(Bloomberg) -- Many McDonald’s (NYSE:MCD) Corp. customers aren’t able or willing to pay an extra 5% to 20% for the bacon on their burgers if Carl Icahn succeeds in revamping the company’s supply chain.
That’s the estimated cost increase the fast-food company might face if it stops buying meat from producers who put pregnant sows in gestation crates, according to two industry experts. For customers, that means adding two half-strips of bacon to a burger could cost more than $2 in Chicago, where McDonald’s is based.
Icahn’s pitch to end what he and animal-welfare experts call the inhumane treatment of animals comes at a time when consumers are already grappling with soaring prices for gas and grocery items. The meat industry has been hit particularly hard during the pandemic due to a shortage of U.S. workers, and now the spike in fuel prices is driving higher shipping costs. President Joe Biden has urged Congress to assess whether meat processors are engaging in anticompetitive behavior.
“Prices are going up across quick-service restaurants pretty aggressively,” said Mike Halen, an analyst at Bloomberg Intelligence. “I don’t know how much more consumers are going to be willing to accept in terms of price increases right now, especially with prices going up for everything.”
McDonald’s raised menu prices about 6% last year in the U.S. More hikes may be on the table as the company expects higher food and paper inflation this year in the U.S., compared with 2021.
Billionaire Icahn has nominated two directors to the boards of McDonald’s and grocery giant Kroger (NYSE:KR) Co. as part of his campaign against gestation crates. Back in 2012, McDonald’s said it would require its U.S. pork producers to outline their plans to phase out the use of the stalls, which are too small for pigs to turn around in. The company’s current policy, however, allows for the confinement for about six weeks in early stages of pregnancy. Some members of the pork industry say the crates protect sows’ health.
Icahn has urged McDonald’s to require all of its U.S. suppliers to move to “crate-free” pork and to set a specific time frame for doing so. A spokesman for the company declined to comment beyond its statement from February, which said that “the current pork supply in the U.S. would make this type of commitment impossible.”
Eliminating the practice entirely would be a tough undertaking for the industry, and for Smithfield Foods Inc., the world’s biggest pork producer.
“Any disruption to hog production would certainly have an impact on pork prices,” said Russell Barton, director at commodity researcher Urner Barry. “If you are restricted in the amount of hogs you can produce in a given facility, by giving them more space and things like that, then you are going to ultimately end up with tighter pork supply unless you make it up for it and build more facilities.”
At Coleman Natural Foods, which doesn’t use gestation crates at all, farmers are paid as much as 20% more than the commodity price depending on the market, according to Jim Wallace, a senior director in the company’s live-hog operations. Its farmers also don’t use antibiotics or synthetic hormones in raising its pigs.
Steve Meyer, a consulting economist for the National Pork Board and the National Pork Producers Council, expects prices could rise around 5% if gestation crates are eliminated. “You’ve got to cover all costs and it all depends on so many factors,” he said.
“But to some families, anything higher is important,” Meyer said. “We ought to think about them.”
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