Attorney Bill Marler Contrasts the “Blue Bell Licker” with Blue Bell Management Over Listeriosis


EGG-NEWS strongly supports the opinion of Attorney Bill Marler, an experienced legal practitioner with a practice concentrating on litigating food safety claims. Marler entered the field in 1993 following a series of Jack-in-the-Box STEC cases involving as many as 750 children, many of whom developed hemolytic uremic syndrome.

At issue is the disparity in potential penalties facing a juvenile in Lufkin, TX. and the management of Blue Bell Creameries responsible for a listeriosis outbreak in 2015. The Lufkin case involves a juvenile licking the top of a container of Blue Bell ice cream taken from a supermarket freezer. Unfortunately for the perpetrator, the posted video went viral and resulted in a police inquiry. In the interest of public health, the store was forced to remove all containers of Blue Bell ice cream from the freezer at relatively high expense.

If the perpetrator were an adult, penalties for deliberate "adulteration" of a food could run to twenty years of incarceration. In the present case, the perpetrator and a number of copycat successors will probably face less severe penalties under the Texas juvenile justice system.

The principal contention advanced by Marler is that a prank might result in a multi-year prison term if the accused were to be found guilty of a felony. Marler contrasts the Lufkin case to the Listeria outbreak precipitated by contaminated Blue Bell ice cream in 2015. The investigation of the outbreak was documented in both EGG-NEWS and CHICK-NEWS. (Retrieve by entering Blue Bell in the Search block). A total of ten consumers were diagnosed with listeriosis in four states resulting in all being hospitalized and including three fatalities in Kansas. In April 2015, Blue Bell Creameries recalled all products on the market and effectively ceased operation in three locations in Texas, Oklahoma and Alabama. The financial impact on the family-owned company was extreme and subsequently ownership and management were replaced.

The CDC and FDA investigations disclosed grievous deviations from acceptable production standards in all three plants. These included

  • inadequate microbial testing to detect Listeria which could be reasonably expected to be a contaminant of dairy products

  • failure to train employees in appropriate food handling procedures

  • deficiencies in design of buildings and equipment contributing to condensation and environmental contamination

  • insufficient cleaning and sanitizing of equipment and work areas including food-contact surfaces

There was evidence that management was aware of the presence of Listeria in plants, but neglected to apply appropriate corrective measures. These deficiencies rise to the level of deprived indifference to public health. The outbreak of listeriosis with consequential fatalities was inevitable given the violations in all three of the Blue Bell Creamery plants. The extent of infection was either known or should have been known to quality control personnel, their supervisors and extending upwards to the top management of the enterprise.

Marler clearly points out the inconsistency of police action following a stupid prank staged for social media and the far more serious implication of a company knowingly or negligently distributing a product contaminated with a potentially lethal bacterial infection.

To date, no Blue Bell manager or officer has been charged with any crime although there are parallels to the DeCoster-precipitated outbreak of egg-borne Salmonella Enteritidis in 2010. The Blue Bell Creamery listeriosis case also has parallels with the 2009 Peanut Corporation of America Salmonella outbreak that resulted in prolonged prison terms for the owners and also for production and QC personnel since fraud and falsification of assay results were involved.

Bill Marler might be regarded as an irritant by food processors, but his professional endeavors have created a higher concern for food-borne infection His legal activities have raised the standard of prevention in plants and stimulated more forceful responses by regulatory agencies to protect consumers.


Egg Industry Center to Fund Research on Air Quality in Aviaries


The Egg Industry Center will offer challenge grant awards to develop proposals to investigate air quality in a aviaries. The issue arises from 2016 data collected by scientists conducting a research project comparing conventional cages, enriched colonies and aviaries under the auspices of the Coalition of Sustainable Egg Supply. In the event, the study was seriously flawed by high mortality in the pullets transferred from rearing to the laying aviary. This was a function of mismanagement, incompetence and a disinclination to follow the advice of specialists. Early mortality as a result of dehydration, persecution obviously impacted the financial return from the aviary group.

EGG-NEWS commented adversely on the results obtained by the scientists concerned and advised that the calculated financial return should have been adjusted to account for mortality. The only conclusion that could have been derived from the study was that dead hens do not lay eggs.

The selection of air quality which the EIC Advisory Board considered “a challenge” is in all probability spurious. Effective ventilation in houses or compartments containing upwards of 100,000 hens, if adequate in terms of fan capacity and with effective control systems is not responsible for either particulate contamination or ammonia levels which are injurious to flocks or caretakers.

There are far more important aspects of aviary housing which should be evaluated. Based on experience, shell damage is an important consideration with some operations experiencing in excess of 15 percent downgrades. Investigation shows interactions between strain, equipment design, lighting, management of the flocks and operation of egg collection and rate of grading.

