Justice urged to block JBS/Pilgrim's Pride action

By CAROL RYAN DUMAS

Capital Press

R-CALF USA is urging the Department of Justice to stop the proposed merger of Brazilian-owned JBS S.A. and Pilgrim's Pride Corp., contending the merger will harm marketplace competition.

"We urge the U.S. Department of Justice to vigorously investigate the antitrust and anticompetitive aspects of this proposal and take all necessary enforcement action to prevent its consummation," said Bill Bullard, chief executive officer of R-CALF.

JBS is the largest beef packer in the world. Since its 2007 purchase of Swift & Co. and its 2008 purchase of Smithfield Beef Group, it is one of the three largest packers in the U.S.

JBS, Tyson and Cargill now represent the majority of U.S. beef packing. If the merger with Pilgrim's Pride is successful, JBS will also control 20 percent of U.S. poultry production.

"The demand and price for cattle is influenced by the supply and price of competing proteins such as pork and poultry," Bullard said. He said prices received by cattle producers are particularly susceptible to increased poultry supplies.

R-CALF estimated JBS' share of fed cattle packing capacity in the U.S. is more than 25 percent. With the acquisition of Pilgrim's Pride, JBS could further manipulate the competing protein market in the U.S., he said.

R-CALF is concerned over the likelihood that JBS would manipulate both live cattle and beef prices by varying the output of the Pilgrim's Pride poultry operation and the price of its poultry.

Pilgrim's Pride has the capacity to produce and process more than 45 million birds per week, controlling virtually every aspect of cost in the entire process, Bullard said. Studies show that a decrease in the price of poultry products results in a decrease in beef consumption.

"Given the long biological cycle of cattle, JBS could enjoy several years' worth of maximized profits as a result of lowering poultry prices to reduce demand for live cattle," Bullard said.

That could result in exploitation of beef producers and beef consumers because JBS could quickly raise the price of both poultry and beef after cattle prices are reduced, he said.

R-CALF is hoping the Justice Department will make the same determination it did last year when it blocked JBS's acquisition of National Beef Packing Co. In that case, the Department found the acquisition would lessen competition among packers and threaten competitive prices to producers.

Other cattlemen's groups, however, don't share R-CALF's concern.

U.S. Cattlemen's Association, which opposed JBS' acquisition of Smithfield and National Beef, is not opposing the merger.

"We, as a cattlemen's group, feel it is not going to hurt us," said the association's president, Jon Wooster, a cattle producer in San Lucas, Calif.

The group hasn't taken a position on the issue and views JBS' entry into the U.S. poultry business as putting the company more in line with Tyson, which processes beef, pork and poultry.

The group's opposition to the Smithfield and National Beef acquisitions was based on the direct effect on cattlemen. The National Beef deal would have locked up processing in the Southwest, making JBS the only large processor in the region, Wooster said.

National Cattlemen's Beef Association, which wasn't opposed to JBS' acquisitions in the past, declined to comment on the merger with Pilgrim's Pride.

Idaho Cattlemen's Association Executive Vice President Tom McDonnell said the organization doesn't have a position on the merger, but will be watching to see whether U.S. regulators approve it.

"We compete in the retail case with poultry," he said. "Whether this puts more poultry in the meat case, I don't know."

Staff writer Carol Ryan Dumas is based in Twin Falls. E-mail: crdumas@capitalpress.com.

Online

Pilgrim's Pride: www.pilgrimspride.com

JBS S.A.: www.jbsswift.com

Pilgrim's Pride

Employs: about 41,000 people at plants in 12 states, Puerto Rico and Mexico

Net sales for FY2008: $8.5 billion

Processing capacity: more than 45 million birds per week; 9 billion pounds of poultry per year

Ranking: largest U.S. chicken producer prior to filing bankruptcy in December 2008

Merger details

Contingent on stockholder approval, Pilgrim's Pride would sell 64 percent of its stock to JBS for $800 million.

The approximate $2.8 billion transaction includes a plan to pay off $1.5 billion of debt and the $450 million value of Pilgrim's remaining stock.

 

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