IBP, Inc. History

Company Perspectives:

IBP's strategic agenda for growth begins&mdash it should--with a "superior value proposition." Our target customers consistently judge our product/service package to be of greater value than our competitors'. Surrounding this is our company's structure--organization and leadership--built and rewarded upon the premise that to be the best is the only acceptable outcome. All of it aimed at executing key business processes with consistent excellence--an outcome achieved by the competency and commitment of the people who run IBP's businesses. These integral elements combine to form our platform of growth.

Company History:

As a company called Iowa Beef Packers, IBP, Inc. helped to revolutionize the meatpacking industry in the early 1960s. This company's continuing success has also been marked, however, by a long series of legal problems and episodes of labor unrest. IBP began in 1961 as Iowa Beef Packers, with a single beef slaughtering plant in the western Iowa town of Denison. A. D. Anderson and Currier J. Holman, two meat-industry veterans, founded the company on a simple idea: that the way meat was processed at the time was antiquated. Their goal was equally simple: to revolutionize the industry by creating "meat factories" that could process meat more efficiently and economically.

The Cattle Trade

Traditionally, cattle in the United States had been raised in the country and then brought by train to the vast stockyards of Chicago, Omaha, and Kansas City, where animals were slaughtered in multi-storied packinghouses. Anderson and Holman located their packing plants in the country, in the center of large cattle producing areas, enabling the company to buy livestock directly from producers. This cut procurement costs by eliminating middlemen and shortening transportation distances. It also minimized the shrinkage and bruising of livestock.

In addition, IBP's plants were built on a simpler and cheaper horizontal, rather than vertical, plan, and made much greater use of automation such as continuous-flow overhead conveyors. Elaborate cooling systems were installed to remedy the common industry problem of shrinkage--moisture loss due to poor refrigeration and packaging methods. IBP also worked to maximize use of beef by-products such as hides and tallow.

From the beginning, Holman and Anderson stressed efficiency and high productivity at a low cost. Managers with meat-industry experience were recruited and all employees were expected to work a six-day week. Cattle buyers drove through the Midwest to buy livestock on the farm rather than wait to buy from middlemen at a stockyard. Inventory was tightly controlled through a two-way radio network that allowed buyers to consult with the main office about immediate demand before any purchase. Once an animal arrived at an IBP plant, the slaughter process was so efficient that it had at most 24 hours to live.

IBP workers, perhaps spurred by the green paint everywhere around them (Anderson selected the color because it was the color of money), were among the most efficient workers in the meatpacking industry, taking just 32 minutes in 1964 to move a steer from plant door to freezer, ready for shipping by rail. Only a few years after the start of operations, IBP had become one of the leading companies in its field.

In creating a labor force to work in its highly automated plants, IBP looked to a non-unionized, unskilled rural populace displaced by increasing mechanization on the farm both to build and to operate its plants. By using sophisticated machinery, IBP "tried to take the skill out of every step" of butchering, as Anderson explained to Newsweek in 1965. "We wanted to be able to take boys right off the farm and we've done it." As late as 1964, IBP workers did not belong to a national union, having organized only on the local level.

Workers Strike, 1965

Along with IBP's strong growth, however, came labor strife. In the spring of 1965, workers at two Iowa plants walked out over issues relating to the right to strike; the conflict became violent before it was settled with the help of Iowa's governor. "We didn't pay enough attention to labor problems, but we don't intend to make that mistake again," one IBP executive told the Wall Street Journal in 1966.

In 1967, IBP introduced a further refinement of the meatpacking process at its Dakota City, Nebraska, plant. Instead of shipping beef to customers in whole-carcass form, as the industry had done for years, IBP began to break down the carcass into smaller, vacuum-packed portions which it shipped in boxes. Removing unwanted fat and bone enabled the company to drastically lower shipping costs. It also fit well into the growing trend to market meat not in traditional butcher shops but in large supermarkets, which appreciated the savings on butchering costs that this new process offered. In addition, better packaging improved the meat's shelf life and flavor. Forbes described the new process as "a triumph of logic." Over a period of time the process was refined so that meat was broken down into 44 primal cuts, thus further eliminating middlemen and maximizing profit for the packer.

