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.
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.
