Washington, D.C. – In a meeting held here last week with several officials from the antitrust division of the U.S. Department of Justice (Justice), R-CALF USA urged Justice to block the proposed acquisition of one of the largest feedlots in America, the Arizona-based McElhaney Cattle Co. (McElhaney feedlot), by the world’s largest beef packer – Brazilian-owned JBS.
In the group’s July 2 letter to Justice, R-CALF USA asserts that the agency improperly ignored the findings by Wisconsin Senator Herb Kohl, Chairman of the U.S. Senate Committee on the Judiciary, Subcommittee on Antitrust, Competitive Policy and Consumer Rights, who concluded that JBS’ previous acquisition of the nation’s largest feedlot company, Five Rivers Ranch Cattle Feeding (Five Rivers), would increase JBS’ market power and ‘greatly diminish competition’ in the U.S. cattle market.
The letter also states that the market power and harm to competition arising from the consummated Five Rivers acquisition would now be intensified if Justice were to allow JBS to acquire the McElhaney feedlot.
“Such an outcome should not be tolerated, and we respectfully urge the Justice Department to bring an immediate enforcement action to prevent JBS Swift from acquiring McElhaney Cattle Co.,” the group wrote.
During last week’s meeting, R-CALF USA urged officials to, in addition to considering the merger under the framework of antitrust law, also consider it under the framework of the Packers and Stockyards Act of 1921 (PSA). According to R-CALF USA, the PSA clearly prohibits the vertical integration of the cattle industry by prohibiting beef packers from owning cattle at the last gathering point of slaughter-ready cattle, which in the 1920s were stockyards. Today, beef packers have circumvented stockyards by purchasing fed cattle directly from feedlots, now making the feedlots the final gathering point for slaughter-ready cattle.
“Application of the PSA in today’s marketplace would prohibit beef packers from owning feedlots – today’s final gathering point of slaughter-ready cattle,” R-CALF USA CEO Bill Bullard told the antitrust officials.
As part of his 13-page presentation, Bullard also asserted that the acquisition would reduce the competition between the remaining feedlots for the purchase of available feeder cattle and would reduce the competition between the remaining feedlots in the sale of slaughter-ready cattle.
Additionally, he said that JBS’ dominant control over the wholesale boxed beef market, combined with its inherent ability to pass lost profits on to cattle feeders, would enable JBS to overbid the price of feeder cattle as an effective strategy to force feedlots that lack control over wholesale boxed beef to exit the industry.
“In other words, JBS can both absorb losses associated with the purchase of overpriced feeder cattle through its wholesale boxed beef enterprise and then pass any lost profits associated with the sale of wholesale boxed beef to other feedlots in the form of lower slaughter cattle prices,” Bullard explained. “Because competing feedlots that are not also beef packers cannot absorb and/or pass such losses, they likely would be competitively harmed, and this is why it is inherently anticompetitive for beef packers to own feedlots.”
He also told Justice officials that the McElhaney acquisition would give JBS an unprecedented level of captive supplies. R-CALF USA estimates JBS would own about 40 percent of the cattle needed to fill its daily slaughter capacity for an entire year. He said this would enable JBS to stay out of the cash market for extended periods of time, thus reducing competition in the cash cattle market and lowering cash cattle prices. Then, JBS would be able to continue using the lower cash market price as the base price for the remainder of all the cattle it procures, including through forward contracts, grid pricing, and formula contracts.
“This is a recipe for market manipulation,” Bullard said.
Bullard also told officials that domestic cattle feeders are inherently disadvantaged when they must first compete against JBS when purchasing feeder cattle in the feeder cattle market, cattle that they must later sell to JBS in the final cattle market when their cattle are ready for slaughter.
“It is encouraging that the Justice Department is taking this matter seriously, as evidenced by the fact that agency officials challenged each and every one of our arguments during this lengthy and intense meeting,” Bullard said. “We have not seen such a probing, comprehensive effort since the Justice Department investigated the previous JBS/National Beef Packing Co. merger, which resulted in a historic enforcement action in 2008 that blocked that merger. We’re hoping for the same outcome here.”
r-calfusa.com
Source: newsroom - meattradenewsdaily.co.uk
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