meyer, a livestock economist and consultant at Kerns and Associates. "Our growth rate is such that it hasn't been a problematic limitation on growth." However, he adds that the labor issue will at some point become more restrictive on industry growth.

Particularly when full stains is an increasingly elusive concept. Meatpacking's less desirable occupational traits always have made attracting and keeping employees a tough task. But even with the industry's improvement in work conditions in recent years, with better ergonomics, space and lighting, for example, turnover is not he rise. According to McCracken, industry turnover is now up 2.5 percent weekly, compared with the historical 1 to 1.5 percent weekly industry turnover rate. However, some processors say anecdotally that turnover in their plant is as high as 100 percent on a yearly basis.

Let alone tough working conditions, a younger generation of workers is less apt to settle on a career anyway; 43 percent of millennials plan to leave their jobs within two years, according to a recent study by Deloitte. Meanwhile, competing industries offer similar or better pay and benefits. The high average hourly pay in construction, for example, is nearly $31, compared with meatpacking topping out at around $18, according to the Bureau of Labor Statistics.

Packers of all size are trying different ways, aside from just increasing wages, to lure and retain new workers. Cargill is trying to address quality-of-life issues such as providing near-plant health clinics, providing transportation to and from work, and lobbying politicians for money for affordable housing. AB Foods has even held drawing for a chance to win a new car. Smaller processors, according to Chris Young, executive director of the American Association of Meat Processors, are having some success with prisoners in work-release programs.

"Everybody is trying to find out and implement different types of incentive programs - a hiring incentive, a relocation incentive, a retention incentive, a longevity incentive, an attendance incentive," McDowell says. "Everyone is trying some form of those. They never existed 20-plus years ago. And probably unilaterally I would say that most people would tell you that their success with these is limited."

Quality Concerns 

The problem ultimately isn't just one of quantity, the numbers of workers and pounds. When a staff lacks experience on a kill floor or in a fabrication room, it becomes a quality issue, too. And that's something that customers - whose own staffing issues requires meat products portioned, packed and ready to cook - have begun to notice a difference.

"There are some jobs within the industry that are fairly highly skilled, so it really hurts when [packers] can't get those people," says Derrell Peel, an extension livestock marketing specialist at Oklahoma State University. "We've heard from some foodservice people that they are seeing more problems with the quality of the work. They're rejecting an increased number of shipments. It's both quantity and quality that's an issue in terms of these labor constraints."

When the AB Foods plant was missing 70 people the day after Thanksgiving, the plant was in a precarious situation. In some cases, a department with, say, 10 people, was missing three or four workers, which compromised their capabilities.

"It clearly increased our challenges in terms of maintaining product consistency, spec quality, production efficiencies, maximizing throughput - all those core fundamentals that drive a packing plant," McDowell says. "The foundation of how we run these things has been shifted, weakened and challenged as a result of the inability to have confidence - day in and day out - in a predictable work force."

New strategies

Packers are left to rethink how they operate. They come in the form of setting production schedule weeks in advance; all but gone are the one-day notice, Saturday shifts triggered by marked signals for more product. And then it's a matter of choosing what to produce, particularly as retailers and foodservice customers get out of the business of meat cutting.

As Peel explains, packing plants are under pressure to do more cutting, more further processing at the plant level, but that requires more laborers. If it can't be done at the packer level, they must then ship it to another facility. The other facility then produces some trim in the process, but that trim isn't as fresh as it would have been had it been manufactured at the packing level and so it has to be deployed in to cooking programs. It's a costly, lose-lose situation in a tight labor market. 

McDowell says packers see potential value in the value-added, further processing realm, but it's tough to do when you're short on labor. Automation is an increasingly inviting option. In some functions, it's too expensive, but there surely is some movement that way as it relates to materials handling. Equipment suppliers are now even right-sizing some machines for the smaller shops, AAMP's Young says, noting that a roll stock machine "can package in one day with two people what would take three or four days with five or six people."

"We and others are lookin at evaluating what should our core competences be," McDowell says. "Do we want to be involved in sanitation, further processing or push that into a different facility? Do we push it off to somebody who wants to specialize and take that component out of packing so we can focus on labor and core competences?"

McDowell sees the tight labor pool for meatpacking continuing, even if the economy were to dip, and so that might change packers' growth strategies, as well. "There's an awful lot of merit" in the idea that companies might choose to expand their asset base with smaller plants that would benefit from lower overhead costs and increased engagement between workers and management.

"I honestly believe now that you can do it at a cost structure that would be competitive with anything big. In fact, I know we can," he says. "Knowing what I know today and knowing what I've experience in the last four decades, I think starting up a plant that has 200 or 250 employees would be far better, far more successful and far more pleasant than starting up a plant that's going to require 1,000 plus employees."

On top of what type of plant to build, where to build is another crucial consideration. And companies, says Tom Elam, a broiler industry expert and president of FarmEcon LLC, have been marking good decisions. Among new plants in the works are Lincoln Premium Poultry in Fremont, Neb., Sanderson Farms in Tyler, Texas, and Tyson Foods in Humboldt, Tenn.

"Those are going in areas where they'll be able to find enough farmers to raise chickens and enough people to work in the plants," Elam says.

He adds, "So far [tight labor"] hasn't had a significant impact on chicken processing capacity, but it's more of headache that keeps those plants running with well-trained workers. I don't think it's raising costs significantly or causing inefficiencies." 

Still going...strong?

Elam says the broiler industry will still have raised production by 2 to 3 percent in 2019 and will repeat that growth rate in 2019. More of a constraint than labor, the industry just hit a record-low for boneless skinless breast meat, the result of higher bird weights and yields that have "basically taken a premium product and turned it into a commodity product," he says.

Looking at the beef market, Peel notes that 2018 saw the industry slaughter 4 million more head of cattle than it did in 2017, but the industry is "plateauing." In other words, the cow calf sector isn't strong enough for ranchers to be aggressive but it isn't weak enough to force any sort of liquidation.

"The things that worry me more are external to the beef industry," Peel says. "The U.S. macro economy is strong, but we're also being pounded by trade wars, tariffs, and political tension that at some point are going to have more of an impact. You could be looking at trimming U.S. and global GDP. Most analyst have shaved some off of that performance for the next couple of years as a result of that. Some impacts we haven't seen yet; it doesn't mean they're coming."

As for pork, Meyes says so far the labor crunch doesn't appear to have been too much of a drag on that industry's growth rate. Production grew almost 3 percent in 2018 from 2017, and the latest USDA projection is that it will grow 5 percent in 2019.

"In the pork industry, so far we've been able to handle and overcome [tight labor] at the production level with production efficiencies and larger litters, and at the packer level it's been a mix of efficiency gains in the mechanization," Meyer says. "I'm still very concerned about it. Beyond government regulations, the most limiting thing I see in our industry is labor quality and availability. We've kind of danced around it so far."

Source: Meatingplace, January 2019 Issue


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