Meatpackers Battle for Survival : Firms Squeeze Labor Costs Hard in Effort to Ride Out Lengthy Slump

The scene is depressingly familiar. Another rural hamlet tucked deep in the nation’s heartland is being held hostage by a fractious labor dispute in the meatpacking industry.

Hundreds of union workers from the area’s largest employer have been thrown off the job, and no one knows when--or if--they will go back into the big hog slaughtering plant that sits empty near the edge of town.

But this time the scene is not in Austin, Minn., home of the highly publicized and seemingly endless strike against Geo. A. Hormel & Co. It is here in Perry, a town of 7,000 about 40 miles northwest of Des Moines, where Oscar Mayer Foods Corp. shut down its slaughtering plant on April 4--two days before its labor contract was set to expire. Oscar Mayer had decided it would rather lay off its 650 workers than risk a strike.

The company, which said Friday that it will close the plant permanently May 9 unless workers agree to its contract terms, has thus become just the latest meatpacker to play hardball with its union in an effort to squeeze out labor costs and survive the industry’s long slump.

“We’re not interested in negotiating,” C. David Harkness, manager of Oscar Mayer’s Perry plant, warned last Monday.

In fact, while Hormel’s militant and sometimes violent strikers have grabbed all the headlines by struggling through a mini-civil war in their eight-month battle, thousands of meatpacking workers in dozens of other towns like Perry have quietly come under just as much pressure from industry management to grant huge wage concessions or face unemployment.

Wages throughout the meatpacking industry are just now beginning to recover from a virtual free-fall--one that couldn’t be stopped by union leaders and one that cost workers from 20% to 40% of their pay over the last three years.

Far from being just isolated incidents, the long walkout at Hormel’s Austin plant as well as the more recent dispute in Perry, are really part of a much larger confrontation between management and labor throughout the meatpacking industry.

It’s a struggle that began when the nation’s pork producers entered into a period of wrenching restructuring in the early 1980s. A sharp drop in pork consumption, which led to a huge glut in production capacity, sparked the battle in Austin as well as the plant closing here in Perry.

Those same industry conditions have also burdened the rest of the meatpacking business with one of the most turbulent--and rancorous--labor climates of any industry in the country.

“These employers will use anything to their advantage to keep wage rates down,” says John Mancuso, a top official in the packinghouse division of the United Food and Commercial Workers union. “They’re a real bunch of cut-throat operations. They’ll cut each other’s throats just as easily as they’ll cut the workers’ throats, because it is such a competitive industry.” On that last point, there is rare agreement between management and labor. “I think the industry has been forced to be tough on labor because of the economics,” concedes Oscar Mayer’s Harkness.

Meatpackers, and especially companies such as Oscar Mayer and Hormel that slaughter hogs and process pork, have been faced with many of the same problems that firms in other commodity industries have confronted in the low-inflation 1980s--a surplus of production capacity at a time of sluggish demand and depressed prices.

Those trends have been worsened by the long slide in per-capita pork consumption, which has declined from 73.5 pounds a year in 1980 to 66 pounds annually last year. Americans worried about cancer and heart disease are simply eating less pork and more fish and poultry.

At the same time, a number of major new competitors, including IBP Inc., the Occidental Petroleum unit which virtually took over the beef end of the meatpacking business in the 1970s, have been moving into pork despite the capacity glut, with low-wage operations that can outproduce and underprice the traditional, heavily unionized producers in hog slaughtering.

Able to Respond

Meanwhile, farmers, who aren’t burdened with heavy fixed costs in plant and equipment and so are able to respond to market conditions more quickly than meatpackers, have cut back on the number of hogs they are raising because of lower prices.

American hog production dropped from 97.2 million in 1980 to 84.5 million in 1985; as a result, more and more slaughtering operations are now chasing fewer and fewer hogs.

“As an industry, we haven’t been able to shut down enough capacity yet to match the drop in hog production,” observes Bob Brown, an economist with Oklahoma City-based Wilson Foods Corp., which was the nation’s biggest hog slaughterer until it entered Chapter 11 bankruptcy protection proceedings in 1983.

“There is a long list of plants that have closed, but the people in the business that stay open keep improving their productivity, and that increases real capacity even though we have fewer facilities.”

Such pressures have forced a number of producers to get out of the intensely competitive hog slaughtering business in order to concentrate on processing and packaging retail pork products, where profit margins remain more stable.

Worried of Takeover

That has led some industry executives to worry that a handful of low-wage firms, led by IBP, will take over hog slaughtering just as they took over the beef business a decade ago. “IBP is a force to be reckoned with in hog slaughtering,” warns Charles Nyberg, senior vice president at Hormel and the company’s chief labor negotiator.

But for the big processing companies that still want to maintain their own slaughtering divisions in order to control the quality and texture of their meat, slashing costs has been the only answer. (Hormel’s Austin plant integrates both slaughtering and processing, while Oscar Mayer’s Perry plant only slaughters hogs.)

And, in such a highly labor-intensive industry, where automation has made few inroads and where the price of the principal raw material--the hog--can’t be controlled, the efforts of the old-line producers to cut costs and compete with their new rivals have generally been limited to reducing the wages and benefits of their workers.

