U.S. Cattlemen Pleased With DOJ Intervention in JBS Acquisition of National Beef

On Monday, October 20, the DOJ filed a lawsuit in U.S. District Court in Chicago challenging JBS’s proposed acquisition of National Beef Packing under the Clayton Act. The lawsuit does not challenge JBS-Swift’s proposed acquisition of Smithfield Food’s beef operations, nor does it challenge the company’s acquisition of Fiver Rivers Ranch Cattle Feeding.

USCA President Jon Wooster, San Lucas, California said, "We are pleased with the DOJ intervention in this issue and we’re delighted that the complaint filed before the Court integrates many of the points provided by USCA to the DOJ over the course of the process. USCA has remained engaged in the matter through dialogue with DOJ officials and members of Congress to raise the profile of this issue. Actions taken by the DOJ to file suit demonstrate that our efforts have been fruitful. We remain concerned, however, that the Smithfield Foods and Five Rivers Ranch acquisitions are not being challenged at this point."

JBS announced its proposed acquisition of National Beef on March 5 for a total enterprise value of approximately $970 million. Under the terms of the purchase agreement, JBS would acquire all of National Beef’s operations and facilities, including National Carriers, Inc., and its ownership in the Kansas City Steak Co., LLC combining those enterprises with JBS-Swift’s beef operations.

On April 7, 2008 USCA submitted a letter to Assistant Attorney General of the United States Thomas O. Barnett, requesting the DOJ’s full and complete oversight of the proposed mergers, to include an examination of both the overall and regional economic impact.

Wooster pointed out that USCA has argued consistently that the purchase of fed cattle is a relevant product market and that the High Plains and Southwest regions are relevant geographic markets for the purchase of fed cattle. "Increased concentration in the packing industry can affect specific regions of the country in significant ways. In particular, the proposed consolidation being challenged by the DOJ would leave some live cattle producers in certain parts of the country with just one packer to market their cattle to unless they are willing to pay increased transportation costs and stand the costs of the resulting reduction of cattle weights. These costs would quickly negate the basis for shipping cattle out of the region to a different packer. Armed with this knowledge, packers would likely discount cattle and the result is harm to the live cattle producer. There are also no guarantees that any discount to producers would be passed on to consumers in the form of lower prices."

In its letter to Barnett USCA wrote, "There are already regions in the U.S. where a single packer controls 100% of the market. This merger would exacerbate that situation and totally decimate any market competition in those regions. Smithfield, National and Swift now each have a plant in the Southwest servicing Southern California, Arizona, Utah and Western New Mexico. If these three companies are allowed to be merged, JBS-Swift would in effect control the fat cattle market in this geographic area, and there would no longer be a competitive market for producers and feeders to market their fat cattle."

USCA cited in its letter to Barnett the March 2002 Government Accountability Office (GAO) study specifically designed to assist the U.S. Department of Agriculture and the U.S. International Trade Commission design their treatment of competition, marketing practices and international trade effects on U.S. cattle prices and producers’ incomes. USCA also cited an investigation by the U.S. Department of Commerce and the U.S. International Trade Commission into the U.S. cattle and beef industry wherein it was specifically reported that "the packing industry, which purchases fed cattle for slaughter, is heavily concentrated among a few firms, with purchases by the four largest packers accounting for 81% of the fed cattle...because of the large number of cattle producers and the fact that each operation is small relative to the domestic market, domestic producers are price takers." To view USCA's letter to the DOJ go to www.uscattlemen.org.

"The lawsuit filed by the DOJ to block the JBS acquisition of National Beef is a step in the right direction towards preserving a competitive market place for cattle producers," noted Wooster. "USCA will continue to focus on a solution-oriented approach based on the best interests of cattle producers."

Established in March 2007, USCA is committed to concentrating its efforts in Washington, DC to enhance and expand the cattle industry’s voice on Capitol Hill. USCA has a full-time presence in Washington, giving cattle producers across the country a strong influence on policy development. For more information go to www.uscattlemen.org.