JBS beef buy bad for all
July 3, 2008
When Wesley Batista, the North American boss of Brazilian meatpacker JBS Swift, testified before a U.S. Senate subcommittee probing his firm’s pending buyout of National Beef Packing and Smithfield Foods beef operations, he all but sang the Star Spangled Banner and waved Old Glory.
“We want to expand U.S. sales of beef and pork, domestically and around the world,” Batista told the Senate’s Subcommittee on Antitrust, Competition Policy and Consumer Rights May 7. “In the process, we will create U.S. jobs.”
Smart. Nothing makes a senator smile faster than the promise of new, home state jobs – even if they’re built on cow guts and the sale of $1 billion of American assets to a Brazilian multimillionaire.
It was a winning line so Batista repeated it four more times in the next three minutes before concluding his brief, not-one-fact testimony with another heart warmer. “On a personal note,” he said, “my family and I greatly enjoy living in America… This is a great country.”
Of course this is a great country. After all, where else in the world could a little-known, foreign meatpacker go from nothing to No. 1 in cattle feeding and beef packing in a year with little more than warm bromides and cold cash?
Only in America, baby. Only in America.
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JBS Swift’s storming of the U.S. beef packing and feeding sectors, however, hinges on the Department of Justice approving its buyout of National Beef, Smithfield’s beef slaughter operations and Smithfield’s massive Five Rivers Cattle Feeding LLC, the nation’s largest cattle feedlot with a one-time capacity of 811,000 head.
Should DOJ bless the purchase, the Brazilian firm will leapfrog cattle-killing competitors Cargill and Tyson to control nearly one-third of all cattle slaughter while paring the number of national packers from five to just three.
If that happens, wrote Sen. Herb Kohl, D-WI, in a June 24 letter to Thomas Barnett, the head of DOJ’s antitrust division, “These three remaining firms will have over 80% market share of steer/heifer slaughter…”
Such an outcome would all but end competitive cattle buying in America, Bill Bullard, CEO of R-CALF, the Billings, MT cattlemen’s group, told the Senate hearing. It “would likely be the proverbial straw that breaks the camel’s back” of the $50 billion-per-year cattle market.
The key is “captive” cattle – animals either owned or contracted to packers – that packers use to effectively corral price discovery.
Currently, packers have their hooks into 60 percent, or 27 million of the 45 million steers and heifers, of cattle slaughtered in the U.S. each year. That majority control is where the “price of cattle is established for the remaining 18 million cattle that are not sold to the (current) major packers,” related Bullard.
Further concentration – allowing the Big Four or Five to become the Big Three – said Bullard, all but assures easier price coordination between packers that then threatens thinner markets, lower cattle prices, fewer cattlemen and harm to “thousands of rural communities that depend on a vibrant, competitive U.S. live cattle industry.”
He’s not stretching the blanket. From 1980 through 2004, the top four American hog packers increased their national kill percentage from 33.6 to 61.3, according to U.S. Department of Agriculture data. Simultaneously, the number of U.S. hog operations declined from 667,000 to 67,000.
And as the hog packers’ grip tightened, the spread between farm and retail prices expanded: from about 50-cents per pound in 1980 to more than $2 per pound in 2007.
As such, beef eaters have as much at stake in JBS’ market grab as beef producers. This deal, should DOJ approve it, will leave a bad taste in everyone’s mouth.
© 2008 ag comm
Write to Alan Guebert at agcomm, 21673 Lago Dr., Delavan, IL 61734, or by email at firstname.lastname@example.org