McDonald's Corp's decision last week to phase out human antibiotics from its U.S. chicken supply will add to costs of production in a tight-margin business that are likely to be borne mostly by poultry companies.
McDonald's, whose top chicken suppliers include giant Tyson Foods Inc, has given its producers two years to eradicate all antibiotics used on humans from barns and hatcheries. It's going to be expensive and may take longer than planned: switching to antibiotic-free chickens could increase on-farm costs by up to 3 percent. Perdue Farms, a supplier with about a third the volume of Tyson, told Reuters it's taken more than a decade and millions of dollars to make such a change.
McDonald's will use its purchasing muscle as the world's largest restaurant chain to avoid passing extra costs on to customers, increasingly lower income as more affluent diners prefer competitors like Chipotle Mexican Grill Inc, said analysts including Morningstar's R.J. Hottovy.
Marion Gross, McDonald's senior vice president of North America supply chain management, declined to say how much the company’s costs for chicken could rise. Rather, she told Reuters, the project is "an investment" to meet customer demand.
While veterinary use of antibiotics is legal, controversy has grown over routine feeding of antibiotics that are important to humans to otherwise healthy chicken, cattle and pigs in a bid to stave off disease and help the animals grow more quickly.
The risk is that overuse could spur the creation of so-called superbugs that develop cross-resistance to antibiotics used to treat humans. Reuters found last year that major U.S. poultry firms were administering antibiotics to their flocks on the farm far more pervasively than regulators realized.
The poultry industry maintains there is little evidence that bacteria which do become resistant also infect people. However, more restaurants and retailers are heeding the concerns of consumers, straining meat supplies.
Sandwich chain Chick-fil-A in 2014 gave its producers five years to meet its commitment to go antibiotic-free for chicken. Perdue is a major supplier to Chick-fil-A.
Costco Wholesale Corp., the nation's third-largest retailer that annually sells 80 million rotisserie chickens, told Reuters Thursday it has a "large" appetite for chicken free of these medically-important antibiotics.