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Justice Department’s and States’ Antitrust Complaint
Reveals Knowledge of U.S. Cattle Industry 

Washington, D.C. (October 21, 2008) – A review of the complaint filed Monday to block the proposed merger of Brazilian-owned JBS SA (JBS) – the nation’s third largest meatpacker – and National Beef Packing Co. – the nation’s fourth largest meatpacker – in U.S. District Court, Northern District of Illinois, Eastern Division, by the U.S. Department of Justice and 13 State Attorneys General reveals a strong working knowledge of how the U.S. cattle industry functions.  

That is the conclusion of R-CALF USA, which has spent the past several months providing volumes of explanatory information to the enforcement agencies in an effort to inform them on the unique characteristics of the U.S. cattle industry and its unique susceptibility to abusive market power caused by the continued consolidation of U.S. meatpackers.      

“We knew from the outset of the March 2008 announcement by JBS of its intention to further consolidate our meatpacking industry that officials within the Justice Department and State Attorneys General offices would be faced with the daunting task of evaluating and predicting the most likely impacts of the proposed JBS mergers without the benefit of knowing how the $50 billion a year live cattle industry even functions in the United States,” said R-CALF USA President/Region VI Director Max Thornsberry, DVM. “R-CALF USA viewed its duty as a national representative of the U.S. live cattle industry to do everything possible to assist the enforcement agencies in achieving a strong working knowledge about the unique characteristics of our industry. 

“After submitting volumes of data, evidence and analysis, and after holding numerous meetings, the fact that the enforcement agencies have achieved a strong working knowledge of the U.S. cattle industry is now clearly revealed by the lawsuit that seeks to block JBS’ proposed acquisition of National Beef,” he continued.  

According to Thornsberry, the following factual allegations contained in the lawsuit demonstrate a strong working knowledge about how the U.S. cattle industry functions and how it is uniquely susceptible to abusive market power. 

Justice and the State Attorneys General allege:  

• The transaction would lessen competition by eliminating head-to-head competition between the merging parties, would likely diminish the vigor with which JBS and other cattle buyers will each compete for fed cattle, would make interdependent or coordinated conduct among the meatpackers more likely, and likely would result in lower prices not just for fed cattle sold by feedlots, but for cattle sold by “producers, ranchers and feedlots.”
• Meatpackers have “extensive and timely information about the cash market,” and that the base price of formula and grid pricing arrangements “is often linked to one of several USDA-reported regional cash prices.”
• “All else being equal, when the meat packing industry reduces production levels, feedlots and cattle producers are paid less for fed cattle…”
• Small changes in industry production can significantly affect packer profits.
• The major packers obtain significant information about each other’s past and future output decisions.
• If meatpackers were to lower the price paid for fed cattle, cattle producers would not have sufficient alternatives to make such a practice unprofitable for the meatpackers.
• The merger would result in three firms with more than 85 percent of the slaughter capacity in the High Plains region.
• If the packers decrease the price they pay for cattle in one region, cattle producers and feedlots likely would not shift sufficient volumes to other regions to make such a practice unprofitable for the meatpackers. 
• The proposed transaction is likely to lessen competition substantially in the purchase of fed cattle in the High Plains region.
• Prices paid by packers for fed cattle likely will decrease.

“These items contained within the lawsuit demonstrate a high level of understanding about our U.S. cattle industry by the Justice Department and 13 State Attorneys General, including a clear understanding that reduced competition leads to lower fed cattle prices that impact not just cattle feeders, but cattle producers and ranchers as well,” Thornsberry said.  

“The real irony here is that R-CALF USA is the only national cattle-producer association that has been warning the cattle industry about the dangers of this merger and that has fought vigorously to block this merger since March, while other organizations like the National Cattlemen’s Beef Association (NCBA) – which purports to represent cattle producers – merely sat on the sidelines and waited for the government to tell it whether this most radical structural change in the history of our industry would be harmful to U.S. producers.” 

Also, Travis Justice, a spokesman for the Arkansas Beef Council, was quoted by media as claiming that the 13 states represented in the lawsuit are primarily feedlot states, and that because Arkansas is a cow/calf state, “Arkansas cattlemen should have minimal risk exposure if the deal is allowed to go through, because they do not market their cattle directly to packers.” 

“How can such an industry official claim that more than half the states that have joined the lawsuit, such as Minnesota, Missouri, Montana, North Dakota, Ohio, Oregon and South Dakota, are primarily feedlot states when these states, like Arkansas, are primarily cow/calf states,” Thornsberry asked. “And why doesn’t this industry official know that lower fed cattle prices translate into lower prices for cow/calf producers? 

“It is hugely disappointing to learn that we have organizations purporting to represent the U.S. cattle industry that know less about how our cattle industry functions, after years and decades of representation, than government officials who have been exposed to our industry only for the past eight months,” he concluded. “This suggests there is something fundamentally wrong with how U.S. cattle producers currently are being represented by their trade associations.” 

Note: To view/download the Justice Department’s complaint against JBS SA, please visit the “Competition Issues” link at www.r-calfusa.com.

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                            This page was last updated on Thursday, December 17, 2009.