OCM CALLS FOR MORATORIUM ON PACKER MERGERS

ORGANIZATION FOR COMPETITIVE MARKETS
P.O. Box 6486
Lincoln, NE 68506
Web site: www.competitivemarkets.com
Date:  November 14, 2000                        For Immediate Release

Contact:            Fred Stokes: 662-476-5568
                        Doug O’Brien: 860-379-6199

OCM CALLS FOR MORATORIUM ON PACKER MERGERS 

The Organization for Competitive Markets called today for a two-year moratorium on meat packer/processor mergers.  OCM is reacting to the recent announcement that Smithfield, the country’s largest hog packer and hog producer, has offered to acquire IBP, Inc., the country’s largest beef packer and second largest hog packer. 

“Livestock producers, and especially hog farmers, would be injured enormously by this acquisition,” said Fred Stokes, president of OCM.  “With the increased consolidation, loss of a buyer, and Smithfield’s increased ability to manipulate prices, farmers and ranchers are guaranteed to see lower prices.” 

“The antitrust laws, as they are interpreted by the courts today, may very well be insufficient to deal with the harm that packer concentration causes to producers,” said Doug O’Brien, attorney for OCM.  “The only true remedy at this time is to take a time out, temporarily halt meat packer mergers, and assess the harm done to competition in the agricultural marketplace.” 

“The biggest danger is that the Department of Justice will treat it like the Continental/Cargill merger, where DoJ only merely looked at some of the areas where the markets directly overlapped and forced some limited divestiture,” said Michael Stumo, General Counsel for OCM.  “In such a case, DoJ would appear to be doing its job, but we would end up with a far more concentrated and less competitive market.” 

Smithfield currently possesses 18.4% of the nation’s hog slaughter capacity while IBP possesses 17.7%.  IBP has one-third of the nation’s beef processing capacity.�
Smithfield’s slaughter capacity is focused in the Mid-Atlantic with only two plants in the Midwest.  In contrast, the bulk of IBP’s hog processing is in the Midwest.  Significantly, the two firms differ in their approach to acquiring hogs.  Smithfield owns a majority of the hogs it slaughters with a reported goal of becoming 100% vertically integrated.  IBP purchases its hogs through marketing contracts and on the open market. 

OCM vigorously opposes the acquisition as one of the most egregious examples of the wave of mergers within agribusiness.  Specifically, the merger would: 

1. Further concentrate the meatpacking sector towards even more anticompetitive evels.  The acquisition of IBP by Smithfield would remove the largest player (IBP) in the cash market for hogs.  The result will be even lower prices.

2. Hasten the vertical integration of the hog and cattle sectors.  Smithfield’s business plan focuses upon aggressive vertical integration.  It owns about 60% of the hogs it processes and has marketing contracts for many other hogs, thereby limiting its open market bidding.  It will certainly impose that model on IBP pork and beef plants.

3. Allow Smithfield to continue it pattern of shutting down plants to decrease slaughter capacity and lower prices within the industry.  Smithfield has a pattern of purchasing and then shutting down hog slaughter plants, such as Dakota Pork in Huron, South Dakota and the Farmland plant in Dubuque, Iowa.  Smithfield CEO Joseph Luter, III, is on record complaining of too much slaughter capacity in the pork industry.

4. Greatly increase Smithfield’s ability to manipulate prices.  Most formula-priced hogs in both the Midwest and throughout the country are based on cash prices in the Midwest.  The acquisition would make it much more possible for Smithfield to depress cash prices in the Midwest, and therefore depress prices across the nation.

5. Create new barriers to entry in the wholesale to retail meat trade.  Smithfield and IBP have large contracts for supplying red meat to WalMart and other large retailers.  In the instance of WalMart, Smithfield would consolidate its position as a supplier.  New competitors will face even higher barriers to entry.  “Whether it’s Congress or the Department of Justice, someone must step up to the plate to stop this acquisition and protect independent farmers and ranchers,” said Stokes. 

The Organization for Competitive Markets is a multidisciplinary, nonprofit group of farmers, ranchers, academics, attorneys, and policy makers dedicated to reclaiming the agricultural marketplace for independent farmers, ranchers and rural communities.

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