IBP's capacity to efficiently produce boxed beef enabled it to continue its strong growth. In 1969, the company ran eight Midwestern beef plants. IBP continued its aggressive growth by taking over Blue Ribbon Beef Pack, Inc., acquiring facilities in LeMars and Mason City, Iowa. In February 1969, however, a civil antitrust suit successfully contested this acquisition on the grounds that it would threaten competition in the purchasing of cattle in Iowa, Nebraska, Minnesota, and South Dakota. A 1970 consent decree forbid IBP to acquire any more beef slaughtering or processing plants in those four states for 10 years, and ordered that the properties acquired from Blue Ribbon be sold. IBP appealed this decision, but sold the smaller of the two plants in 1974.

IBP's policies of innovation and strict control over wages caught up with it in 1969. The Amalgamated Meat Cutters Union (now the United Food and Commercial Workers) saw jobs moving from the urban areas to rural America. Boxed beef also threatened the unions' control over the ultimate carving up of the beef, a job largely restricted to master butchers, who earned high wages and worked limited hours in the backrooms of supermarkets and butcher shops.

The result was friction between IBP and the unions. Most of that friction took place at the company's Dakota City plant, where members of the United Food and Commercial Workers union engaged in five labor disputes between 1968 and 1987. On August 24, 1969, 1,200 union members walked off their jobs at the new Dakota City slaughterhouse, leaving the plant to operate at 50 percent capacity. This was the plant at which IBP had introduced a second level of beef disassembly (called "fabricating"). The union insisted it was striking for higher wages for all IBP employees, and equitable wages for both beef slaughterers and beef fabricators, who were paid less than slaughterers for their allegedly less strenuous work.

Three other IBP plants in Iowa closed in connection with the strike. In October, the company filed a $10 million suit against the union, charging it with sabotage, illegal work stoppages, and walkouts. The union, in turn, filed charges of unfair labor practices against the company with the National Labor Relations Board. IBP was accused of slandering union officials, locking out employees at the three Iowa plants, and failing to bargain in good faith. Before the strike ended on April 13, 1970, there had been one death, 56 bombings, more than 20 shootings, numerous tire slashings, death threats, extensive property damage, and the destruction of fire-bomb of the home of an IBP vice president. In the final settlement, the union gained a salary increase of 20 cents an hour over the wage first offered by IBP, but IBP continued to ignore the "master rate of pay" that other meatpackers paid their employees. In 1977, IBP was finally awarded $2.6 million in damages for union activities during the strike.

Although it appeared that IBP had won significant gains in its showdown with the union, actions taken by Currier J. Holman, one of the company's cofounders, during the period of the strike came back to haunt IBP three years later. Reduced production due to the strike had sharply limited IBP's cash flow, and boxed beef had not yet achieved market acceptance. Against this background, Holman was desperate to crack the New York market in hopes of saving his company. However, the Amalgamated Meat Cutters and the local butchers were determined to keep IBP beef out of New York because they feared it would cost them jobs. Holman made a deal with a meat broker with underworld ties to obtain contracts with New York supermarket chains, paying the broker a surcharge of nearly $1 million on all beef sold within 125 miles of downtown Manhattan over a period of about 30 months. This surcharge was used to pay off union officials and supermarket executives. In March 1973, IBP and Holman were indicted on charges of conspiring to bribe supermarket buyers and union officials.

Trouble in Court, 1970s

A year and a half later, IBP and Holman were convicted of two charges in a New York state court. However, citing IBP's dire financial straits at the time the arrangement was entered into, the judge refused to fine or punish Holman personally and fined the company the nominal sum of $7,000, saying that Holman had been victimized by the corruption of New York's meat business. The company, which had changed its name to Iowa Beef Processors in 1970 to better reflect its business, was hit with another lengthy labor stoppage in Dakota City in 1973, again in the name of higher wages. After 27 weeks, the strike was ended through arbitration, and workers were awarded a substantial pay increase.

During the first half of the 1970s, IBP experienced phenomenal growth. By 1974, it had far surpassed all its rivals, becoming the largest beef packer in the world. In November 1975, the New York deal reared its head again when the company named Walter Bodenstein, the son-in-law of the New York meat broker who had made bribes on IBP's behalf, to a high executive position. When the appointment was announced, the company's financial backers immediately expressed reservations, citing Bodenstein's ties to the mafia, and he resigned amid controversy after a week. The company's standing in the business community was damaged when this and other incidents prompted the Wall Street Journal to run a front-page story a year later noting that IBP was now larger than all five of its nearest competitors put together, and denouncing the company as a magnet for "criminals, gangland figures, civil wrongdoers ... and people engaged in vicious beatings, shootings, and firebombings."

