Senator Resumes Efforts to Undo Beef Deals
Senator Herb Kohl wrote a letter urging regulators to block JBS Swift’s acquisitions of National Beef and Smithfield Beef Group.
June 25, 2008
On the same day, March 5, that JBS Swift SA unveiled three separate deals for rival packing companies, legislators began politicking regulators to block the acquisitions. The latest push came from Senator Herb Kohl, the chairman of the Senate Subcommittee on Antitrust, who sent a letter to the Justice Department’s assistant attorney general Thomas Barnett, urging him to enjoin the deals on the grounds that they’ll lead to lower pricing power for ranchers and higher prices for consumers at the supermarket.
JBS, in one announcement in March, detailed its plan to buy National Beef Packing Co., Smithfield Beef Group and Australia’s Tasman Group, paying a combined $1.69 billion for the three properties. The thesis behind the transactions, as well as JBS’s previous takeover of Swift in 2007, is to build out its production and distribution, and enhance the combined company’s ability to “reach customers across the world.” It makes sense considering the recent trouble U.S. legislators faced resuming beef exports to Korea, which underscores the difficulty ranchers face gaining exposure to foreign markets.
However, the ambitious nature of the transactions, combining the three of the five largest beef processors in the U.S., has legislators worked up. Senator Charles Grassley expressed concern about consolidation in the industry mere hours after the deal was announced. A day later Congressman Leonard Boswell began politicking the Justice Department to launch an investigation into the JBS transactions, and in May, after several other legislators weighed in against the deals, the Senate held a hearing over the proposed merger.
In Kohl’s letter in June, the senator described that the deals would give JBS control of roughly a third of the overall market. “With little choice to whom to sell their cattle, ranchers will increasingly be left in a ‘take it or leave it’ position,” Kohl wrote, adding that downstream, finished beef will see “significant” price increases on store shelves. He cited that U.S. beef prices had already climbed 68% faster than the rate of inflation over the past decade, and further noted that the merger “is likely just to add to higher food prices at a time that consumers can least afford it.”
Some legislators had attempted to include a provision that would have banned packer ownership of livestock in the recent Farm Bill, but that component was taken out of the legislation’s framework prior to the Senate’s passage of the bill. Grassley, in his original argument against the deal, said that such a provision would have served to bar the JBS transactions.
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