Each one percent increase in shell downgrades on a complex of one million hens represents a loss of $250,000 annually given an average of 80 percent hen-week production and a nominal nest-run value for cage-free eggs of $1 per dozen.

Shell damage in aviary housing is a complicated issue and may involve defects in the design and installation of curtained nesting areas; transport of eggs on belts over distances exceeding 400 feet; damage on elevators which may move eggs among four levels and the design and operation of graders extending from accumulator tables through to crack detection.

Soiling of eggs may be a substantial cause of downgrading. This is in part due to floor laying. Surely research should be extended to causes and prevention of the source of loss through downgrades. The intensity and spectrum of light, positon of lamps in aisles, strip lighting on tiers  and under-module illumination should be evaluated to provide appropriate recommendations to producers as they transition from conventional cage housing in high-rise units to modern aviaries.

There is little work on the welfare and production aspects of multi-tier aviary installations. It appears that the industry is moving from three-tier to two-tier configurations, that with limited experience reduce the tendency of flocks to concentrate on the highest level where there is imperfect visualization of flocks and imbalanced stocking density within the house.

 If the Egg Industry Center assigns a considerable sum of money to a consortium to evaluate air quality, which may in fact not be a problem, other more pressing and financially significant problems associated with aviary housing will be neglected. In any event, the time required to plan and execute a field trial on the atmosphere of aviary houses and the prolonged period for scientific groups to analyze and publish their results will be of little immediate benefit to the industry. The proposed study will not contribute to the mission of the EIC, which is to acquire and disseminate science-based information for the benefit of producers.


Bill to Restrict Authority of the President on Tariffs Introduced


Rep. Stephanie Murphy (D-FL), a member of the House Ways and Means Committee, Trade Subcommittee has introduced the Reclaiming Congressional Trade Authority Act.  This would limit the authority of any administration to impose tariffs on national security grounds to a duration of 120 days unless confirmed by Congress. The proposed legislation would encompass Section 232 of the Trade Expansion Act of 1962, the International Emergency Economic Powers Act or the Trading with the Enemy Act . The Trade Authority Act introduced into the House parallels similar legislation in the Senate introduced by Sen. Tim Kaine (D-VA).


The Bill would require any administration to provide Congress with the objective of any proposed tariffs imposed under Section 301 of the U.S. Trade Act of 1974.  Congress would be able to block tariffs through a joint resolution of disapproval.


Legislation restricting the powers of the President to unilaterally impose tariffs is supported by the National Retail Federation.  The Senior Vice-president for Government Relations, David French commented, “We agree with the need to deliver fair and balanced trade deals but taxing Americans isn’t the answer – especially without a single vote from Congress.”  He added, “This legislation represents an important step forward.  We urge members of both parties to join this effort and protect hard-working Americans from a growing trade war that could destroy thousands of jobs and raise costs for families across the country.”


The National Retail Federation is a leading opponent of tariffs emphasizing that they are effectively taxes imposed on consumers.  Tariffs also increase the cost of parts and materials used to manufacture items in the U.S., reducing company margins and eventually leading to layoffs.


Prior to the June meeting between President Trump and President Xi at the G-20 Summit in Osaka, the National Retail Federation determined that the proposed tariff on an additional $300 billion on goods imported from China would add $4.4 billion annually for apparel, $3.7 billion for toys, $2.5 billion for footwear and $1.6 billion for household appliances.  Currently tariffs of 25 percent have been imposed on $250 billion in items imported from China.  These tariffs will remain, the proposed tariffs on the additional $300 billion in imports has been deferred while trade talks continue.


China has indicated that some concessions on structural issues will be offered in negotiations but progress will only be made if existing tariffs are relaxes or rescinded. It appears that the trade dispute has assumed the proportions of a stalemate to the mutual detriment of both nations.


Disruption in Services Anticipated From ERS Relocation


On June 25th, Liz Crampton writing in Politico reviewed the impact of the proposed relocation of the USDA Economic Research Service from D.C. to a new facility in Kansas City. It is intended that the new center in Kansas will be operational on September 1st

The American Federation of Government Employees representing workers at the Economic Research Service (ERS) and the National Institute of Food and Agriculture (NIFA) estimate that two out of three employees are determined not to move. The USDA has decided that 76 ERS personnel will remain and 200 positions will be moved to Kansas City. For NIFA, 294 positions out of 315 will be relocated to Kansas City.

Of significance is the fact that none of the personnel in the Information Technology Infrastructure have any intention of moving and will remain in the Washington, D.C. area in new positions for which they are suited, possibly outside government.

Approximately 90 percent of employees surveyed in the Resource and Rural Economics Division and the Food Economics Division have indicated that they do not wish to move. It is assumed that a similar proportion of employees inside NIFA will decline to relocate.

