Well-Known Angus Breeder, Well-Known Angus Sales Manager, Warn U.S. Cattle Industry of Perils if JBS Deals Approved
Dear fellow Angus enthusiasts, U.S. cattle producers and U.S. beef consumers, we want to inform you of a proposal that would significantly change the competitiveness of the U.S. cattle industry.
A Brazilian meatpacker, JBS, recently purchased the third largest U.S. meatpacker – Swift & Co., making JBS the third largest U.S. meatpacker and the world’s largest meatpacker, due to its other global holdings. In March 2008, JBS announced its intentions to purchase the fourth and fifth largest U.S. meatpackers – National Beef Packing Co., and Smithfield Beef Group. This purchase would make JBS the largest meatpacker in the United States and would significantly reduce competition, particularly in areas like Dodge City, Kan., Liberal, Kan., and Cactus, Texas, where these packing plants currently compete against each other for fed cattle.
In addition to the purchase of U.S. packing plants, JBS also intends to purchase the largest feedlot operation in the United States – Five Rivers Ranch Cattle Feeding, LLC, which is currently owned under a joint venture by Smithfield Beef Group. Because Smithfield’s packing plants, which currently are located in Pennsylvania, Wisconsin, Michigan, and Arizona, are outside the region where most cattle are fed and slaughtered, Five Rivers does not likely provide Smithfield with large volumes of captive supply cattle. Instead, Smithfield likely sells most of its Five River cattle to other packers. However, if JBS purchases Five Rivers and the other two packers, it will become virtually integrated and all of the 2 million cattle fed annually at Five Rivers would be captive supply cattle available to JBS.
We are deeply concerned that the JBS plan to purchase two major packers and to vertically integrate the feeding sector will give JBS an unprecedented ability to manipulate and control cash cattle prices. This would directly impact U.S. fed cattle prices, which would lead to lower prices paid for all classes of cattle, including calves, bulls and replacements.
In December 2007, JBS publicly announced that it intended to increase its beef exports from Brazil by 30 percent. There can be no doubt that JBS intends to capture a large share of the U.S. beef market with Brazilian beef, and this proposed purchase will certainly help to accomplish that goal. The control JBS would acquire over U.S. cattle slaughter would be unprecedented, with experts estimating that JBS would control one-third of all the steer and heifer slaughter in the United States.
In 2006, we cattle producers in the U.S. produced approximately 86 percent of all the beef consumed in the U.S., which means approximately 14 percent of the beef consumed in the U.S. was from imported beef and beef from imported cattle. If a Brazilian firm is allowed to control one-third of U.S. slaughter, and because foreign beef already has captured 14 percent of our domestic market, then nearly 50 percent of all beef consumed in the U.S. will be controlled by foreign interests.
In early 2007, the U.S. Department of Agriculture (USDA) announced that it intended to begin importing fresh and chilled beef from a South American country that borders Brazil (Argentina), even though Argentina had an outbreak of foot-and-mouth disease as recently as 2006. If USDA persists in relaxing our current health standards, then the purchases planned by JBS could also subject us to serious animal health issues as well. Another issue of concern is the ongoing instability of South American governments and currencies, which could raise significant national security concerns if such a large volume of our beef production were to be controlled by a Brazilian firm.
Having expressed our concerns for the proposed JBS purchases, it is important that you know what is being done to protect the interests of U.S. cattle producers.
The U.S. Department of Justice is charged with reviewing mergers such as these to determine: 1) if they would lessen competition within the industry; and 2) if they would result in the exercise of market power (in other words, would the merger give the merging firms the ability to manipulate or control prices?). The Justice Department is currently conducting an investigation to determine the potential effects of these particular mergers. In addition, the U.S. Senate Judiciary Committee has indicated that it would likely hold a hearing to investigate the potential impacts from these mergers.
On April 3, 2008, the Justice Department indicated that while these mergers would greatly concentrate the beef packing industry, concentration alone does not violate antitrust laws. The Justice Department, therefore, must find evidence that the concentration would result in less competition or more market power, and it is going to need help from our industry to compile this evidence. We must look at this issue from a long-term perspective as well. What would we do if JBS later attempted to purchase Tyson Foods or Cargill Meat Solutions, or both?
If we look at what already has happened to purebred swine breeders when the U.S. hog industry became highly concentrated and vertically integrated, it is clear that purebred cattle producers would be the first in our industry to suffer the consequences of further concentration and further integration. This is because, like in the swine industry, vertically integrated firms want to control not only the volume of supplies they need, but also, they want to control the genetics of the supplies as well, often engineering their own genetics and requiring commercial cow/calf producers to purchase their semen or their bulls. This would put many registered breeders out of business.
What can you do?
1) Write your U.S. Representative and two Senators and urge them to take steps to prevent the proposed JBS mergers on the grounds that they will reduce competition in your industry.
2) Write the Justice Department and explain how the JBS mergers would negatively impact your operation. Write to: The Honorable Thomas Barnett, Assistant Attorney General, U.S. Department of Justice, Office of Operations, Premerger Notification Unit, Room 3335, 950 Pennsylvania Avenue, NW, Washington, DC 20530.
3) Write to your state Attorney General and urge him or her to take steps to prevent the JBS mergers.
4) Our industry must immediately organize to stop these mergers. R-CALF USA has already stepped to the plate and provided the Justice Department, the Senate Judiciary Committee, and state Attorneys General with a white paper explaining why these mergers would harm our industry. You can obtain a copy of this white paper under the “Competition Issues” link at http://www.r-calfusa.com. R-CALF USA relies exclusively on contributions to protect the interests of U.S. cattle producers, so we ask you to contribute any amount you can afford to R-CALF USA so it can effectively fight this merger.
5)Also, because numbers mean power, we encourage you to help strengthen the voice of the cattle industry by becoming a member of R-CALF USA. Membership dues are $50 per year, or $140 for three years. You can mail a check for your membership and a contribution to the R-CALF USA office at P.O. Box 30715, Billings, MT 59107, or you can call 406-252-2516 and pay your dues with VISA, MasterCard, American Express, or Discover.
Please join your fellow cattle producers to help stop the JBS purchase of additional beef packing plants and feedlots in the United States.