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Cargill's dominance a concern

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HAY MAKER

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Cargill's dominance a concern
OPINION, Western Producer September 8, 2004 Wendy R. Holm, P.Ag.

In the early 1980s, before the Bureau of Competition policy moved from
Consumer and Corporate Affairs to Industry Canada and before the repeal
of both the Combines Investigation Act and the Foreign Investment Review
Act, Cargill's takeover of Better Beef would have been viewed
differently by Ottawa.

Of course, back then, the industry itself was different. Ranchers
produced for a domestic market and regional packers put Canadian beef in
Canadian stores.

But with the signing of the Free Trade Agreement and mounting pressures
for globalization, many sectors underwent rapid change, including
agriculture. Within a few years, cheap offshore boxed beef, much of it
coming in on supplemental permits, flooded the domestic market,
displacing Canadian beef and driving down profit margins to packers.
With the arrival of Cargill in 1989 and Iowa Beef Processors/Tyson in
1994, most of Canada's small meat packers disappeared.

Today, Cargill in High River, Alta., and Tyson in Brooks, Alta., control
65 percent of fed cattle slaughter in Canada. When Better Beef in
Guelph, Ont., and XL Foods in Moose Jaw and Calgary are included, these
four packers control 85 percent of Canadian fed cattle slaughter.

And hold on to your hat. Things are about to get more concentrated.

Last week, Canada's federal Competition Bureau approved Cargill's
purchase of Better Beef, giving Cargill a 48 percent share of the
Canadian fed cattle slaughter market and an 80 to 85 percent share of
the Ontario market. Put another way, 80 percent of Canadian slaughter
capacity now rests with two American firms:
Cargill and Tyson.

Wasn't it only a month ago that Wayne Easter, parliamentary secretary to
the minister of agriculture, warned Ottawa that economic concentration
in the farm supply and processing sectors has turned Canada's farmers
into price takers?

Making direct reference to Cargill's market dominance, Easter noted in
his recent report that Iowa regulations prohibit packers from owning,
controlling or operating feedlots and Nebraska laws prohibit packers
from taking direct or indirect ownership of livestock more than five
days before slaughter.

Clearly, the Competition Bureau officers did not read or chose to ignore
Easter's report.

What avenues did the bureau have open to it? Legally, it can challenge a
proposed merger before the competition tribunal.
Practically, mergers are more often "negotiated" through the imposition
of conditions intended to lessen the effects of market dominance.

While the Easter report provided solid resonance for such negotiations,
there is no indication that the bureau gave any consideration to
imposing conditions to the merger to mitigate Cargill's market dominance
in Western Canada.

Politically, of course, other factors come into play. If the industry
itself supports a merger, it becomes more difficult for Ottawa to rule
against it.

In this case, the Ontario cattle industry supported Cargill's takeover
because Better Beef, with an 80 percent share of the Ontario fed-cattle
slaughter market, was considered a "bad player" that dealt with
suppliers in a heavy-handed and arbitrary manner. Ontario cattle
producers supported the merger because they figured Cargill couldn't be
worse.

In the West, ranchers already living with the effects of a Cargill's
market dominance are worried. The Canadian Cattlemen's Association took
no position on the merger, sending a clear signal to Ottawa.

Last week, the bureau stepped back and will allow the acquisition to
proceed. In its announcement, it cited four reasons for approving the
merger:

* Because the two main packing plants are
physically distant - High River and Guelph - they don't compete now in
the purchase of cattle and hence the merger is not likely to "depress
prices paid to ranchers to a level that is below the competitive price
for a significant period of time"
and result in a "substantial prevention or lessening of competition" in
the purchase of cattle.

* July's opening of the U.S. border to
cattle younger than 30 months enhances competitive options for Canadian
producers, mitigating the effect of Cargill's 50 percent market share.

* Even if the border closes again, "the effects
would not be significant enough to result in a substantial lessening of
prevention of competition" because of the physical distance between the
plants.