Observers and commentators outside Government including economic professionals at Land Grant Universities have highlighted the potential loss of expertise and the impact on policy, market and industry research.

Although USDA has commenced advertising for positions to replace employees who are retiring and resigning, the market for qualified and experienced people is tight and the USDA will be hard pressed to fill positions.

When the relocation was originally announced, USDA Secretary Dr. Sonny Perdue explained that the motivation was to bring ERS and NIFA closer to the farming communities and agencies they serve. A supporting benefit promoted by the USDA was a potential reduction in cost by moving employees from D.C., a high-income area to Kansas.

The union representing ERS personnel has demanded that USDA commence collective bargaining negotiations over the relocation. In a statement, Peter Winch, Special Assistant to the National Vice President of the American Federation of Government Employees stated “The Union proposed to have all bargaining relating to this subject conducted within the context of agreed-upon ground rules and to have all implementation of the relocation be held in abeyance until the ERS has fulfilled its collective bargaining obligations”.  In a June 18th communication to USDA, Winch stressed “this would include a freeze on all individual relocation decisions until after the bargaining is completed”. The Union has requested a civil rights impact analysis for the relocation with specific reference to many employees without college degrees but with considerable lengths of service.

Dr. Perdue claimed that relocation to Kansas City would save $300 million over a 15-year period. In contrast, the Agricultural and Applied Economics Association estimates that relocation would cost between $37 to $128 million because the USDA did not take into account the lost value of institutional knowledge from the employees who will leave the agencies. It is evident that new hires, if available and even with equivalent education and experience, will still take a number of years to achieve the level of productivity of those they will replace.

The justification for moving two vital and productive components of USDA from a central D.C. location to Kansas appears flimsy. Doctoral-level economists are not extension personnel who are required to kick sods and slop hogs or have direct contact with farmers. The savings projected by USDA to justify the move appear at best speculative. A number of commentators both within and outside the ERS have opined that the intended move, resulting in large-scale resignations, will eliminate personnel who have expressed views at variance with current USDA and Administration policy. Climate change, SNAP and related policy issues have been raised as less than overt justifications for the radical change in location.

If the proposal to move ERS and NIFA from Washington was based on considerations of cost and service, Secretary Perdue should heed the advice of those in academia and industry and reverse the decision before further damage occurs. If in fact the decision was based on other than the intention to reduce cost and enhance service, USDA should be required to justify their decision before Congress if necessary. If there was a covert motivation for the recently abandoned reorganization and now the relocation, the USDA is committing a disservice to both the personnel of the agencies concerned and their constituencies. It is hoped that the decision to relocate personnel will be dispassionately reviewed and if unjustified, the project will be rescinded.


The Need for New Antibiotics


It is ironic that while the medical and veterinary professions are reducing their use of antibiotics, there is an urgent demand for new and more effective products.  These are especially required to treat drug resistant pathogens.  In 2017 the World Health Organization identified the need for antibiotics to counteract both critical and high-priority categories.  The critical category comprised effective drugs against carbapenem and cephalosporin-resistant pathogens including the genera Acinetobacter, Pseudomonas and Enterobacter.  Among the high priority category vancomycin and fluoroquiolone-resistant strains of the genera Camplyobacter, Salmonella and Enterococcus will require effective alternative drugs.  The WHO declared that the World is running out of functional antibiotics.  Accordingly, the Global Antibiotic Research and Development Partnership was established under the auspices of a “drugs for neglected diseases” program.  The Welcome Trust funded this collaboration comprising six EU nations and South Africa with a $70 million grant to establish new products.


The problem of antibiotic resistance is more pronounced in developing nations in part due to inappropriate and uncontrolled use in addition to the availability of local products with suboptimal concentration predisposing to emerging resistance.  Dr. Mya Nadimpalli conducting research at the Pasteur Institute determined that six percent of children presented to hospitals in Paris carried drug-resistant bacteria carrying genes coding for beta-lactamase.  In Cambodia where she conducted field studies, the prevalence rate of antibiotic resistance exceeded thirty percent Dr. Nadimpalli is now affiliated with the Tufts Center for Adaption Genetics and Drug Research, actively studying mechanisms of antibiotic resistance.


The Pew Charitable Trust issued a report in September 2018 emphasizing the dearth of candidate drugs in the antibiotic pipeline.  Of 42 prospects under development, major pharmaceutical companies were involved in only two of these compounds. Small start-up biotechnology companies are responsible for the majority of current antibiotic development, relying on venture capital and public sector funding. Achaogen a typical example, recently filed for bankruptcy.


The reasons for lack of development for new antibiotics relates to suboptimal financial return.  The cost of meeting regulatory requirements through a series of studies to demonstrate safety and efficacy are disproportionately high in relation to potential return.  New antibiotics have limited sales and a short market life compared to blockbuster drugs to treat cancer, cardiovascular disease and metabolic conditions.  It is estimated that only one in five candidate antibiotics is commercially successful even after considerable investment in development and testing.


