Chicken Industry Served a Big "Cluck You"

Apparently the emerging ethanol industry is wreaking havoc on the chicken industry. So, you might ask: what does an alternative energy fuel source have to do with chickens? The answer is *insert drum roll here* ... a lot ... so much so that the world's largest poultry processor, Pilgrim's Pride Corp., is blaming the ethanol industry and recently passed legislation supporting it for what the company's president and CEO proclaims is a "crisis" in the chicken industry. And this "crisis" translates to a just-announced 1,100 jobs cut and several facility closings for Pilgrim's Pride. (See the list at the end of the blog post.*)

So, the question still remains: What does an alternative energy fuel source have to do with chickens?

Well ... it just so happens that the major ingredient in chicken feed (and one of the largest overall expenses in producing and delivering chicken products to consumers) is corn. And corn happens to be the main ingredient in (you guessed it) corn-based ethanol (I think the name gives it away here). Recent federal incentives for corn-based ethanol production have caused the price of chicken-feed to soar. Based on current commodity futures markets, the Pilgrim's Pride total costs for corn and soybean meal to feed all their chickens in fiscal 2008 would be more than $1.3 billion higher than what they were two years ago, according to the company.

"Our company and industry are struggling to cope with unprecedented increases in feed-ingredient costs this year due largely to the U.S. government's ill-advised policy of providing generous federal subsidies to corn-based ethanol blenders,'' Chief Executive Officer J.Clint Rivers said in a press release.

This matter over the effects of the ethanol industry's need for corn on the chicken industry has been a concern for a few years now, and seems to have hit critical mass with the Pilgrim's Pride closings. Matthew Herman, manager of a Tyson Foods chicken production and processing complex in Monroe, NC testified before a House Agriculture Subcommittee at the beginning of last year that demand from ethanol producers has doubled the cost of corn and driven up by 40% the feed cost of the chicken industry alone. He also noted at this hearing that the livestock and poultry industries normally purchase more than half of the corn produced in the country to make feed for their animals. However, the rapidly expanding ethanol industry consumed more than two billion bushels of corn (18% of production) in 2006 and will take as much as 3.5 billion bushels in 2007.

And ... even before that, Delmarva Poultry Industry, Inc. Executive Director Bill Satterfield, one of the keynote speakers at the October 12, 2006 annual meeting of the Salisbury-Wicomico Economic Development, Inc. in Salisbury, MD, commented during his speech that:

"A major concern to the poultry companies nationally, and here on Delmarva, is the increase in demand for corn to make ethanol. USDA estimates that about 14% of the nationŐs corn went into ethanol last year and that will rise to about 20% this year. There is concern that this demand, which will increase as the number of American corn ethanol plants goes from 100 to about 150 in the coming years, will create a situation where the marketplace is a feed versus fuel situation. The ethanol tax credit of 50 cents per gallon gives more persons an incentive to produce and use ethanol, but how long can the federal treasury sustain this type of revenue avoidance? As the CEO of one major American poultry company said last week, itŐs hard to compete with tax credits and subsidies."

As I could care less about eating chicken or the chicken companies, I say give all the corn for chicken feed to the ethanol producers, and eat more vegetables!

*Pilgrim's Pride locations set for closing by June

Chicken processing plant:

Siler City, NC, which employs about 830 people.

Distribution centers in:

Oskaloosa, IA

Plant City, FL

Pompano Beach, FL

Jackson, MS

Nashville, TN

Cincinnati, OH

EADS Finally Wins U.S. Contract: Let the Fallout Begin!

A couple days ago, the Pentagon announced that EADS won a $36 billion ($100 billion growth potential) contract to build U.S. Air Force refueling tankers in Mobile, AL, ending a more than two-year bidding battle. But the real controversy, which raises issues of nationalism, globalization, homeland security, etc., is just beginning. Let me get you up to speed.

Business Facilities began covering this story at its inception back in 2005, when French-owned EADS, primary shareholder of Airbus, selected Mobile over 70 other sites in 32 states to locate its airfield engineering center. In 2007, this facility opened as scheduled at the Brookley Field Industrial Complex. But at the same time back in 2005, EADS began its bid to win the air force tanker contract. Its main competition: Chicago-based Boeing, the company that had supplied the refueling tankers for 50 years, but which came under scrutiny in 2002 and 2003 when shady and illegal business discussions between Boeing CFO Mike Sears and Air Force procurement official Darleen Druyun sent them both to prison.

In May 2005, the House of Representatives requested that the Pentagon deny military contracts to foreign companies receiving government subsidies in a World Trade Organization member company. This was seen as a fairly blatant attempt to knock EADS out of consideration, but EADS sidestepped this by partnering on the deal with U.S. company Northrup Grumman.

Fast forward to this month when EADS was awarded the contract, much to the surprise of most industry analysts, and to the outrage of numerous politicians who claim that while 1,000 jobs will be created in Alabama, more would have been created nationally if Boeing won. Disgruntled lawmakers, some of whom are lobbying for the decision to be overturned, assert that 85% of Boeing's planes would have been built on U.S. soil, while only 58% of EADS will be made in the U.S., as main manufacturing work will be done in Europe and only final assembly completed in Alabama.

