South American cattle.
Seventy-two cattle-producer and other groups are concerned about a South American company’s plans to become the largest beef packer in the United States. JBS South America wants to buy National Beef Packing and Smithfield Foods’ beef operations -- two of the five largest beef companies in the United States. It has already bought the Swift company.
JBS SA, located in San Paulo, Brazil, also wants to buy the Five Rivers Ranch Cattle Feeding, a 800,000-head company located in Colorado, Idaho, Kansas, Oklahoma, and Texas.
The 72 U.S. organizations wrote a multi-signatory letter March 25, urging U.S. justice officials to “scrutinize the merger, issue a second request (for more information from JBS), and strongly consider blocking the deal.”
If the deal were to go through, along with the proposed purchase of some Australian beef companies, JBS SA would control 10 percent of the world’s beef supplies. It would only have two major U.S. competitors -- Tyson and Cargill.
The signatories of the letter assert that the JBS purchases would “harm price, choice, innovation and competition in the beef industry.”
“Reducing the number of major beef processors from five to three is likely to have adverse effects on consumers as well (as beef producers),” the letter states.
“This would constrict access to the cash market more than it already is” said R-CALF USA Vice President Randy Stevenson. Fewer than 35 percent of cattle today are bought and sold by competitive bids in the open market, the letter said.
Existing U.S. packers exert unbalanced market power by increasing “the number of captive supply arrangements offered with mathematically precise impacts on price,” the letter says.
JBS’ proposed purchases would eliminate two national buyers and “ increase vertical integration because Swift will now control Smithfield’s substantial feeding operations that are proximate to its slaughter houses. This will drive prices down for all feeders of cattle.”
Fewer feeders, farther away
One of the competition-limiting factors discussed in the letter involves the cost of transporting fed cattle to different regions in the United States.
“Because of high fuel costs, freight charges are increasing…. It is impractical for feeders to ship live cattle more than 250 miles because one market-weight animal is required to pay for the trucking to a plant,” Stevenson said.
“No efficiencies or benefits will arise from this acquisition…New entry requires extraordinary amounts of cash and liquidity to compete beyond a niche level…Beef packing is a mature industry in which competition must be preserved,” the letter says.