Structure of the U.S. Beef Industry

These developments are interesting, since if they proceed they would reposition the beef industry with an industry structure that is more in line with that in the poultry and pork sectors. However, as a recent article in Policy Issues points outs, it is not clear how the U.S. Department of Justice will rule on these latest acquisitions. A ruling was expected by some in September 2008, but antitrust reviews normally take between eight and sixteen months. We were unable to locate any ruling from the Department of Justice at the time of entry posting.

There are a number of economic and political factors to consider when determining whether to allow the acquisitions to proceed. Currently, there is overcapacity in the packing industry, a result of falling cattle numbers. The increased concentration resulting from the proposed acquisitions would assist in rebalancing supply and demand, albeit with the likely impact of reducing cattle prices paid to cow/calf producers. Allowing the purchase of Five Rivers Ranch Cattle Feeding to proceed would assist the beef industry in achieving the kind of efficiency gains that the poultry and pork industries have obtained with their substantial vertical integration and non-price coordination. However, allowing vertical integration on this scale is likely to be unpopular with producer groups and policy makers, who have traditionally called for limits to be placed on vertical integration.

Canadian producers obviously have an interest in the outcome; typically the industry structures that emerge in the United States eventually make their way north. It is interesting to note that there tends to be much more debate on these issues south of the border, with considerable research being undertaken in universities and policy centres and with producer groups taking strong policy stances. The debate and discussion surrounding the JBS acquisition raises questions about the Canadian beef industry's views on this topic. If there is a lack of formal discussion and debate in Canada, will the Canadian beef industry be caught flat-footed and struggling to remain competitive with the U.S. system? Is there any room for the Canadian industry to pursue a different path? Would a somewhat independent path be good for Canadian beef producers, and for the industry as a whole?

Further Reading:

Department of Justice. "Statement of Douglas Ross, Special Counsel for Agriculture Antitrust Division, U.S. Department of Justice before the Subcommittee on Antitrust, Competition Policy and Consumer Rights Senate Judiciary Committee" May 7, 2008. http://www.usdoj.gov/atr/public/testimony/232891.htm

Center for Rural Affairs. "Act to Halt Meat Market Mergers" petition. http://salsa.democracyinaction.org/o/2715/t/3528/petition.jsp?petition_KEY=802

The Beef Site. "US Farmers Oppose JBS-Swift Takeover." September 16, 2008. http://www.thebeefsite.com/news/24329/us-farmers-oppose-jbsswift-takeover

The Cattle Site. "Senator Against JBS Merger Monopoly." June 25, 2008.