* Canadian retailers have told the bureau that
Cargill's significant dominance in the case-ready beef market will not
reduce competition because they can always import boxed beef and/or
reinstate in-store butchering.

Controlling fully 50 percent of the fed-cattle slaughter capacity in
Canada and 80 to 85 percent in Ontario, Cargill now has us all in a nose
twitch.

If, in future industry negotiations, Cargill threatens to pull up
stakes and leave, who will fill its place? The implications suggest what
Cargill wants, Cargill will get.

Already, the lion's share of U.S. farm subsidies goes to concentrated
agri-business players, not farmers. Cargill is a past master at it. Look
what has already happened with BSE support. The farming of farm
subsidies by large multinationals has implications for Canadian farmers,
Canadian taxpayers and Canadian communities.

With Cargill and Tyson now controlling the packing sector in both Canada
and the United States, the negative effects of market dominance on
farmers and the communities they serve can only escalate.

Two American-based multinationals don't need written memos and recorded
phone conversations to divide the pie. As long as they each pay
next-to-nothing for the product, both are ahead.
 

Jason

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How about the positive side to this buyout?

Cargill has added another shift at Better Beef increasing demand for live cattle.

Better Beef according to the article was hard to deal with, the exact reason they were able or willing to be bought out. Cargill knows you need supply to continue in business.

A couple direct quotes from the article:
If, in future industry negotiations, Cargill threatens to pull up
stakes and leave, who will fill its place? The implications suggest what
Cargill wants, Cargill will get.

This seems to be a concern on the surface, but if conditions are such that Cargill would just leave Canada, our industry is in serious trouble anyway. If they bluff, and there is really profit in their operations, another group perhaps producer owned will be there to take the reigns. Other meat packers would be waiting to take Cargill's spot if profit is there.



* Canadian retailers have told the bureau that
Cargill's significant dominance in the case-ready beef market will not
reduce competition because they can always import boxed beef and/or
reinstate in-store butchering.

This one is telling. Stores have moved away from in store meat processing because of the cost advantages of case ready supply. If the cost advantage were to disappear, so would the stores support. Cargill can't just randomly hike prics without reason. Others in the chain know what the costs are and will take back any excess.

One last point. Producers still hold the control of the cattle. If we don't make money we don't keep supplying calves. I am smart enough to make adjustments in my operation, I know others are as well.
 

adventureman

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I would be afraid if I was involved in a producer ran plant. What happens when these places get going and Cargill sees some money to be made. They jack up prices for four months, we all know how loyal farmers can be, and surprise the little guys get priced out. We shoot ourselves in the foot and we are back to square one. No one said anything when Cargil gained a massive share of the cattle market, but try and merge a bank and all hell breaks loose. What can the producer do though? We are screwed as far as I am concerned, the big guys control the industry and they don't want any progressive change, so we just got to take it. I guess we'll just have to let them pick the tune and we got to dance to it.
________
starcraft II replays
 

Jason

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adventureman said:
I would be afraid if I was involved in a producer ran plant. What happens when these places get going and Cargill sees some money to be made. They jack up prices for four months, we all know how loyal farmers can be, and surprise the little guys get priced out. We shoot ourselves in the foot and we are back to square one. No one said anything when Cargil gained a massive share of the cattle market, but try and merge a bank and all hell breaks loose. What can the producer do though? We are screwed as far as I am concerned, the big guys control the industry and they don't want any progressive change, so we just got to take it. I guess we'll just have to let them pick the tune and we got to dance to it.

Adventureman, look for a second at your own quote. I don't disagree with you about producers being disloyal as soon as a higher price is offered, but whose fault is that? The responsibility for selling out your own producer venture would lie with the producers that do that. Regardless, I think it would be prudent for those cattle to be contracted to the producer owned co-op. But there is that nasty word again...contracted.

To say Cargill doesn't want progressive change is just plain wrong. They are considered the leader in case ready beef product. Case ready is the only way we are gaining any market share right now, (or not losing more).

