March 27, 2017

Smithfield Foods morphs a strategic initiative into “how we do business here”

By Barney Bernstein, Senior Associate

In my opinion, the greatest part of a consultant’s job is seeing your clients win. And I’m not talking about the quick wins you achieve from completing a successful project. I’m talking about the long-term winning streaks that come from creating and executing a strategy that works and sticking with it so it can produce results—repeatedly and far into the future.

Recent news from the world’s largest pork producer, Smithfield Foods, brought to light one such winning strategy when the company announced in September its purchase of two grain elevators in Ohio. This move was done to put Smithfield in a better position to manage the quality of grain being purchased and shipped between farmers in Ohio and feed mills in eastern North Carolina.

These elevator purchases support a strategy for Smithfield Foods that originated back in 2011, when Smithfield Grain, a unit of Smithfield Foods—embarked on an initiative with Entira to improve the availability of quality feed grains to feed the 9 million hogs for its processing plants in North Carolina and Virginia. With feed costs making up nearly two-thirds of the total cost to grow a pig, Smithfield Grain needed a less costly alternative to shipping grains from other parts of the country.

“Smithfield Grain invited Entira to help evaluate the market situation and guide strategy development to increase availability of locally sourced, lower cost grain,” said Terry Coffey, Chief Science and Technology Officer for the Hog Production Division of Smithfield Foods. The end result included several strategies—including increased focus on improving wheat yields, supporting production practices to improve corn yields, and re-creating a market for milo, or grain sorghum, in the Carolinas and Virginia.

“The most controversial strategy developed and executed with Entira’s help was to increase sorghum production across the tri-state Coastal Plain and Piedmont areas—a bold move, as sorghum hadn’t been a significant rotation in crops for 20 plus years,” Coffey said. “We were glad to have Entira here with us driving the market changes externally while our team remained focused on managing the internal changes—which included moving Smithfield Grain from a rail-based to a truck-based grain acquisition system. That was quite a culture change for us.”

The strategy turned out to be a smart move, as sorghum acres in North Carolina far exceeded our first-year goal—when it was all said and done, 72,000 acres of sorghum were planted in 2012, up from 15,000 in 2011, generating 5 million incremental bushels of feed grains.

Today, Smithfield’s business expansion continues to be supported by that collaboration from six years ago. The quest to find alternative ways to source grain has taken on many forms over the years—the latest being the two Ohio grain elevator purchases. But it all comes back to quality—what’s best for the pigs—and cost—what’s most economical for the farmer.

“Because of the grain deficit in North Carolina, we’re always buying grain elsewhere, and we probably always will,” said Robbie Montgomery, Grain Origination Manager at Smithfield Foods. “We uncovered this opportunity in Ohio to buy grain directly from farmers, and then be able to deliver it and store it ourselves, so we can be 100% certain of the quality when it’s purchased and harvested.”

“We no longer need to work with a third party to get the grain we need. The middleman’s job is to sell grain to various entities—whether it’s being used for ethanol, chickens, beef or pigs,” Montgomery said. “At Smithfield Grain, our only job is to feed pigs; so by streamlining the process, we have complete certainty that the quality of the grain being shipped to our production facilities is exactly what the pigs and the farmers need.”

From Seed to Finish

Another part of this overarching grain strategy is working directly with seed companies as well as farmers to improve the economics of grains grown locally.

“Wheat acres are down 52% in North Carolina because the economics simply aren’t there,” Montgomery said. He said seed costs have been so high that in recent years it was cheaper to import wheat from the Argentina than plant and grow it in North Carolina.

“It all came down to the cost of the seed,” Montgomery said. “During the 2016 growing season, we launched a program where we purchased 60,000 bags of seed from a leading company and offered it to growers at an affordable price in exchange for the farmers agreeing to sell the grain to Smithfield at a competitive price. This gave us better control over the cost and quality of the grain.”

As a result, Smithfield has been able to increase the availability of the best quality feed grains for hog production while also lowering costs all the way back to the farmer’s benefit.

Working Together Through Implementation

It’s tremendous to witness a strategy take root in a client’s organization and watch it evolve over time while they take ownership of the implementation. Entira’s unique approach is to work alongside our clients to not only create the strategy, but also make sure the strategy sticks. Our engagement continues into the implementation phase until we know the plan is working, then the client can take it from there.

We believe Smithfield Grain ensured this program’s success by wisely bringing in strategic partners on the front-end, recognizing the value of specialized talents and the right perspectives in shaping a solid strategic plan. As a right-hand partner in Smithfield Grain’s strategic endeavor, Entira had the privilege of working alongside the strategic minds of Smithfield Grain leaders and representatives from universities and ag distributors to create a plan to overcome the limited availability of local grain for livestock production. This carefully planned and meticulously implemented move on Smithfield Grain’s part led to a winning strategy that continues to expand all these years later.

We’re so happy to see these outcomes, because uncovering alternative means to source high quality, affordable grains was the whole idea when we launched the strategy six years ago. What started as just a single initiative is now the way business is done in the Grain division of Smithfield Foods.

If you’d like to learn more about Entira’s approach encompassing discovery, strategy and execution, contact me at bbernstein@entira.net.