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Justice Department Urged – Again – to Thoroughly Probe JBS Deal Washington, D.C. (April 10, 2008) – In a 25-page formal request to the U.S. Department of Justice, R-CALF USA has asked the Justice Department to conduct a thorough, probing analysis of JBS’ proposed acquisitions of National Beef Packing Co., Smithfield Beef Group, and Five Rivers Ranch Cattle Feeding, and that the Justice Department also expand its investigation to include a thorough, probing analysis of the current market environment in which this merger is proposed. Additionally, this proposed merger would most likely violate both the spirit of and express prohibitions contained in the Packers and Stockyards Act of 1921 (PSA), which was designed to afford the U.S. live cattle industry with protections beyond the traditional concerns of efficiency and market competition. In particular, the PSA was designed to prohibit unfair, deceptive, and manipulative acts and practices that have the effect of manipulating or controlling prices, as well as to prohibit the creation of a monopoly. Inasmuch as creation need not occur instantaneously, the JBS-Merger clearly catapults the beef manufacturing industry toward monopolization nationally, and perhaps achieves complete monopolization in certain geographic regions. “We are confident that such a comprehensive analysis will reveal the need to aggressively challenge this merger, as well as to reveal the need to initiate immediate remedial action to halt the anticompetitive practices already prevalent within the U.S. live cattle industry,” said R-CALF USA CEO Bill Bullard. “This organization is going to take every step possible to prevent this merger from happening, and we invite other organizations and concerned livestock producers to join us in this fight. We firmly believe that this merger, in an already concentrated industry, would result in JBS exercising market power to the detriment of producers and consumers, and because of that, the Justice Department should intervene.” Member-established policy states that R-CALF USA supports aggressive action against any further concentration in the beef processing and retail sales sectors, including the active application of Section 7 Antitrust provisions, and that R-CALF USA also calls upon Congress to pass, and the appropriate government agency to implement, legislation requiring divestiture by the five major meatpackers and five major pork packers of all livestock production assets. “This is the last stand for independent people in the cattle industry today, and it’s obvious that no one but R-CALF is going to take up this fight,” said R-CALF USA Marketing Committee Co-Chair Dennis Thornsberry. “We’ve seen what’s happened to the hog and chicken industries, and the U.S. live cattle industry is right here on the verge of it. If this merger goes through, I think we’re done. If it goes through, it’s an ideal time for JBS to vertically integrate this industry, and I’m not so sure it’s not a ploy to do that. We know that’s been their goal for at least the past 15 years.” “It’s going to be an uphill battle to stop this, but if JBS becomes the largest packer and the largest feeder in the U.S., it will simply destroy integrity in the cattle market,” said R-CALF USA Vice President/Region II Director Randy Stevenson, who also co-chairs the group’s marketing committee. “Market integrity provides access to anyone and maintaining market integrity is the No. 1 job of Wall Street and the CFTC (Commodity Futures Trading Commission). Diversification isn’t just horizontal, but vertical also. If you have 10 packers and one makes a mistake, there will be significant waves, but not a tsunami. However, if you only have three packers and one makes a mistake, the result no doubt will be a tsunami throughout the entire industry.” R-CALF USA’s correspondence to the Justice Department states in part: “The U.S. live cattle industry is a unique value-added U.S. industry that is highly susceptible to any reduction in competition and any exercise of market power. Factors contributing to this susceptibility include the perishable nature of slaughter-ready cattle, as well as the fact that regional competition in raw material markets, such as the live cattle market, is inherently less intense than in processed food markets. Unlike many other raw material industries, the U.S. live cattle industry is comprised of numerous value-added segments that collectively generate 27 percent of the industry’s $50 billion contribution to the U.S. economy. The viability of the numerous value-added segments of the U.S. live cattle industry are intrinsically tied to the price of the industry’s principal product – slaughter-ready cattle, and it is this segment of the industry that is most susceptible to monopsony power wielded by an extremely concentrated beef manufacturing industry and that serves as the portal through which monopsony power can invade the entirety of the U.S. live cattle industry. The U.S. live cattle industry has already partially succumbed to the exercise of market power emanating from pre-existing levels of concentration in the beef manufacturing industry as evidenced by the loss of nearly 40 percent of its participants since 1980, and by the ongoing disruptions in the historic cattle cycle – itself an indicator of the industry’s competitiveness as it functioned in response to competitive supply and demand signals. Even USDA (U.S. Department of Agriculture) attributes recent disruptions to livestock cycles as a function of structural changes to the industry. “The U.S. hog industry, which lost 90 percent of its participants since 1980, no longer is comprised of the critical mass of participants necessary to sustain a national, competitive market. The U.S. cattle industry, however, still consists of hundreds of thousands of independent businesses that can, indeed, sustain a robust, competitive market, provided it is protected from further erosion of competition and monopsony power. Despite its present, diminutive size, the U.S. hog industry provides valuable insights into the future of the U.S. live cattle industry should increased concentration in the beef manufacturing industry and increased monopsony power continue unabated. It also reveals the harm to consumers arising from the food manufacturers’ excessive control over livestock production, which is evidenced by an upward trend in retail pork prices paid by consumers and a downward trend in hog prices paid to producers. “This merger would significantly increase the concentration of the beef manufacturing industry and would facilitate significantly the exercise of market power. Albeit too late, a USDA study recently acknowledged that market power emanates from the similarly concentrated pork manufacturing industry, concluding there was a “significant presence of market power in live hog procurement.” This study also found a causal relationship between the use of captive supply livestock and depressed livestock prices, concluding that a small increase in packer-owned hogs caused cash market prices to decrease. Of particular concern is that this merger would result in both the increased use and effectiveness of captive supply cattle to depress U.S. cattle prices by increasing the beef manufacturing industry’s ability to further restrict producer access to market outlets. “The present use of captive supplies and other strategies designed to effect market power by beef manufacturers is already harming the U.S. live cattle industry. Empirical evidence shows that beef manufacturers have used their market power to coerce political support from producers. They have engaged in coordinated actions resulting in reduced prices for live cattle. They have imposed disparate discounts for similar quality specifications. They have imposed pricing strategies that defy competitive market fundamentals. And, they have begun to subdivide the cattle market by denying access to the market for certain subclasses of cattle.” “To make matters worse, JBS-Brazil has a history of being a bad actor, as evidenced by media reports that it engaged in anticompetitive practices against Brazilian cattle producers,” Bullard concluded. “Further, the vertical integration component of this merger – the acquisition of the nation’s largest cattle feeding company – will significantly intensify the degree of market power emanating from this holding because, unlike the present owner, JBS likely would have the daily slaughter capacity to slaughter all the cattle it feeds, thus increasing the percentage of captive supply cattle that are withheld from the cash market.” Note: Persons who wish to assist R-CALF USA in its efforts may do so by sending their contributions to: R-CALF USA Legal Fund, PO Box 30715, Billings, MT 59107. To view R-CALF USA’s correspondence to the Justice Department, visit the “Competition Issues” link at www.r-calfusa.com, or contact R-CALF USA Communications Coordinator Shae Dodson to request a copy. # # # 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. |
