Causes Greater Concentration of Pork Industry
Further Harming Farmers and Consumers
American Antitrust Institute, Food & Water Watch, Iowa Farmers Union,
Missouri Rural Crisis Center and National Farmers Union
Columbia, Missouri and Washington, D.C.
MRCC Calls on Dept. of Justice to investigate this Anti-Competitive Purchase
MRCC, along with these same groups, submitted a joint white paper outlining the anti-competitive aspects of this proposed acquisition. The white paper concludes that this sweeping deal would not only accelerate the vertical integration of the pork industry but also further concentrate the wholesale market which would impact grocery stores and restaurants and would drive up pork prices for all of us!
Currently, the top four pork packers control 66% of the market and if the acquisition is allowed by DoJ to go through, those same four companies will control 71% of the market.
As much as corporations (and some of our own elected representatives) want us to believe that these mergers make meat more affordable, the truth is that corporate concentration of pork has been horrible for farmers and consumers.
From 1985-2013, the retail price of pork has increased 113% from $1.71 to $3.64. During the same period, the hog producers' share of the retail dollar has decreased from 39%, from 49 cents to 30 cents. This proposed acquisition will only worsen these disturbing trends!
The proposed acquisition of Cargill Pork (Cargill) by JBS S.A. (JBS) would significantly reduce competition in the hog processing and slaughter industry, disadvantaging hog producers, wholesale pork buyers and, ultimately, consumers. The scale and scope of the proposed acquisition warrant substantial scrutiny by the U.S. Department of Justice.
JBS and Cargill are already two of the largest meatpackers in the United States and globally. In the United States, the combined firms sold $59 billion worth of meat products in 2014 making them the second and third largest meat processing firms behind Tyson Foods. (1) Brazil-based JBS is the world’s largest meat company and the second largest beef packer, second largest poultry processor and third largest pork packer in the United States. (2) Cargill is the largest privately held company in the United States and the third largest meat processor in the United States. (3) The proposed acquisition also would mean that the top two pork packing firms -- Smithfield and JBS -- are controlled by foreign companies. (4)
The proposed $1.45 billion acquisition would join the third and fourth largest pork packing companies and the post-acquisition JBS would surpass Tyson Foods to become the second largest hog processor in the country behind Smithfield. (5) It also would create a considerably more vertically integrated JBS. The deal includes Cargill’s two pork slaughter and processing plants (located in Ottumwa, Iowa and Beardstown, Illinois), five feed mills (located in Missouri, Arkansas, Iowa, and Texas), along with four hog production facilities (located in Arkansas, Oklahoma, and Texas). (6) Cargill’s hog production facilities were the eighth largest in the country in 2014, with 161,000 sows. (7)
The merger extends JBS’ long-term effort to become the dominant protein company in each market. The company has grown into the largest meat processor in the world primarily through large acquisitions. JBS has “a very aggressive growth strategy” and growth through acquisitions is “in [the company’s] DNA.” (8) The proposed Cargill acquisition represents “a strategic investment in the long-term growth of [JBS’] domestic and global pork business and demonstrates [the company’s] commitment to the U.S. livestock sector.” (9)
The proposed merger would enable JBS to grow to become a more dominant and more vertically integrated meat manufacturer and violates the Clayton Act’s prohibition against mergers that may “substantially to lessen competition, or tend to create a monopoly.” (10) The proposed merger runs afoul of the U.S. Department of Justice’s merger guidance stating “[m]ergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.” (11)
Rapid consolidation in the food and agriculture sectors has been of rising concern to farmers, consumers and federal regulators. Since the economy began to recover from the recession, the pace of mergers has accelerated and threatens to increase concentration in the already overconsolidated food and agriculture sectors. In 2014, there were more than more than 300 food and beverage mergers and acquisitions valued over $120 billion. (12) The proposed acquisition contributes to the growing size and market power of the top meat and poultry processors that has had tremendous ripple effects across the food chain. Mergers and acquisitions in one portion of the food chain are used to justify reverberating mergers up and down the agribusiness, food manufacturing and retailing sectors.
Only robust antitrust enforcement can protect consumers and farmers from anticompetitive combinations and practices. A May 2012 Department of Justice report “stressed the importance of vigorous antitrust enforcement” and detailed the ways that anticompetitive mergers and conduct can harm farmers, consumers and others. (13) As President Barack Obama observed in his 2013 Inaugural Address “a free market only thrives when there are rules to ensure competition and fair play.” (14)
The proposed acquisition creates a substantially more concentrated hog slaughter market and would give JBSCargill the capacity and incentive to profitably exert this market power over its rivals, farmers and consumers. It would significantly increase the company’s buyer power over farmers, both nationally and in the Midwest regions surrounding each facility (Section II). It would increase the anticompetitive vertical integration in the industry, reducing options for farmers selling hogs on the open market, delivering hogs under contract or raising hogs under production contracts (Section III). It would also further concentrate the market for wholesale pork products, raising prices for retailers, further processing companies and foodservice outlets (Section IV). Ultimately these price increases would be passed onto consumers at the grocery store (Section V). The combined increase in monopsony market power over hog producers and the increase in monopoly market power over consumers acts as a transfer of economic welfare from both farmers and eaters to what would become the second largest pork packer in the United States.
The Department of Justice must oppose the early termination of the antitrust review and issue a second request under the Hart-ScottRodino Act to fully examine the anticompetitive and anti-consumer impacts of the proposed acquisition. (15) We believe the Department of Justice should ultimately enjoin this merger.
2. “JBS to purchase U.S. Cargill pork assets for $1.45 billion.” Reuters. July 1, 2015; Magalhaes, Luciana. “With Cargill purchase, Brazil’s JBS poised to become No. 2 pork producer in U.S.” Wall Street Journal. July 2, 2015; “2014 top poultry companies.” Watt Poultry USA. March 2014 at 18.
4. In 2013, Smithfield was purchased by Shuanghui International Holdings Ltd. (now WH Group) for $4.7 billion. Tadena, Nathalie. “Smithfield Shareholders approve Shuanghui deal.” Wall Street Journal. September 24, 2013.
8. Runyon, Luke. “Inside the world’s largest food company you’ve never heard of.” KUNC Community Radio for Northern Colorado. June 26, 2015; Blankfield, Keren. “JBS: the story behind the world’s biggest meat producer.” Forbes. April 21, 2011.
12. Harris Williams & Co. “Food and Beverage Industry Update.” January 2015 at 11; de la Merced, Michael. “Deal makers notched nearly $3.5 trillion worth in ’14, best in 7 years.” New York Times. January 1, 2015.
Published in In Motion Magazine August 1, 2015
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