Faced with the inevitability of emerging drug resistance and the need for new classes of antibiotics, alternative approaches to research and evaluation are required.  Lord O’Neill who chaired a UK parliamentary study on drug resistance suggested that development of new antibiotics should be undertaken by the public sector.  Antibiotics developed solely from government funding would be regarded as joint intellectual property and could be manufactured by generic drug companies. The price of these products would therefore not carry the costs of development now imposed on antibiotics of “last resort”.


Public-private consortia could be responsible for developing new products especially with a more realistic approach to evaluation.  The Global Antibiotic Research and Development Partnership participates in evaluating and promoting new antibiotics for pediatric infections.  Carb-X serves as a public-private partnership providing funding for basic antibiotic research especially directed to small companies that have developed basic concepts that require time and money to develop.


The livestock industry has been the beneficiary of human research with respect to antibiotics and antiparasitics since many pathogens are common to humans, livestock and companion animal species. Accordingly innovative models leading to the development of new drugs will ultimately benefit animals. Health professionals involved in livestock production should therefore encourage the development of new drugs as variations on novel classes for humans may have application in commercial production. Veterinarians in industrialized nations have reduced their use of antibiotics in responding to restrictions imposed by regulatory agencies in addition to ethical concerns. Practitioners in production medicine are relying more on vaccination, prebiotic, probiotic and botanical feed additives and are modifying ventilation, biosecurity, housing and management systems to reduce stress and promote an immune response. Notwithstanding these modalities, new antibacterial drugs are required against existing and emerging pathogens now and in the future.



Are We Closer to a Single Food Agency?


Representative Rosa DeLauro (D-CT) and Senator Dick Durbin (D-IL) have jointly introduced the Safe Food Act of 2019.  In addressing a meeting of the Congressional Food Safety Caucus DeLauro outlined the intent of the Bill which was framed to correct the fragmentation which currently exists in the food safety system.


The Government Accountability Office has identified 15 Federal agencies administering over 30 laws relating to food safety.  Admittedly the FDA and the USDA-FSIS are responsible for most of the heavy lifting but inconsistencies and in some cases turf battles impede efficiency.  Areas of concern include regulation of food produced outside the boundaries of the U.S. and preventing foodborne disease outbreaks which are increasing in incidence.


The Safe Food Act of 2019 would consolidate food safety including inspection, enforcement and labeling under the jurisdiction of a single entity.  The Bill if enacted would intensify inspection of foreign food production and inspection at points of entry.  Traceability would be enhanced.  The diverse resources currently extended to research would be focused on detection and suppression of pathogens.


Representative DeLauro cites the 2010 recall of eggs distributed by Jack DeCoster, and the problems associated with romaine lettuce, ground turkey meat, wheat flour, beef and raw milk.  Addressing the Food Safety Caucus DeLauro stated, “For consumers and businesses alike food safety is a problem we must be focused on.   A problem that demands our attention is the hopelessly fragmented and outdated food safety system.”


CHICK-NEWS recognizes the immense logistic and structural challenges facing a profound reorganization of the food inspection and safety system. The industry has developed a modus vivendi with FSIS and other sectors function in accordance with FDA requirements.  Introducing a single food safety agency would require new perspectives and adjustments and would entail short-term confusion and problems.


When previously advocates of food safety have suggested a single agency, FSIS and FDA sensing erosion of their respective jurisdictions have circled the wagons and signed memorandums of agreement frequently using the Food Safety Modernization Act as their umbrella.


The success of unified food safety agencies have been demonstrated in the UK and EU.  When confronted with a national crisis, various departmental activities related to national security were combined into the Department of Homeland Security within a year.  It is time to dispassionately evaluate the potential advantages of a single food safety agency and to reason through valid objections and to develop programs that facilitate a transition.


ARM Video on Fair Oaks Farms Dairy Creates Concern


On June 4th, Animal Recovery Mission (ARM) released videos apparently depicting gross mishandling of calves, maltreatment of mature cows and other undesirable issues. The resulting publicity drew responses from other animal rights and welfare advocates in addition to the Coca-Cola Company, a partner in the FairLife™ brand of dairy products produced by Fair Oaks Farms. Both Fair Oaks Farm in Indiana and FairLife™ were co-founded and managed by Dr. Mike McCloskey and his spouse.

Following release of the videos, Dr. McCloskey issued a comprehensive and far-reaching         mea culpa. McCloskey stated “I am disgusted by and take full responsibility for the actions seen in the footage as it goes against everything that we stand for in regard to responsible cow care and comfort. The employees featured in the video exercised a complete and total disregard for the documented training that all employees go through to ensure the comfort, safety and wellbeing of our animals”.

