US Sen. Kohl: Recommends against proposed JBS Swift acquisitions

Tag : effect processor
U.S. Sen. Kohl: Recommends against proposed JBS Swift acquisitions
6/24/2008

Contact: Rohit Mahajan or Lynn Becker
(202) 224-5653

WASHINGTON, DC  Today, US Senator Herb Kohl (D-WI), chairman ofthe Senate Subcommittee on Antitrust, Competition Policy andConsumer Rights, recommended in a letter to the Department ofJustice that the proposed acquisitions of JBS Swift of NationalBeef Packing Co. and Smithfields beef division be blocked on thegrounds that these acquisitions are anticompetitive and wouldlikely cause substantial harm to competition and consumers. SenatorKohl held an Antitrust Subcommittee hearing on the proposed deal inMay. The text of the letter sent to Assistant Attorney GeneralThomas Barnett of the Antitrust Division in the Justice Departmentfollows. Please find attached a PDF copy of the letter sent.

June 24, 2008

The Honorable Thomas Barnett
Assistant Attorney General
Antitrust Division
United States Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530

Dear Assistant Attorney General Barnett:

I am writing to you concerning the proposed acquisitions by JBSSwift of National Beef Packing Co. (National) and Smithfieldsbeef division (Smithfield), now under review at the JusticeDepartment. The Senate Subcommittee on Antitrust, CompetitionPolicy and Consumer Rights recently held a hearing to examine thecompetitive issues surrounding these acquisitions, and we have nowcompleted our examination of this transaction. I have concludedthat these acquisitions, if permitted to proceed, would likelycause substantial harm to competition and consumers, would becontrary to section 7 of the Clayton Act, and that therefore theJustice Department should take enforcement action to block theseacquisitions.

JBS Swift is currently the nations third largest beef processor.It now intends to acquire the fourth and fifth largest beefprocessors, National and Smithfield, which will result in JBS Swiftbecoming the nations largest beef processor and leaving only twoother major companies in the industry. These three remaining firmswill have over 80% market share of steer/heifer slaughter, and JBSSwift alone will control nearly a third of the market.

The likely anti-competitive effects of permitting such a high levelof concentration in an already concentrated market are plain tosee. By reducing the number of major buyers for ranchers cattlefrom five to three  and in some regions even one or two  thisdeal will give the remaining beef processors enormous buying power.With little choice to whom to sell their cattle, ranchers willincreasingly be left in a take or leave it position. On thenational level, the JBS Swift acquisitions would combine 11 meatpacking plants now owned by three meatpackers under the singleownership of JBS Swift. On the regional level, many ranchers andfeed lot operators will be left with only one, and at best two,meat packing plants to sell their cattle.

Given this sharp increase in market concentration and reducedoptions for ranchers to sell their cattle, these acquisitions arelikely to substantially injure competition for cattle sold byindependent ranchers for slaughter. These acquisitions are likelyto substantially increase the market power of three remainingnational meatpacking firms, and significantly reduce the pricesranchers are able to obtain for their cattle.

These acquisitions also raise serious concerns that the three majormeatpacking firms will substantially increase their market power inthe downstream market  finished beef sold to supermarkets, smallgrocery stores, butcher shops and restaurants. This raises theserious danger of significant increases in the price of beef paidby consumers. According to the Bureau of Labor Statistics, U.S.beef prices have increased at a rate 68% faster than overallinflation over the last decade. Reducing the number of majorsuppliers of beef from five to three obviously leaves retailers andrestaurants, and ultimately consumers, with significantly fewercompetitive choices. With food prices already rising recently, thisenormous consolidation in the beef processing industry is likelyjust to add to higher food prices at a time that consumers canleast afford it.

It is therefore my conclusion that the Justice Department shouldseek to block these acquisitions on the grounds that they arelikely to substantially injure competition in the beef processingmarket. Should the Department not seek to block these acquisitions,however, at a minimum it should seek the divestiture of Five RiversRanch Cattle Feeding LLC (Five Rivers). JBS Swift seeks toacquire Five Rivers, the nations largest cattle feedlot, marketingapproximately two million cattle annually. The acquisition of FiveRivers would give JBS Swift an enormous captive supply of cattle.JBS Swift could strategically slaughter this captive supply atcertain times without needing to purchase cattle on the spotmarket. Such conduct could substantially depress prices paid toindependent ranchers. Many academic studies have shown that captivesupplies depress cattle prices, and allowing JBS Swift to gain sucha large captive supply by virtue of its Five Rivers acquisitioncould have dangerous consequences for independent producers. Itherefore urge that you obtain the divestiture of Five Riversshould the Justice Department decline to block the acquisitions asa whole.

In sum, because these acquisitions will greatly diminishcompetition in already highly concentrated the cattle processingmarket by reducing the number of national beef processors from fiveto three, and to two or even one in many geographic regions, it ismy view that the JBS Swift acquisitions of National and Smithfieldwill violate section 7 of the Clayton Act which forbids any mergeror acquisition when the effect of such acquisition may besubstantially to lessen competition, or tend to create a monopoly.These acquisitions are likely to result in substantially increasedmarket power for JBS Swift and the other two remaining nationalbeef processors, significantly lower prices to ranchers and higherprices for beef consumers. The antitrust laws should notcountenance such a dangerous outcome. I therefore urge the JusticeDepartment to bring an antitrust enforcement action to block theseacquisitions.