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The complex system of
the American food industry has come under increased scrutiny as
reports that the parent company of U.S. Foodservice, the nation’s
second-largest food distributor, has drastically overstated its
earnings surface.
Over the last two years,
Royal Ahold NV, the parent company, reportedly overstated its earnings
by at least half a billion dollars, raising many public and private
inquiries and prompting officials to examine U.S. Foodservice’s
books.
The work of U.S. Foodservice
is largely behind the scenes, but the company does affect consumers.
Their role is combined with many other companies to make up the
complex network of the U.S. food industry. One way to understand
the system is to follow a product, such as a hot dog, from its origin
on the farm to the consumer.
After birth, a calf is
raised with its mother until it reaches about 800 pounds, at which
time it is sold to a feedlot for about 75 cents per pound. At the
feedlot, the animal is grain-fed until it weighs about 1,250 pounds
and then sold to a packing plant for about 77 cents a pound.
At the packing plant
the animal is slaughtered using an increasingly mechanized process.
About 130,000 cattle are slaughtered each day in the United States.
A 1,250-pound animal amounts to about 450 pounds of finished cuts
of meat and 150 pounds of "trim." The trim, which has
a higher fat content and lower market value, is often used for ground
products like hamburgers and hot dogs.
The trim meat is then
sold to processing plants for varying prices. The suppliers and
processors are constantly trying to secure the best prices in the
widely fluctuating market. Once at the hot-dog plant, the trim is
ground into a paste, cooked and packed.
The U.S. Foodservice
buys products from the manufacturers and then resells them at a
profit to restaurants, schools, hospitals and other commercial outlets.
Additionally, they receive another source of income from the manufacturers
through what is known as "vendor allowances." These allowances
are paid by manufacturers to retailers, restaurants and distributors
to ensure that their products will be carried and widely circulated.
However, U.S. Foodservice
reportedly had problems in accounting for its vendor allowances,
causing Royal Ahold to inflate its earnings by at least $500 million
in 2001 and 2002.
While grocery stores
used to account for the largest share in American food money, this
is changing. Currently, about 49 cents of every dollar spent on
food is spent on food away from home.
The result is that manufacturers,
which sold $180 billion of products in 2002 to distributors who
supply restaurants, are constantly adding to their vendor allowances
to gain leverage with food distributors.
According to experts,
distributors may make more profit from vendor allowances than from
selling food. In terms of the hot dog, the end product likely sells
for about $2.00.
According to the food
industry, the inexpensive cost of the end product, which had to
pass through the hands of many people, is indicative of the sophistication
of American food production.
Washington
Post March 16, 2003; Page H01
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