The High River plant in Alberta is on the Sterling Silver program, where beef that grades to certian higher than average specs is labeled. Those specs include limiting ribeye size, (younger cattle) with adequate marbling, and limited fat cover. I just saw a store in Claresholm advertising they sell Sterling Silver beef on a roadside billboard. Very good exposure on the main #2 hiway.

I think a better discription would be we let them identify the tune consumers are playing ane we both dance to it.
 

PORKER

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No one said anything when Cargil gained a massive share of the cattle market, but try and merge a bank and all hell breaks loose.

It's going to happen someday that the biggies will be Subdivided into SMALLER units as per the other's that have fallen by the wayside in the last 100 years.History repeats itself!
 

agman

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PORKER said:
No one said anything when Cargil gained a massive share of the cattle market, but try and merge a bank and all hell breaks loose.

It's going to happen someday that the biggies will be Subdivided into SMALLER units as per the other's that have fallen by the wayside in the last 100 years.History repeats itself!

I agree with you on that Porker. If and when they become too large that they become less efficient they will perish. Failure does not distinguish by size. That goes for every sector of the beef industry and every other business as well.
 

Jason

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agman said:
I agree with you on that Porker. If and when they become too large that they become less efficient they will perish. Failure does not distinguish by size. That goes for every sector of the beef industry and every other business as well.

When do you think packers will be too large Agman? It seems that right now a 5000 hd per day plant seems to be about the biggest an area can handle. Is it just plant size or whole company size that will redistrubute the industry?
 

Murgen

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Jason, I would think you would also have to take into account the market for a specified plant! With transportation costs etc. a plant in Ontario, with a consumer population base at it's doorstep, will not compete directly with a plant in say Montana!
 

PORKER

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You are right Murgen ,Less Miles greater Profits as the pasture and feedlot are next to the plate.I keep saying its going to be more regional in the packing industry with the little guy growing.
 

Tully

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We are currently being infested with the Cargill virus here in the great south land (Australia) apart from their attempts at market manipulation the other aspect I have noticed is the brainwashing of their employees. Cattle buyers who I have dealt with over the years & found to be basically decent human beings are soon adjusted after being in the employ of this company ,to put it bluntly they turn into smug arsholes overnight & seem pleased as punch when they manage to dupe some poor soul with their predatory grid. They manage to turn milk tooth steers into 4 tooth steers as if by magic in the hour long trip from farm to abattoir ,this results in a price downgrade of about 60c/kg (about $170-$200/head) ,the realy sad thing is to see the poor dunces sell to them again.......there is just no answer to this sort of stupidity, except perhaps bankruptcy .I think this is a type of fiscal evolution.....the dumb go under & the smart marketers buy them out. :???:
Tully
 

Jason

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Tully, does Australia have indepenent inspection as North America does?

Here an (CFIA in Canada and USDA in the States) inspector would age the animals and grade their fat level.

Last I read Australia didn't have a grading system in place per se.

It comes back again to producers thinking their cattle are better than they really are. A starved yearling might be the same weight as a calf, but it doesn't make him one.

I have talked with a couple guys here that say the same thing, they swear they are shipping 20 month cattle and they grade as over 30 months. I don't buy it as I have had 28-29 month old cattle butchered and the inspector passed them as under 30 months. I had 1 right on 30 months and 1 at 31 months...they both were ruled over 30 months. The official numbers I have read is about 3 in 1000 are declared over 30 months when they aren't.

Murgen, I agree about the distance to population thing. But what is your take on more calves headed to Ontario this past year or 2? Did some feeder capacity re-open, or did they use to bring in US calves from NY, Maine etc?

The second shift at Better Beef should encourage more feeders there, but land values have to be a concern as well.

When you figure out transportation costs I think all of them need to be figured. Live calves to feedlot, fats to packers, carcass to processor and boxes or case ready to retail. There are way fewer pounds of retail product to truck to retail, but in reefers, as opposed to live cattle. Then there is the manure concerns with live cattle being processed near big populations.
 

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