This encapsulation of the statement is somewhat at variance with the opinion of Dr. Jan Shearer, an Extension Veterinarian at Iowa State University. Shearer was requested to comment on the videos by The Center for Food Integrity as a member of the Animal care Review Panel provided a lukewarm opinion acknowledging “handling issues” and noting that “management could have been done differently”. With respect to the video filmed in the milking parlor he saw “no willful animal abuse”. This over-generous appreciation cannot be extended to the handling of calves if the video represents an accurate depiction of events as recorded by the ARM agent and is not contrived or staged. For the purposes of this editorial, it is accepted that the videos were representative with respect to calves as noted by the comments by Dr. McCloskey and the subsequent legal action taken by the Newton County Sherriff’s office that has charged three workers identified by authorities. One perpetrator in custody is an illegal immigrant raising additional questions for a company claiming to be E-verify compliant.

I along with other veterinarians involved in the intensive animal industry express disgust and condemn the circumstances relating to care and management of the Fair Oaks herd. At least Dr. McCloskey has taken responsibility for the deficiencies in handling as recorded. Apparently when he learned that a video with negative implications for his company was about to be released, he requested a third party review, which was apparently favorable. Despite the report, Dr. McCloskey notes “It is a shock and an eye-opener for us to discover that under our watch, we had employees who showed disregard for our animals, our processes and for the rule of law”.

This case in which an admittedly welfare-conscious CEO was unaware of activities on farms under his control is unfortunately a familiar occurrence. Training programs can only go so far. The process of management incorporates the necessary stages of review to establish and document practices that promote welfare and prohibit willful abuse. These are only the initial steps in the process of maintaining a culture of responsibility. The second component of training is essential but at the end of the day, someone in authority must verify that procedures are followed. In this instance, there was clearly a deficiency with respect to direct supervision and monitoring of the activities of workers.

There is concern that events such as those presumed to have occurred at Fair Oaks Farms, that retribution is directed against the actual perpetrators representing the lowest level of operation. This has been seen in cases where hogs and cattle have been mishandled in lairage, gross misconduct in harvesting broilers, those operating killing rooms of broiler plants and in depletion of laying hens. 

Any disclosure that becomes the subject of media attention and is disseminated on the web is a problem for all participants in intensive livestock production. Understandably the public generally has a higher regard for animals, especially young livestock, in comparison to chickens, since there is a greater degree of identification with their pets. As an omnivore, I could be induced to remove veal from my diet as a result of viewing the videos, despite the fact that I am a poultry veterinarian with 50 years experience. How would a young mother respond to depictions of deliberate, callous and willful abuse of sentient animals?

The repercussions from the ARM videos as distributed will extend far beyond the acknowledgment and apology extended by Dr. McCloskey. The Coca-Cola Company has initiated an investigation since multinational companies are extremely concerned over brand image. FairLife® is the recipient of two class-action lawsuits from animal rights organizations alleging deceitful marketing practices. Unless the plaintiffs are regarded by the Courts as lacking in standing or if it is ruled that legal action is frivolous, Fair Oaks Farms will be subject to intensive discovery, which may prove embarrassing. At the very least Fair Life™ has lost brand image and Fair Oaks may even be obliged to change structure or ownership. 

The take-home lessons from the incident extend beyond documentation relating to animal handling and transcend training. The complete cycle of welfare management should emphasize inspection and control. Dr. Temple Grandin has correctly advocated for the installation of video cameras and recording systems in lairages, the killing rooms of hog and beef plants and in the hanging area of broiler processing facilities. A number of prominent turkey and broiler companies routinely video harvesting and transport. This is both a deterrent against deviation from accepted company policy and training but also to confirm good handling practices in the event of intrusion videos.

Since a company invests in developing procedures and in training, management of welfare compliance requires direct supervision. It is hoped that there are not many other Fair Oaks Farms in the intensive livestock industry. Unfortunately, disregard for welfare by upper levels of management will allow unacceptable practices by lower-echelon employees irrespective of comprehensive procedures manuals and training. In a commentary on the episode Hannah-Thomas Weeman of the Animal Agricultural Alliance contended that “it could happen to any of us”. Not so Ms. Weeman. Only in a Company with deficiencies in the cycle of management and a lack of responsible supervision and with inappropriate involvement by those responsible for the wellbeing of the enterprise.  

In the age of the web, brand value can evaporate as a result of a welfare incident. Prevention through sound management practices and commitment from executive levels downwards will contribute to acceptable practices and prevent nauseating video depictions.


