McDonald’s Move to Antibiotic Free Chicken Could Stress Supply Chain

by Sarah Day Levesque

Last week McDonald’s became the latest food chain to address antibiotic concerns when it announced that its U.S. restaurants will stop using chickens raised with certain antibiotics. The fast food giant will continue to allow chickens that are treated with antibiotics that are not used in human medicine. However, it will work with suppliers, such as Tyson Foods, to phase out chickens treated with antibiotics used in human medicine over the next two years.

This move is almost certain to have implications across the supply chain. Antibiotic free chickens represent a very small portion of total chicken volumes in the U.S. and the supply has already been stretched as demand for “natural” products has driven demand for antibiotic-free foods. Demand from other restaurants chains, including Chick-fil-A Inc., the largest restaurant seller of chicken in the U.S., and Chipotle Mexican Grill, will also weigh on supply.

"This is very likely to cause a disruption in McDonald's food supply and will likely raise operating costs for McDonald's franchisees," Richard Adams, a former McDonald's franchisee who now runs the consulting firm Franchise Equity Group told Reuters. Much of the cost increase in using antibiotic free chickens is expected to be born by suppliers, industry analysts say, both because McDonald’s patrons are increasingly lower-income and because suppliers have little market power to resist cost increases.

Some producers have resisted changing to antibiotic-free chickens because of fears that it would increase on-farm operating costs and reduce profit margins, in part because antibiotic use often results in larger chickens and lower losses to disease. However, some of the largest U.S.-based chicken producers, such as Tyson and Perdue, have recognized the changing demands of the market and have already started the transition to antibiotic-free. Only time will tell what impact these efforts will have on the chicken supply chain.