Fed files anti-trust lawsuit to block beef merger

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SALEM, Ohio — The U.S. Department of Justice, along with 13 states’ attorneys general, have filed an anti-trust lawsuit to block beef feeding and packing consolidation they say will harm the industry.

The federal case was filed Oct. 20 in Chicago to block the proposed acquisition of National Beef Packing Company LLC, by Brazil-based JBS S.A.

Currently, JBS is the third-largest beef packer in the U.S., and National is the nation’s fourth-largest. JBS is also the top beef packer in the world.

If not blocked, the purchase would boost JBS into the status of largest U.S. beef packer, with an ability to slaughter more than 40,000 head of cattle per day and annual sales of more than $14 billion, according to the Department of Justice.

Other mergers

JBS has already acquired Swift Foods Company and finalized the purchase Oct. 23 of the Smithfield Beef Group.

The federal case did not seek to block JBS’ purchase of Smithfield.

With the Smithfield purchase, JBS now also owns Five Rivers Ranch Cattle Feeding, LLC, which is believed to be the largest cattle feeder in the United States.

With the Smithfield merger approved, the country’s largest meat processor now controls the country’s largest feedlot operation.

Competition

According to the Department of Justice complaint, the proposed merger with National would leave just three significant competitors — JBS, Tyson and Cargill — with 80 percent of the U.S. beef market.

This is likely to reduce competition and prices paid to cattle ranchers, producers, and feed yards.

“JBS’s proposal raises concerns about both buying and selling power in a critically important market. JBS would own almost 35 percent of the industry,” said Ohio Attorney General Nancy Rogers.

“This merger raises the risk of the top three remaining packers coordinating their output and pricing decisions on USDA-graded boxed beef, which would result in grocers, restaurants and Ohio consumers paying higher prices.”

“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.”

Bill Bullard

R-CALF USA CEO

Defense

JBS, however, sees the situation in a different light.

In its “Notice to the Market” issued from São Paulo, Brazil, Oct. 20, JBS states in regard to its proposed acquisition of National Beef, “…This transaction is highly pro-competitive and will generate significant efficiencies and synergies that will benefit our cattle suppliers and our beef customers…”

Supporters

U.S. beef and livestock industry watchdogs are fighting to block the deal.

“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,” said Bill Bullard, CEO of R-CALF USA.

The group, the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, represents thousands of U.S. cattle producers on domestic and international trade and marketing issues

Bullard said the merger could also lead to unprecedented vertical integration of the U.S. cattle industry.

“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.”

“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,” he added.

System works

Others who support blocking the merger include the National Cattlemen’s Beef Association and American Farm Bureau Federation.

“The American Farm Bureau did not take a position on the proposed acquisition, but is pleased that the Department of Justice thoroughly reviewed the proposal and is taking action. It proves that the system works,” said AFBF President Bob Stallman, a cattle and rice producer from Columbus, Texas.

NCBA said it plans to monitor this case, especially to make certain the prices cattle producers receive for their animals do not decrease unfairly, according to NCBA president Andy Groseta.

“NCBA supports free and fair competition in open markets, and believes this is the best way for cattle producers to remain profitable while providing consumers with high-quality beef.”

Proven by research

Studies have shown that the ongoing concentration of the U.S. beef packing industry has caused lower farmgate prices.

Oklahoma State University economist Clement E. Ward found that “research to date suggests price impacts from packer concentration have been negative in general, but small.”

Ward found most studies found price distortions of 3 percent or less, though he explained that “even seemingly small impacts on a dollars-per-hundredweight 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.”

Fined

JBS has already gotten a black eye in the opinions of many beef producers.

The company has paid an $8.5 million dollar penalty for engaging in anti-competitive 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.

Smithfield recently paid $325,000 in penalties involving improper rounding of hot carcass weights.

Background

States whose attorneys general who have joined the lawsuit to date include Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas and Wyoming.

JBS’s annual beef sales in the United States exceed $6 billion.

In March 2008, JBS announced its plan to acquire Smithfield, with annual beef sales of more than $2.5 billion.

The former Smithfield operates plants in Tolleson, Ariz.; Green Bay, Wis.; Plainwell, Mich.; and Souderton, Pa.

National has two beef packing plants Liberal and Dodge City, Kan., and one plant in Brawley, Calif. National has annual beef sales of about $5 billion.

About the Author

Former staff reporter Andrea Zippay wrote for Farm and Dairy from 2001 to 2009. More Stories by Andrea Zippay

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