Trade Tensions are Not Easing


CHICK-NEWS and EGG-NEWS previously commented that with regard to trade agreements the White House has too many balls in the air at the same time. After unilateral withdrawal from the Trans Pacific Partnership and consequential exclusion from the restructured Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and also renegotiation of NAFTA to establish USMCA, the U.S. has progressed to a state of malignant uncertainty with most trading partners including the E.U. Delaying imposition of tariffs on automobile parts from Japan and the E.U. will hopefully expedite unilateral agreements with Japan and the E.U. As with most White House initiatives, a six-month deadline has been imposed, kicking the can down the road while negotiations continue.

Given that businesses have investment periods measured in years and crops have an annual cycle, a six-month moratorium on trade disruption is hardly cause for complacency. It is however encouraging that the counsel of moderates within the Administration and the patience of our allies have resulted in concessions which have brought us back from the brink of absolute trade disruption. Certainly rescinding the tariff on steel and aluminum from Mexico and Canada has increased the prospect of ratifying the USAMCA to replace NAFTA. The unfortunate decision by the Administration on May 30th to impose a progressive tax on Mexico to coerce that nation to restrict migration blindsided negotiators and Congress. This action of dubious legality represents a serious impediment to ratification of the USMCA and threatens U.S. agriculture as a result of inevitable retaliation by Mexico.

Neil Bradley, Chief Policy Officer at the US Chamber of Commerce stated “The continued threat of tariffs on cars and auto parts only creates more uncertainty and is weakening our economy”. Cecilia Malstrom, the E.U. Trade Commissioner stated “We completely reject the notion that our car exports are a national security threat”.

In coming months, Robert Lighthizer, the U.S. Trade Representative will be extremely busy negotiating concurrently with Tokyo, Brussels and Beijing to achieve equitable trade agreements that comply with both economic reality and narrow political imperatives. He certainly does not need complications as a result of impulsive decisions that invoke the Law of Unintended Consequences.


Food Waste a World Problem of Concern to Japan


During the past two weeks, Barbara and I have been traveling in Japan reviewing supermarkets, interacting with consumers, scanning English-language newspapers and absorbing the ethos of a culture that in many respects is very different to our own.  There are however some similarities and common issues including protection of the environment and sustainability that need to be addressed among all economically advanced nations. 


The May 19th edition of the Japan Times featured a front-page article on initiatives to reduce food waste.  The United Nations Food and Culture Organization estimates that 1.3 billion tons of food was wasted in 2018.  Japan estimates that six million tons of edible product is discarded annually by a population of 128 million. 


To resolve any problem it is necessary to understand the metrics and contributory factors.  The retail sector in Japan was responsible for 0.6 million tons of wastage in 2017.  Food manufacturing and the restaurant sectors each contributed 1.35 million tons with households responsible for 40 percent or close to 3 million tons of discarded food.  In the context of Japan it is important to recognize that “freshness” is an important attribute in the motivation to purchase, consume or discard food.  The problem of indiscriminate wastage was emphasized by a directive from the Chief Cabinet Secretary of the Government of Japan who stated, “Reducing food loss means less waste of natural resources and it is also important from a standpoint of easing burdens on companies and households.”  The Government will coordinate the activities of various ministries to “deal with a challenge”. 


Sadanobu Takemasu, president of Lawson Station, a major retail chain stated, “Food loss is a big problem domestically and globally so convenience stores also need to confront the issue.”  He estimates that ten percent of his company’s rice balls and lunch boxes, popular in Japan are discarded as waste.  Traditional mores in Japan will have to be changed to resolve problems inherent to their society.  Although portions served in restaurants are relatively small compared to the U.S. the concept of doggie bags is completely unknown in Japan.   A representative of a restaurant group stated, “It’s up to the customers whether or not they finish their meals.”


The Government of Japan has set a target to reduce waste by 50 percent from a 2000 base over the next ten years.  This will require changes in attitude by consumers at the household level. Improvements in food distribution are required to provide longer shelf-life and freshness of produce and especially fish which comprises a disproportionately higher contribution to the Japanese diet than in the U.S. 


It is possible that new food processing technology could reduce organoleptic deterioration while maintaining nutritional quality and extending shelf life. The simple expedient of lowering prices near to expiry dates has reduced the volume of food discarded by the Lawson Station chain and presumably followed by major competitor 7-Eleven Holdings. Since the population of Japan is far less individualistic than in the U.S. and recognizes common societal needs, effective leadership and publicity will result in concerted efforts to resolve the problem for the common good.


Recognizing problems such as food wastage and analyzing its causes are important precursors to developing appropriate solutions.  Comparison among nations leads to innovative approaches and contributes to alleviating poverty and starvation which affect one-tenth of the world’s population.


AEB 2018 Annual Report


According to the AEB Annual Report the Board ran a deficit of $4 million for financial year 2018 ending December 31st. Expenditures amounted to $28.9 million. Revenue of $24.6 million was derived from 246.4 million cases of eggs.

