Viewpoint: (Over) supply and demand
There are enough opinions, theories and issues behind the story of Pilgrim’s Pride and its mid-February decision to officially “idle” three plants - that the resulting ruckus could be compared to a hen house, complete with flying feathers and lots of squawking.
Citing its plants’ underperformance - as well as high costs and industry oversupply of chicken - bankrupt Pilgrim’s Pride said it would indefinitely close operations in Louisiana, Arkansas and Georgia. Then came a string of reports about a joint purchase offer for the Farmerville, La., operation from competitor Foster Farms, Livingston, Calif., and the State of Louisiana.
Pilgrim’s Pride privately rebuffed a $40 million purchase offer with a spokesman telling media (1) the offer was below expectations, (2) ongoing operation of the facility would not alleviate industry oversupply issues and (3) Pilgrim’s Pride possibly would consider shuttering another facility to account for oversupply.
Next came a second $60 million offer, followed by a reported $80 million counter-offer from Pilgrim’s Pride. Then in mid-March, the two sides agreed on the $80 million deal, which is now subject to anti-trust and bankruptcy court approvals, as well as approval from Louisiana state legislators.
“Consistent with what we have said from the beginning, we would consider selling the complex if we received a meaningful offer reflective of the value for these assets,” said Don Jackson, Pilgrim’s president and CEO. “We believe this sale at this price is in the best interests of all parties involved, including our employees, growers, the Farmerville community and our creditors.”
Behind the scenes, this story has literally generated thousands of opinionated e-mails sent to newspaper and business-to-business Web sites. Think of it as a Louisiana-style gumbo of political rants, well-written first person appeals and, of course, pot shots at everyone from Louisiana Governor Bobby Jindal to Don Jackson (coincidentally, a Foster Farm alum).
Personally, I’m glad for Louisiana’s workers and growers. It also makes sense that Pilgrim’s Pride gets paid and redirects sale proceeds back into wherever they must go. Meanwhile, there remains a very real issue (it’s real, right?) of oversupply.
This story made me think of past cases where the fruit, vegetable and potato industries faced oversupply and leaders in those respective industries (including Birds Eye Foods) had to take charge and prune back capacity. It will be interesting to see how Pilgrim’s, the chicken leader, and others will respond.
