JBS expansion would damage US meat industry, claims group

By Linda Rano

- Last updated on GMT

Related tags Beef Livestock Meat Jbs

The acquisitions planned by a major US beef packager - JBS Swift - will have far-reaching effects on the nation's meat packaging industry, according to industry members that have voiced opposition to the deals.

In a letter to the US Department of Justice, 72 animal producer associations and agricultural, consumer interest and religious groups have outlined their concerns about JBS Swift's purchase of National Beef Packing, Smithfield Foods' beef operations and Five Rivers Ranch Cattle Feeding.

The letter envisages that the merger, in reducing the number of major US meat packers from five to three, would damage other players in the industry.

JBS last year acquired Swift & Co to form JBS USA, making it the third largest US beef packer.

According to R-CALF, which represents US cattle producers on trade and marketing issues, if the new deal goes through JBS would become the largest beef packer in the US and the world, followed by Tyson Foods and Cargill Meat Solutions.

Increased vertical integration, reduced cattle prices

The letter notes that that the JBS purchase would eliminate two national packers "and will increase vertical integration because Swift will now controlSmithfield's substantial feeding operations​" which are situated near the slaughter houses. "This will drive prices down for all feeders of cattle​."

R-CALF maintains that the proposed acquisition of Five Rivers Cattle Feeding together with pre-existing relationships with other large feedlots would ensure the number of cattle that JBS buys in the competitive cash market would be greatly reduced. Increased vertical integration by ownership and contract has already restricted access to the cash market and prices for all classes of cattle have been impacted. It is estimated that the open market, competitive bid percentage of cattle, is currently less than 35 per cent.

Five Rivers Ranch Cattle Feeding is an independently operated joint venture between the cattle feeding businesses of Smithfield Foods and ContiGroup Companies. According to Smithfield, Five Rivers is the world's largest cattle feeder and has a combined feeding capacity of more than 800,000 head of cattle.

The letter notes that if the acquisition goes ahead, in those areas with only one active buyer the prices will go down. The elimination of a major competing buyer will directly affect the prices paid on all sales in the region and will have a ripple effect as those lower prices get factored into formulas and market prices in other regions.

Increased packer power

The letter adds that even without further concentration existing packers are able to exert market power by increasing "the number of captive supply arrangements offered with mathematically precise impacts on price​"

The letter states that the effect of increased captive supply arrangements is that "there is lower trading volume and, price volatility increases because the open market cattle prices are buffeted by packer decision making on price, shift shut-downs, and mere market rumours​."

Reduced Competition

The letter predicts that the acquisition would also harm "innovation and competition​" in the beef industry and adds it is "likely to have adverse effects on consumers​".

The letter concludes that "no efficiencies or benefits will arise from this acquisition​" Each of the current big five enterprises is larger than necessary for efficient operation.

The letter notes that new entry into the packing business already 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 urges officials to scrutinise the merger, issue a second request for more information from JBS and seriously consider blocking the deal.

Related topics Processing & Packaging

Related news

Show more

Follow us


View more