During 2018 Consumer marketing was the largest category at 53.2 percent of 2018 expenditures. Other cost allocations included egg-product marketing at 6.5 percent, food service at 8.2 percent, industry programs 6.9 percent and the Egg Nutrition Center 13.8 percent. It is noteworthy that administrative overhead and related expenses including Board meetings amounted to 6.1 percent of expenditures.

At the direction of the Board, the AEB increased consumer marketing expenditure by 67 percent with active campaigns intended to increase demand for eggs and egg products consistent with the mission of the Board. USDA projections indicate a net increase in per capita consumption of one egg to 279.9 or a 0.4 percent yearly increase. The Disney Pixar Incredibles-2 promotion and round-the-year marketing were notable achievements.

Market development included customized workshops for manufacturers, intensive promotion to the food service sector and activities directed towards universities and K-12 food service. Although AEB has worked closely with USAPEEC, exports of eggs and egg products have not increased to a level that offsets the evident excess in production due to an injudicious national flock size. State support was increased from $0.4 million to $1.1 million representing recognition of individual state associations that can mount “local” promotional campaigns.

Funding for industry programs were reduced 17 percent to $1.98 million, and egg product marketing expenditure was lowered by 19 percent to $1.88 million. Expenditures were diverted mainly to consumer marketing.

The American Egg Board activities should not be judged simply by increases in per capita consumption. The Board has responded both proactively and reactively to issues relating to cholesterol that emerged recently and also considered to substitutes for eggs, especially in the liquid segment of the industry following unprecedented price rises in 2015 and 2016 following the HPAI eponetic.

Anne L. Alonzo, president and CEO, her newly appointed staff and the Board should be complimented on prudent management of check-off funds, innovative programs and promoting the image of eggs among consumers while developing new markets and products.


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


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.


EIC Report on Egg Processing and Transport


In mid-April, the Egg Industry Center released a special report entitled Egg Processing, Cartoning and Transportation Costs.  The comprehensive report was compiled by Maro Ibarburu and Lesa Vold of the Egg Industry Center and Dr. Alejandro Plastina of the Department of Economics at Iowa State University.  For the record is noted that the University hosts the Egg Industry Center located on the ISU campus.


The 2019 Report follows a previous study conducted by Don Bell at the University of California, Riverside, released in 2000.  The purpose of both reports was to establish the costs of processing, cartoning and transportation. Considerations related to pack size, in-line versus off-line processing and cost of delivery within-USDA regions to a DC or store were included in the 2019 version.


With respect to in-line processing, the ‘trimmed mean’ value was determined to be 13.5 cents per dozen compared to 15.3 cents per dozen for eggs sourced off-line.  The ‘trimmed mean’ carton costs were 9.8 cents for a 12-pack, 9.9 cents per dozen for 18-pack plus a 3.9 cent per dozen cost for an outer cardboard container.  Reusable plastic containers generated a ‘trimmed mean’ of 4.3 cents per dozen.  Added cost such as shrink-wrap and insertion of slip-sheets added 0.9 cents per dozen to packaging material.


Delivery of eggs to store-door incurred a cost of 8.6 cents per dozen compared to 5.2 cents per dozen to a DC.  Eggs collected by customers from a warehouse resulted in a cost of 1.9 cents per dozen for storage and handling.


The study calculated the loss in grade-yield of 7.6 cents per dozen for in-line eggs and 9.5 cents for off-line eggs.  Store returns added 0.1 cent per dozen and the difference between standard and USDA grading was 1.3 cents per dozen.


In comparing the results of the 2019 survey with the previous evaluation performed by the late Don Bell 18 years ago, showed a close correlation adjusting for inflation.  In 2000 the combined processing, packaging and transport cost was 25.97 cents per dozen comprising 9.8 cents per dozen for processing, 4.5 cents per dozen for trucking, 1.4 cents per dozen for marketing and 10.2 cents for packaging.


In reviewing the report, it is noted that out of 107 one-page surveys sent to egg producers, a total of 23 responses was received, representing a return rate of 21 percent. This is considered to be suboptimal especially when only partial responses were provided to specific questions. There is significant reluctance by producers to participate in any cost or production-related survey given the emergence of litigation alleging collusion among competitors in the egg, broiler and beef industries. The fact that the survey was conducted in effect by a University creates the potential problems of confidentiality given the possibility of discovery through litigation or requests under Freedom of Information or public records legislation.


The compilers of the report considered that the 23 responses represented 150 million hens or 67 percent of the national flock maintained to produce shell eggs.  Disparity between respondents and their relative contribution to egg production reflects the oligopoly prevailing in the industry.  In the case of one large company, their single response, if submitted in entirety would have represented 19 percent of the shell-egg population.