Forbidden by the 1970 consent decree to purchase any new plants in four Midwestern states, IBP expanded into Texas in 1975, building facilities near the large commercial feedlot operations in the Southwest, and into the Pacific Northwest in 1976 through the acquisition and expansion of two plants. IBP continued its expansion in 1980, when it completed construction of the world's largest beef slaughtering facility in Finney County, Kansas, and in 1983, when it acquired and expanded its easternmost facility, in Joslin, Illinois.

In May 1978, the Agriculture Department had dropped an extensive investigation into IBP's suspected attempts to drive other packers out of business after IBP agreed informally not to break the law. But in 1979, Representative Neal Smith of Iowa, a farmer who was chair of a House Small Business Subcommittee, revived the issue by launching an investigation into IBP's allegedly predatory business practices. It was disclosed that the company had violated the Robinson-Patman Act between 1971 and 1975 by offering discounts to customers who bought large quantities of beef. In addition, IBP was convicted of preferential price treatment by a Brooklyn jury in 1981, in connection with price breaks of $10,000 a week given to a New York supermarket chain from 1970 to 1974.

IBP Is Acquired, 1981

In 1981, IBP was purchased by Occidental Petroleum Corporation, the giant energy conglomerate. During the next six years, as a wholly owned subsidiary of Occidental, IBP increased its revenues 53 percent and operating income 92 percent. IBP also added 8,000 employees and operating plants in four additional locations. In 1982, the company was hit by its second violent strike in five years at its Dakota City plant. In early 1977, 1,800 workers had walked off their jobs, demanding higher wages in a violent 14-month strike that ended when IBP brought in strikebreakers and reopened the plant. In 1982, the National Guard was brought in to quell violence, and IBP again used open hiring to resume operations, bringing in 1,400 new workers. Yet another strike began in December 1986. This strike was settled seven months later, as workers successfully resisted company demands for wage concessions. By then, only three of IBP's 14 plants were unionized.

In 1982, IBP moved into the pork industry, and in just six years became a leader in pork packaging. Using the same strategy that had been so successful for IBP's beef-processing operations, IBP's pork division carved out a dominant place in the pork industry. With its expansion into pork, Iowa Beef Processors officially changed its name to IBP, dropping the emphasis on beef. Today IBP is the world's largest producer of fresh pork.

Independent Again, 1987

In 1987, Occidental Petroleum moved to sell off 49 percent of its stock in IBP, reaping a handsome profit. Occidental remained IBP's major shareholder. Although the company was still the world's largest producer of fresh meat, IBP had, by this point, lost much of its reputation as an innovator in the meat-packing business, and the move was seen as a way of fostering the independence necessary for IBP to regain its leading position.

The company also ran afoul of the Occupational Safety and Health Administration, which slapped the company with a record $2.6 million fine for failing to report worker injuries, and after a review of corrected records, assessed additional fines related to a high incidence of carpal tunnel syndrome (a result of repeated, forceful hand motions such as those used in butchering) found among IBP workers. The company eventually paid reduced fines and agreed to set up a study of the disorder.

In 1989 IBP added a new pork plant in Perry, Iowa; added another in Waterloo, Iowa, in 1990; and the same year opened a beef plant in Lexington, Nebraska. In September 1991 Occidental surrendered the remainder of its holdings in IBP to its shareholders, closing its 10-year participation in the business. In 1993, an Iowa jury slapped a $15 million punitive damages penalty on IBP whom it found guilty in a workers' compensation suit brought by a former employee. The same year IBP purchased a pork plant in Logansport, Indiana, and bought a network of hog-buying stations in the same eastern region of the Corn Belt. IBP's net sales grew almost 5 percent over 1992 because of increases in beef and pork prices, growth in demand for beef products generally, and rising meat sales to Japan and other Asian countries.