The downward spiral in wages that has resulted was first touched off in late 1982, when “profit margins just dropped off the table,” says Brown. “That’s when the new low-cost producers started taking too much of the market for the rest of the industry to bear.”

At the time, the UFCW had established a nationwide wage rate of $10.69 per hour for unionized meatpacking workers at the big, traditional pork producers. But many new firms--as well as a handful of regional producers trying to expand--were paying only between $5.50 and $8 per hour, according to Pat Luby, chief economist at Oscar Mayer.

Soon, the union’s wage scale began to crack under the pressure from the low-wage companies. Armour Food Co., then a Greyhound Corp. subsidiary, broke the master bargaining pattern first by getting the union to agree to a wage freeze in 1982.

During the same year, union workers at Clougherty Packing Co.’s Farmer John plant in Vernon, the largest hog slaughtering and pork processing facility in California, agreed to a three-year pay freeze at $9.72 an hour for senior employees, and a two-tier wage structure that paid newly hired workers just $5 per hour. (A 1985 strike there brought only modest wage gains.)

Flood Gates Opened

The flood gates opened wide in 1983, when Wilson filed for Chapter 11, used the bankruptcy procedures to break its labor contracts, and unilaterally cut wages from $10.69 to $6.50 per hour.

Although a union strike against Wilson forced its wages back up to $8 per hour, the damage had been done; every other major pork producer quickly scrambled to meet or beat the wages at Wilson and IBP. The UFCW could do little more than fight a series of rear-guard actions to limit its losses.

Had to Change Strategy

“We were fighting concessions until 1983--from 1980 to 1983, we forced the companies to close 32 meatpacking plants rather than grant them concessions at those operations,” says Mancuso.

“But with the Wilson bankruptcy, we were forced to change our strategy. We were afraid the whole industry could go non-union, so we decided maybe we should retrench and then try to stabilize wages later.”

But the pressure on wages continued. In December 1983, Greyhound sold Armour to agribusiness giant ConAgra Inc., which promptly closed many of Armour’s unionized plants, where workers had still been earning $10.69 per hour, and reopened them the following week with new non-union workers making just $6 to $7 per hour.

Today, those plants remain non-union, according to ConAgra spokesman Walter Casey.

Here in Perry, meanwhile, Oscar Mayer, which is now a subsidiary of Phillip Morris Inc., sought and won big savings in 1983. Over the objections of the international union, which was trying to make a stand on wages, the Perry local agreed to a new contract that cut hourly pay from $10.69 to $8.19, and significantly diminished seniority rights and other contractual benefits, according to Local 1149 President Jim Olesen, who was first elected in 1985.

In response, the international removed the old Perry leadership and put the local in trusteeship, but still wasn’t able to void the 1983 agreement. Oscar Mayer, like virtually every other producer, also pushed through big wage cuts at its other major plants as well, and frustrated union leaders could only wait for better times.

“The big problem has been the unemployment in the Midwest--the companies know that for every guy working in a plant, there are four other guys wanting to take his place,” says Olesen.

But some economists now argue that the steep wage concessions actually did little to help meatpackers--and in fact only fed on themselves--because the industry’s overcapacity problem was never really addressed.

Brown of Wilson Foods believes that concessions begat more concessions: as producers won lower labor costs, they used the savings to cut prices and profit margins to gain a greater share of the glutted market, thereby putting even more pressure on costs, profits and wages throughout the industry.

Wages Declined

By 1984, wages at most major pork producers had declined to just over $8 per hour, and Hormel finally decided to try to get the same kinds of concessions from its workers.

But the international union resisted, and Hormel had to be satisfied with winning cuts that took wages down to $9 per hour in 1984 (rising to $10.00 in 1985) at all of its plants except Austin.

So the stage was finally set for the strike at Austin. The militant leadership of UFCW Local P-9 in Austin rejected the international’s strategy of agreeing to some concessions at Hormel as part of an effort to stabilize national wage rates. Its leaders also repeatedly opposed the company’s attempts to unilaterally impose lower wages on its members through a “me-too” clause in its contract, and the local’s 1,500 members finally went on strike in August, 1985.

Touched Off Battle

Since then, the strike has been prolonged and complicated by factors unique to Austin, including the stubbornness of both management and labor, a factional fight between the international union and the local, picket-line violence, and the fact that the strikers have been replaced both by new non-union workers and former P-9 members who have deserted the cause.

But it was still the industrywide slump that first touched off the battle.

More than eight months later, there seems little chance of a settlement.

Despite the overwhelming evidence that its strike has been lost--Hormel’s plant is fully staffed with strike-breakers, the international union is threatening to oust Local P-9’s leadership, and hundreds of strikers remain out of work--Local P-9 still refuses to agree to Hormel’s terms.

In Perry, meanwhile, the town is holding its collective breath, hoping Oscar Mayer and Local 1149 settle quickly, before the dispute turns into another Austin, or before the plant closes for good.

“We’re in an early tornado warning right now--everybody is in a state of unrest, because nobody knows what is going to happen to the plant,” says Rich Saemisch, a local paint store owner and president of the Perry Chamber of Commerce.

“I just hope somebody in one of those big office chairs would have some compassion for Perry, Iowa.”