Dive Brief:
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Sanderson Farms claimed in a regulatory filing that the U.S. supply of antibiotic-free (ABF) chicken has outpaced demand, according to Reuters. For the first 10 months of last year, antibiotic-free chickens comprised an average 40.5% of total fresh chicken production but only 6.4% of sales, the company said. However, Reuters noted that Sanderson wouldn't give a source for those numbers.
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Mike Cockrell, Sanderson Farms' chief financial officer, told Reuters that appropriate antibiotic use can improve animal welfare and allows the meat giant to "produce a product at a more affordable price point."
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The company faces a Feb. 15 shareholder vote on a proposal that it transition to antibiotic-free chicken — the second time the issue has come up, according to Meat and Poultry. More than 30% of Sanderson's shareholders supported such a proposal at the 2017 annual meeting. While company officials are again recommending a "no" vote, they have developed "a detailed contingency plan" to transition to antibiotic-free chicken within a year if necessary.
Dive Insight:
Consumer interest in antibiotic-free chicken is growing amid concerns that drug use in food animals could lead to antibiotic resistance in humans. This trend has prompted meat producers to make changes in their supply chains to reduce or eliminate antibiotics altogether. Poultry processors have applied a number of alternatives to antibiotics to treat sick birds and prevent the spread of disease, including improved feed products and enhanced animal handling and management practices.
Just three years ago, some in the poultry business said that phasing out the routine use of antibiotics would raise costs too much for them to remain in business, Reuters reported. But Tyson Foods, Pilgrim's Pride and Perdue Farms — plus the McDonald's, KFC and Chick-Fil-A restaurant chains — have all committed to reducing or removing antibiotics from their chicken supply.
Sanderson is the last major U.S. poultry producer to use antibiotics. The company has embraced this practice as a market differentiator, launching a campaign that accuses antibiotic-free competitors on relying on "gimmicks" to hike prices. The ad series also seeks to educate consumers about why Sanderson chooses to inoculate its birds, arguing that the threat to human health is overblown.
"ABF products are more expensive to produce and appeal primarily to shoppers at high-end specialty stores," the company stated in its regulatory filing. "We do not market our product to these kinds of stores or to restaurants that have adopted ABF menu items. Further, we believe the market for ABF products is currently oversupplied, and supply and demand dynamics have worsened."
Sanderson's resistance to phasing out antibiotics doesn't seem to have impacted sales. In its most recent earnings report, the Mississippi-based company posted net sales of $931.9 million — up from $729 million a year before.
Despite the ongoing debate, consumers continue to be interested in naturally-raised protein — particularly breast meat. The antibiotic-free chicken market is "mainly limited" to that part of the bird, Rabobank animal protein analyst Christine McCracken told Reuters. As a result, Sanderson said, antibiotic-free producers have to sell other parts of the bird, including wings, against lower-priced meat from conventionally raised chickens — putting them at a disadvantage.
Antibiotic use in food animals declined in 2016, according to a recent annual report from the U.S. Food and Drug Administration. This marks the first decrease since the agency began reviewing how disease-fighting agents are used in cattle, swine, poultry and other products in the U.S.
Sanderson's annual meeting in mid-February should be an interesting one. Meat and Poultry News reported that the company's leaders had contacted shareholders representing about 70% of outstanding stock to explain the continued use of antibiotics and to solicit feedback. It seems that last year's vote, which fell short, was enough to prompt the contingency plan. Time will tell if the plan is put into action and how that switch could impact Sanderson's sales, profits and its stock.