In 1994 IBP built ham processing facilities at its Council Bluffs, Iowa, and Madison, Nebraska, locations; purchased Prepared Foods, Inc. from International Multifoods; and bought its first non-U.S. plant by acquiring beef and agribusiness firm Lakeside Farm Industries in Alberta, Canada. In 1995, IBP added its first cow boning plants in Tama, Iowa; Gibbon, Nebraska; and Sealy, Texas, for supplying beef trimmings and boneless cuts of beef to producers of hamburger, sausage, and deli meats, and in the same year purchased and renovated a plant in South Carolina for processing fresh meat into consumer-ready products. IBP also initiated a joint venture with Sand Livestock Systems of Nebraska and Shandong Province of mainland China to construct an integrated pork production plant in China scheduled to begin operation in 1998. On the strength of such aggressive pursuit of export markets, IBP had raised the percentage of overseas sales from only 5 percent in 1985 to 14.4 percent in 1995, with customers in more than 50 countries.

Despite lower exports and a drop in net sales--brought on by tight livestock supplies, a drop in beef product prices, and an E. Coli scare in Japan--IBP's 1996 earnings were the second highest in its history. It added a fourth cow boning plant in Palestine, Texas; built a processing facility at its new Canadian operation; and expanded and upgraded its box handling facilities at some of its beef plants. In early 1997 "60 Minutes" aired a critical piece on the meatpacking industry that targeted IBP as an employer who exploited undocumented Mexican workers to labor for poor wages in dangerous working conditions at its Waterloo, Iowa, plant. IBP countered that it used drug and alcohol testing, job training, and financial assistance to provide its workers with safe and competitively paid jobs and had never been cited by the Immigration and Naturalization Service for employing undocumented workers.

In March 1997 IBP acquired FoodBrands America, Inc., a producer of frozen and refrigerated foods for the restaurant and grocery industry, to diversify its business beyond meat and cattle-based products. In May it also acquired the Bruss Company, a processor of premium beef and pork for restaurants, further enhancing its position in the higher margin food service business. The costs of these acquisitions as well as a continued falloff in exports adversely affected IBP's bottom line, but it viewed its long-term prospects optimistically. U.S. beef exports were expected to surpass the one million ton mark in the late 1990s and improving hog supplies and agricultural conditions and an anticipated increase in global demand for high-protein pork products were expected to lift IBP to record earnings in the late 1990s.

A Look to the Future

IBP remains the world's largest producer of fresh and boxed meat and the largest U.S. exporter of meat and meat by-products. It operates 19 beef and pork plants, and also produces almost 350 allied products such as pharmaceuticals and hides--IBP has built four chrome hide tanneries since 1984 and is now the largest producer of chrome hides in the United States. However, the structure of the meat industry has changed in the 38 years since IBP helped to revolutionize the business, and today the packer faces new challenges, such as the decrease in consumer demand for red meat. The company also faces increased competition from giant agricultural conglomerates such as ConAgra and Cargill.

Despite its checkered past, IBP can point with pride to its tradition of high-quality, low-cost products. Although its marketplace is changing rapidly, the company sees great growth potential in its core meatpacking business. In response to changes, IBP has expanded its nonfood interest significantly, but the company continues to invest in the meat business and a wider variety of products, such as prebutchered, meat case-ready fresh meat products, to maintain its premiere place in the meatpacking industry.

Principal Subsidiaries: IBP International Inc. (IBP International, Inc. Asia, IBP International, Inc. Europe); PBX, Inc.; IBP Foreign Sales Corporation; IBP Hog Markets, Inc. (Heinold Hog Market); IBP of Wisconsin, Inc.; IBP Service Center Corp.; Lakeside Farm Industries Ltd. (Lakeside Packers Ltd.); Prepared Foods, Inc.; Rural Energy Systems, Inc.; Southern Beef Processors, Inc.; Supreme Processed Foods, Inc.; Texas Transfer, Inc.; Bruss Company; FoodBrands America, Inc.

Further Reading:

• "A Beef Packing Giant Looks North," Alberta Report/Western Report, October 24, 1994, p. 20.
• "Here's the Beef," Forbes, April 13, 1992, p. 144.
• "Hog Cycle Victim," Forbes, February 27, 1995, p. 162.
• Skaggs, Jimmy M., Prime Cut: Livestock Raising and Meatpacking in the United States 1607-1983, College Station: Texas A & M University Press, 1986.

Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.

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