|
|
KLA’s Actions in Support of Proposed JBS Mergers Billings, Mont. (October 16, 2008) – R-CALF USA has learned that the Kansas Livestock Association (KLA), a group closely aligned with the National Cattlemen’s Beef Association (NCBA) and the nation’s largest beef packers, has officially thrown its support behind the plan by Brazilian-owned JBS SA to further consolidate and integrate the U.S. cattle industry by proposing to acquire National Beef Packers (National), Smithfield Beef Group (Smithfield) and Five Rivers Ranch Cattle Feeding, the largest feedlot corporation in the United States. In its Sept. 25, 2008, letter to U.S. Assistant Attorney General Thomas Barnett, KLA states: “…unless the review by DOJ should discover significant anti-competitive effects, KLA member policy does not oppose the pending transactions.” “This is utterly amazing and irresponsible,” said R-CALF USA CEO Bill Bullard. “Here is a group that purports to represent the interests of cattle feeders, that does not have member policy regarding the proposed JBS mergers, and, yet, its leadership has effectively preempted its members’ ability to formulate their own policy on this profound merger. “This is the largest and most compelling merger ever contemplated in the U.S. cattle industry and it will radically restructure the entire U.S. cattle industry through its unprecedented concentration of the beef packing industry,” he continued. “It also will lead to unprecedented vertical integration of our U.S. cattle industry.” Studies have definitively shown that the ongoing concentration of the U.S. beef packing industry has caused lower prices. Oklahoma State University economist Clement E. Ward found that “(r)esearch to date suggests price impacts from packer concentration have been negative in general, but small.” Ward also found that most studies found price distortions of 3 percent or less, though he explained that “even seemingly small impacts on a $/cwt. basis may make a substantial difference to livestock producers and rival meatpacking firms operating at the margin of remaining viable or being forced to exit an industry.” Other research has revealed that industry analysts are overlooking key elements of the competitive process when evaluating the effects of further concentration. For example, economists at Utah State University found it “surprising in the face of greatly increased packer concentration” that many studies found no, or very limited, ability of packers to exploit feeders/ranchers and consumers. These researchers found that most of the studies used to identify market power (reduced-form modeling approaches) focused on market outcomes and “overlooked important elements of the competitive process in the beef packing industry.” “This merger will reduce the already marginal competition in the U.S. cattle industry and would significantly harm U.S. cattle producers who need more competition for their livestock, not less,” Bullard emphasized. “In addition, each of the packing firms involved in the merger already have demonstrated a propensity to engage in anticompetitive practices, making KLA’s reference to such acts disingenuous.” JBS SA paid an $8.5 million dollar penalty for engaging in anticompetitive practices against its own cattle producers in Brazil; Swift & Co. currently stands accused by the USDA for underpaying on hot carcass weights; National recently paid a $50,000 penalty involving failure to disclose freight charge deductions and data errors; and, Smithfield recently paid $325,000 in penalties involving improper rounding of hot carcass weights. In the September 2008 issue of Policy Issues (a publication of the Agricultural & Applied Economics Association) John D. Anderson and Darren Hudson present an article titled “Acquisitions and Integration in the Beef Industry,” which reinforces what R-CALF USA has been warning U.S. cattle producers about for the past 10 years. The article states in part: “The JBS–Swift deal could usher in an era of increasing non-price vertical coordination in the beef industry – bringing about a market structure more consistent with pork and poultry markets.” Anderson is an Extension Professor, Department of Agricultural Economics, at Mississippi State University. Hudson is Professor and Agricultural Competitiveness Chair, Department of Agricultural and Applied Economics, at Texas Tech University. “This outcome not only is possible, it is likely,” said Bullard. “We do not want to go the way of the pork industry that has eliminated over 90 percent of its independent producers just since 1980, with the numbers of independent hog producers falling from 667,000 to fewer than 66,000 in the United States. “Purebred cattle breeders need to understand that the concentration and consolidation represented by this merger will significantly reduce the demand for a wide variety of genetics, thus resulting in the exodus of purebred breeders from the industry, which is exactly what happened in the hog industry when meatpackers began dictating the genetics that producers were required to use,” he added. “It is R-CALF USA’s hope that the membership of KLA will take steps to reverse the damage caused by KLA’s letter to the Department of Justice,” Bullard concluded. “We are in an uphill fight to preserve the competiveness of our industry, and now KLA has thrown its weight to support the meatpackers’ interests over the interests of cattle producers. We couldn’t be more disappointed in KLA’s irresponsible and damaging actions.” Note: To view/download KLA’s letters, please visit the “Competition Issues” link at www.r-calfusa.com. # # # R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) is a national, nonprofit 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. R-CALF USA directors and committee chairs are extremely active unpaid volunteers. For more information, visit www.r-calfusa.com or, call 406-252-2516. |
|
This page was last updated on Wednesday, December 24, 2008. |
