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73 Groups Urge Justice Department to Consider Blocking JBS Deal Billings, Mont. (March 25, 2008) – Today, 73 cattle-producer associations and various agricultural, consumer and religious groups sent a letter to the U.S. Department of Justice regarding JBS SA’s recent announcement that it plans to purchase National Beef Packing, Smithfield Foods’ beef operations and Five Rivers Ranch Cattle Feeding. The letter urges officials to “scrutinize the merger, issue a second request (for more information from JBS), and strongly consider blocking the deal.” The signatories, including R-CALF USA, assert that the JBS purchases would “harm price, choice, innovation and competition in the beef industry.” Last year, JBS SA acquired Greeley, Colo.-based Swift & Co., to form JBS USA, making the Brazilian-owned JBS the third largest U.S. beef packer. If the above-mentioned deal goes through, it easily would make JBS the largest beef packer in the United States and in the world, followed by Tyson Foods and Cargill Meat Solutions. “The primary focus of our concern is with the buying market for cattle, although we believe that reducing the number of major beef processors from five to three is likely to have adverse effects on consumers as well,” the letter states. The letter explains that at the current level of market concentration, there already is a diminished volume of cash market purchases due to the ongoing vertical integration achieved through packer-owned cattle, contracted cattle, and relationship cattle. “This would constrict access to the cash market more than it already is, as limited access to the cash market already impacts the prices received for all classes of cattle because the cash market continues to set the base price for all transactions,” said R-CALF USA Vice President/Region II Director Randy Stevenson, who also co-chairs the group’s marketing committee. “The signatories state that they believe the open market, competitive bid percentage of cattle, industry wide, is less than 35 percent today.” The letter also states that even without the further concentration that would occur if JBS acquires more U.S. packers, existing U.S. packers are able to exert market power by increasing “the number of captive supply arrangements offered with mathematically precise impacts on price. That math has been shown in the Picket v Tyson litigation, in several academic publications, in the offices of packer buyers, and in the February 2007 USDA Research Triangle Institute report.” The letter further states that JBS’ proposed purchases will eliminate two national buyers “and will increase vertical integration because Swift will now control Smithfield’s substantial feeding operations that are proximate to its slaughter houses. This will drive prices down for all feeders of cattle.” “Between the proposed acquisition of Five Rivers Cattle Feeding and pre-existing relationships that Swift has with other large feedlots, this will greatly reduce the number of cattle JBS will need to buy in a competitive cash market,” Stevenson pointed out. One of the competition-limiting factors discussed in the letter involves the cost of transporting fed cattle to different regions in the United States. “Because of high fuel costs, freight charges are increasing, and our letter explains that it is impractical for feeders to ship live cattle more than 250 miles because one market-weight animal is required to pay for the trucking to a plant,” Stevenson explained. “When there is no regional competition, the remaining packer will impose a discount on cattle prices equivalent to the freight cost to the nearest competitor.” “A larger cost is unrealistic, hence the elimination of a major competing buyer in the region will directly affect the prices paid on all sales in the region and will have a ripple effect as those lower prices get factored into formulas and market prices in other regions,” the letter concludes. “No efficiencies or benefits will arise from this acquisition…New entry requires extraordinary amounts of cash and liquidity to compete beyond a niche level…Beef packing is a mature industry in which competition must be preserved.” Note: To view the letter in its entirety, visit the “Competition Issues” link at www.r-calfusa.com, or contact R-CALF USA Communications Coordinator Shae Dodson. # # # R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) is a national, non-profit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle industry. R-CALF USA represents thousands of U.S. cattle producers on trade and marketing issues. Members are located across 47 states and are primarily cow/calf operators, cattle backgrounders, and/or feedlot owners. R-CALF USA has dozens of affiliate organizations and various main-street businesses are associate members. For more information, visit www.r-calfusa.com or, call 406-252-2516. |
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This page was last updated on Friday, June 06, 2008. |