House Speaker Nancy Pelosi cites a threat to homeland security as a reason for not wanting a foreign company building U.S. military equipment, while other politicians have acted particularly childish, calling the EADS product "crap" and Northrup Grumman "a front for the French." The ubiquitous presidential candidates had their say, too, with Democratic delegate-leader Barack Obama, who shares his home state of Illinois with Boeing, perhaps showing his bias while expressing displeasure with the Pentagon's decision. Hillary Clinton used the opportunity, more than anything, to blast the Bush administration (Pentagon), which is typical campaign rhetoric. Republican presidential nominee John McCain said he would reserve judgment until being briefed by the Department of Defense. (The interesting kicker here, though, is that the engines for EADS' aircrafts will be powered by General Electric in Ohio, which everyone knows is a crucial swing state full of voters suffering from and angered by job loss. So I think candidates won't be too loose-lipped on this issue because they want to win Ohio's electorates come November.)

The fifteen-member House Appropriation Subcommittee on Defense, who controls the Pentagon's cash flow, said they evaluated Boeing's and EADS' proposals on five criteria and EADS won across the board. Sue Payton, air force weapons buyer, said the committee evaluated the plans on merit only, not job creation, and simply wanted "the best tanker at the best price." She also refuted claims that the contract agreement with EADS violated the Buy America Act, a law passed 75 years ago in 1933 that encourages government agencies to buy goods from American companies. In fact, according to Payton, Congress voted for a special exemption to the act which considers certain European Union countries to be "a part of the American industrial base" and, as such, France's EADS is essentially "American" in the context of its bid. Boeing can only challenge the Pentagon's decision if bidding rules had been broken by EADS, which does not currently seem to have happened.

Despite all the outcry, the city of Mobile is thrilled and optimistic, already setting up training programs for 1,200 aerospace engineers and creating a technology center. Alabama Rep. Jo Bonner said, "This was not a political decision. It was based on merit, and on merit, we won."

In my opinion, the furor over EADS' win has a gross, anti-French sentiment. Are people still really eating "Freedom Fries" in America? Would people be so enraged if EADS was owned by the U.K., a staunch American ally? Probably not. But let's look at the reality of these companies' production locations. EADS is a French company with European facilities that produces all of its airplane wings in North Wales. Boeing is an American company, but makes all of its wings in Japan and fuselage parts in Italy, and contributes $1 billion to the economy of Canada, where it employs 1,400 people. Talk about global business operations! Are we being too nationalistic here? What about free and fair international business competition? I understand people want to keep jobs in America, especially during such rough economic, recession-heading times. But I also think America deserves the best products for our military and if a French company has been identified by the House subcommittee as the best producer of refueling tankers, then that's who should build them, I say.

What do you think? Feel free to comment here and express your stance. There are so many sides and perspectives to discuss. (I didn't even get into the concerns in Europe that this move will cause job loss there.) You can also check out the many links provided below for more details about the EADS deal.

Business Facilities' 2005 EADS project spotlight

US Air Force awaits grilling on EADS deal

Hillary Clinton and Barack Obama criticise choice of EADS for $40bn work

Mobile: A jubilant city defends its Air Force tanker prize

Now, Only the Brownfields Remain

Saw this article in The New York Times today; it's about how New Jersey's brownfield redevelopment incentives didn't do much during the 1990s, but now that there's hardly any greenfield space left in the state, developers are giving them a shot.

I think it's kind of unfortunate that the easiest way for a developer to earn back their 75% of cleanup cost is by putting retail on the site. I live in New Jersey, and let me tell you, we have enough retail. Can't they change the way the money is generated to give a boost to industrial or high-tech office work development? Companies that build a factory or research center on a brownfield site should be able to get their three-quarters cleanup reimbursement faster, not slower, than a speculative developer building yet another strip mall.

Oh, and I should say (in defense of the Garden State) that when I wrote that there's no greenfield space left to develop on, that's not because we have no green space at all--it's just that so much of the prime stuff has been protected by law (hurray). As the most densely populated state in the country ("New Jersey's density is currently 1,165 people per square mile--denser than both India (at 914) and Japan (835). No other state even comes close." - NY Times), we could be at the forefront of what development along the Bos-Wash corridor is going to look like soon.

The Future of Turbines

Everyone knows about wind turbines and how they are increasingly popping up around the world as another enviro-friendly way to create energy. But did you know that scientists are currently developing and testing a new turbine that you will never see, but that can create limitless, constant energy?

That is because the turbine will be bound to the ocean floor with its blades whirling about 40 feet below the surface. Scientists are developing these underwater turbines with the goal to harness the energy of the Gulf Stream current off the Floridian coast. You can read specifics of this interesting concept here. The article tackles questions like, "Won't fish get chopped up?" and "Will large ships be able to navigate around them?" These are legitimate questions that need real answers before underwater turbines can become a justifiable plan, but tapping into ocean currents could become a key component in acquiring sustainable energy on a planet with dwindling natural resources.