The conditions in which some pigs destined for Tyson Foods (TSN +0.34%) live out their brief existences are tantamount to torture, and a group of shareholders has had enough. Today they filed a resolution asking that Tyson report on the financial and operational risks associated with the use by some of Tyson's suppliers of controversial gestational crates, which confine pregnant and nursing sows to such an extreme degree that they basically never turn around in their lives. Tyson isn't the first company to face shareholder activism on this issue, and is falling behind its peers in responding to animal welfare concerns.
The argument
The proposal -- filed jointly by The Humane Society of the United States and Green Century Capital Management, and co-filed by the United Methodist Church Benefit Board -- argues that Tyson may be in danger of losing market share if the company fails to respond to growing consumer demand for improved animal welfare standards. While it's hard to gauge how strong a signal consumers are really sending, it's certainly the case that many of Tyson's competitors and peers are eliminating some of their more egregious animal husbandry practices.
Costco (COST 3.17%) finally committed last year to phasing the practice out of its supply chain altogether, after pressure from animal welfare groups that included undercover video footage of pigs' suffering in gestation crates. Of course, Costco is giving its suppliers until 2022 to achieve the phase-out, but better late than never. Chipotle's (CMG 0.44%) "Food With Integrity" platform includes a 100% gestation crate-free pork-sourcing requirement. As more and more of the world's primary pork purchasers get on board, Tyson's foot-dragging looks increasingly out of touch.
In its animal welfare policy, Tyson argues that various veterinary groups condone gestational crates, and that the company is committed to humane animal treatment. Tyson punts by calling on the hog-farming industry to accelerate research into alternative methods. Other laggards have bemoaned the supposed increased cost of existing alternatives, but an Iowa State University study found not only that group housing -- the alternative to gestational crates -- did not increase costs, but in many cases actually saved operators money.
The threat
Though there's been an uptick in shareholder resolutions related to animal welfare, so far they have not enjoyed much support. The Humane Society's resolution on gestational crates with Seaboard (SEB 2.80%) last year only received 1% of votes in favor. However, other resolutions have had their effect without ever coming to a vote. The Humane Society withdrew its resolution with Sysco (SYY 2.88%) after the company agreed to eliminate the use of gestation crates in its supply chain. In this context, it's hard not to see Tyson as falling behind.
The proponents of the shareholder resolution argue that Tyson is failing to account for its customers' shifting priorities, and that this could compromise the company's competitiveness going forward. Research from the government of Canada supports the contention that consumers care more about animal welfare than ever before. In an October 2011 global market analysis, Canada's agriculture and agri-food research service reported the following:
Consumer concern for the welfare of farm animals has gained momentum alongside growing demand for animal-based products. Increasing food animal production due to growing, affluent populations, has encouraged further public awareness of this industry's linkages to health, safety, the environment and economic development. Appearing within more mature markets first, the trend is now global in scope due to the many stakeholders that are encouraging action on farm animal welfare.
Leslie Samuelrich, Senior Vice President at Green Century Capital Management, says "Tyson may be at risk of losing its market if it continues to ignore the changed economic landscape. Investors expect the company to act ethically and demand that it act sensibly."
It's extremely unlikely that this particular shareholder resolution will garner anywhere near enough support to become binding on Tyson. That's not the point. Rather, the company could be falling behind in an evolving competitive setting. That's just never good for any company.
