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Myths versus Facts Surrounding Proposed JBS Mergers Washington, D.C. (September 18, 2008) – Recently, R-CALF USA CEO Bill Bullard participated in a follow-up meeting with U.S. Department of Justice officials to explain the potential damage to the U.S. cattle industry if the department approves the proposed acquisitions of National Beef Packing Co. (National), Smithfield Beef Group (Smithfield) and Five Rivers Ranch Cattle Feeding, LLC (Five Rivers) to Brazilian-owned JBS SA. As promised in our news release dated Sept. 10, 2008, over the next few days we will break down into lay terms several of the topics Bullard addressed with Justice Department personnel. Today, we’ll examine the spin JBS would like the public to believe about these proposed mergers and compare it to the facts. MYTH: These mergers would revitalize the ailing U.S. beef packing sector – new blood, new capital. FACT: It is competition itself that facilitates innovation, modernization and revitalization. The unprecedented concentration that already has occurred in the U.S. beef packing industry over the past two decades has eroded competition, resulting in diminished incentives to modernize industry operations. You can’t fix this problem by further contributing to its cause. In other words, you can’t fix the problems stemming from reduced competition by further reducing competition, as would occur under the proposed JBS mergers that would reduce the number of major meatpackers from five to only three. MYTH: The mergers would create improved economies of scale. FACT: The concentrated beef packing industry already has far exceeded any optimal level of economy of scale. The beef packing industry now has reached a new plateau where it can exercise tremendous market power to the detriment of both consumers and cattle producers. Facts show that the price spread between what farmers and ranchers receive for their cattle and what consumers pay for beef continues to grow ever wider. This demonstrates the marketplace is becoming ever-more inequitable and inefficient both for consumers and producers. Again, you don’t fix this problem by further contributing to its cause – by having even fewer packers with even greater monopoly-type market power. MYTH: JBS is an aggressive global exporter and will teach the U.S. beef industry how to compete globally, it will increase beef demand, and it will introduce new technologies. FACT: The U.S. is the largest beef-consuming market in the world – a market coveted by all other beef-producing countries. The U.S. cattle industry, though it produces more beef than any other country, has not produced enough beef to satisfy U.S. demand for well over 40 years. This means the domestic market is by far the most important market for maintaining the viability of U.S. cattle farmers and ranchers – not the export market. Thus, while export markets do help to enhance demand, it is nonsensical to base decisions on the expectation that the tail would wag the dog. We already have examples of moderate-sized domestic beef packers that are aggressive global competitors. Creekstone Farms Premium Beef is one such domestic packer, but its ability to capture even more export markets is impaired by the monolithic meatpackers’ support of USDA’s action to block the exporter from voluntarily testing for diseases such as BSE (bovine spongiform encephalopathy). This same partnership between the monolithic packers and USDA also is working to stymie technological advances. Again, Creekstone Farms Premium Beef provides an example, as it has invested in a state-of-the-art laboratory that can’t be fully utilized because USDA, supported by the monolithic meatpackers, will not allow the exporter to purchase disease test kits. The way to achieve more technological advancements and more exports that lead to more demand is to restore competition in the domestic beef packing industry – not to breed more monolithic meatpackers as the JBS merger would do, so that such packers can continue to partner with USDA to impair and stymie such achievements. MYTH: JBS will hire more workers. FACT: Recent news reports indicate that the workers JBS has been hiring – at least at its Cactus, Texas, location – include Burmese refugees who are plagued with health problems, lack hygiene skills and barely speak or understand English, which is causing some citizens in the area to wonder whether some of these refugees will take their tuberculosis medication as prescribed. Additionally, they are putting a strain on the local school systems, according to some concerned residents. “I confirmed with the Texas Department of Health earlier this summer that dozens of Burmese refugees were brought in through Houston and hired to work at the JBS plant in Cactus,” said R-CALF USA Communications Coordinator Shae Dodson. “Health officials said school nurses brought the tuberculosis problem to their attention and that 40-50 of these individuals would be on medication for the next nine months. Area residents I spoke with were concerned these refugees would not understand the importance of taking their medication as instructed.” MYTH: JBS says three major packers are all that are needed in the United States to maintain robust competition. FACT: R-CALF USA’s contention that the current level of concentration in the U.S. beef packing industry already is too high to sustain robust competition is supported by renowned agricultural economists. For example, Oklahoma State University Economist Clement E. Ward asserts that concentration levels in the U.S. meatpacking industry already are among the highest of any industry in the United States, “and well above levels generally considered to elicit non-competitive behavior and result in adverse economic performance.” According to USDA data, the four largest domestic meatpackers currently control approximately 80 percent of the steer and heifer slaughter in the United States. R-CALF USA estimates that the JBS mergers would result in only three packers controlling more than 91 percent of U.S. steer and heifer slaughter. This level of industry concentration would do nothing but further reduce the already marginal competition remaining in our domestic cattle markets. Upcoming R-CALF USA news releases will examine the negative ramifications to independent U.S. cattle producers should the Justice Department apply the traditional 5 percent price decrease to gauge whether antitrust laws should be enforced. R-CALF USA believes that the 5 percent standard is far too high to evaluate the U.S. cattle industry. R-CALF USA also will examine why the U.S. cattle industry is so highly sensitive to price changes, as well as the potential anticompetitive effects and unilateral effects of coordinated tacit or express collusion by the major packers and the evidence of market power abuses by each of the merging packers. # # # 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 Wednesday, December 24, 2008. |