The overriding question is how supporters of the Egg Industry Center and those reviewing the Report will be able to apply the findings to their own operations.  Many of the respondents and those that declined, probably participate in a commercial benchmarking system that provides greater detail and specifics far beyond the scope of the one-page survey. Participants in the commercial benchmarking system for which they obviously pay, provides companies with data that can be applied directly to intermediate and long-term management and investment decisions. 


To ascertain the cost of packaging, it would have been more representative to have approached the limited number of suppliers in the U.S. who would be in a far better position to anonymously provide cost data for their products.  The report did not distinguish among polystyrene, PET or fiber packs or combinations of cardboard and fiber.  There are wide differences in cost among the alternatives and there is obviously a bulk supply factor inherent to any cost determined for a specific type of pack.


There are wide differences in configuration of plants, packing rate, regional wages, utilities, environmental restraints, age of facilities and equipment that influence maintenance and daily run-time. A review of the industry benchmarking system would have resolved many of these questions fundamental to an understanding of the composition of cost. Many of these factors should have been incorporated in either the questions or an interpretation of responses.


In reviewing the Report there appears to have been an inordinate preoccupation with statistical technique including elimination of outliers hence the calculation of a “trimmed mean”.  This was possibly dictated by the need to analyze a limited number of responses of variable content and consistency depending on how questions were interpreted. The Report actually confirmed what the industry already knows.  Packaging and transport costs are well documented and are so similar that individual companies can do little to change values through management or even investment in mechanization or automation. 


It is hoped that in a subsequent edition of this report, more specific aspects of processing, packaging and transport should be evaluated.  Alternative packaging material over and above pack size should be considered.  The influence of robotics and labor costs is relevant to investment in technology.  Transport should not be restricted to intra-region distribution.  The reality facing the industry is hoe to play the differential between Midwest and Southwest feed and labor costs and those prevailing in California and relating the ex-plant costs to moving product westward on I-10 and I-80. 


Without detracting from the initiative of the EIC and the value of the Report which is somewhat pedestrian, the industry needs more focused studies in order to discern trends in cost and the influence of equipment, methodology and packaging material with the objective of optimizing return on investment.


Financial Realities of Plant-Based Meat Substitutes


Over the past few years trade publications have hyped plant-based alternatives to meat. As each successive press release records another QSR either trialing or offering a veggie-burger commentators extoll the virtues of sustainability, welfare and create a “feel-good” halo for the category.


Beyond Meat the putative leader in the field filed for an IPO on Monday April 22nd anticipating sale of shares valued at $183 million and raising the company to “unicorn” status with a potential valuation of $1.2 billion. As an uninformed observer it would be fair to assume that production of a plant-based burger could be effected less expensively compared to beef. The recent SEC Form S-1filing by Beyond Meat Inc. in advance of their IPO dispels this notion. For FY 2017 ending December 31st the Company generated a loss of $30.3 million on sales of $32.6 million. This might by acceptable for a potential high-tech start-up incurring high R&D expenditure in addition to organizational and preliminary costs but an analysis of the prospectus reveals a serious flaw in the vegetable-burger model.


For FY 2016 the cost of goods sold representing raw ingredients, processing and packaging amounted to $22.5 million exceeded revenue of $16.2 million by 39 percent. The cost of goods sold in FY 2017 amounted to $24.3 million or 115 percent of revenue.  For the nine months ending September 2018 Beyond Meat managed to increase revenue from $21.1 million to $56.4 million albeit by almost doubling the Selling, General and Administrative (SGA) expense category ($23.1 million) compared to the corresponding first three quarters of FY 2017 ($12.4 million). It would be expected that scale of volume and experience would have reduced the cost of the vegetable-burgers in relation to sales. For the two nine-month periods the proportion of the cost of goods sold expense category improved from 115 percent of sales through Q3 of FY 2017 to 83 percent of sales value through Q3 of FY 2018. Given R&D costs of $6.3 million, restructuring, amounting to $1.1 million and the SGA expenditure of $23.1 million the Company generated net losses of $23.4 million and $22.4 million respectively for the successive nine-month periods.  


It would appear that the high cost of manufacturing plant-based meat substitutes is disproportionate to their value in competition with ground beef. This would seriously constrain the profitability of the enterprise irrespective of scale. Perhaps this is the reason why Kleiner Perkins and two other venture capital investors with collectively 42 percent of the equity, wish to expedite an IPO to recoup their capital.  Tyson New Ventures previously held seven percent of the equity but the Company announced on April 24th that it had sold its shareholding valued at $80 million based on the proposed IPO share price. Noel White CEO of Tyson Foods obviously can read financial statements.

Beyond Meats may be a company with a great future behind it. Unless production cost can be brought into line with beef patties prospects for future positive earnings look dim. As it is the company is losing money on every patty but to quote Henry Ford they “hope to make it up on the volume”


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