CEO Makes JBS Presentation to Justice Department
Washington, D.C. – On Friday, Sept. 5, R-CALF USA CEO Bill Bullard spent more than an hour updating U.S. Department of Justice officials on why granting the proposed acquisitions of National Beef Packing Co. (National), Smithfield Beef Group (Smithfield) and Five Rivers Ranch Cattle Feeding, LLC (Five Rivers) to Brazilian-owned JBS SA would devastate the U.S. live cattle industry.
Many of the current JBS practices he described during Friday’s meeting are inconsistent with the provisions of the Packers and Stockyards Act of 1982 (PSA), specifically 7 USC § 192 et seq.
In summary, Bullard asked the panel to imagine that the day before the merger is announced, three buyers from Swift & Co., National and Smithfield meet together to discuss their plans to buy slaughter cattle.
“If that occurred, those buyers would be in violation of antitrust laws against collusion, and the activities of those three buyers would most certainly hurt the price of live cattle,” Bullard said. “But on the day after the (JBS) mergers, the same three buyers for the same plants could openly discuss their purchasing strategy without violating the law, but the negative impact on cattle prices would remain. That’s potentially a hugely anticompetitive effect on the U.S. cattle market.”
Bullard also requested that the Justice Department investigate the following practices that R-CALF USA alleges are currently exercised by the major packers:
* bidding not to buy cattle, i.e., offering a low bid with no intent to buy, but rather with the intent to lower prices for live cattle;
* offering preferential agreements with captive suppliers for prices and terms not available to other sellers of comparable cattle in the market;
* entering into strategic alliances that contain special agreements for preferential access to the market and/or special prices;
* exercising undue influence over national commodities markets, potentially eliminating this hedging tool for U.S. cattle producers.
During the next few days, our news releases regarding the proposed JBS mergers will break down into lay terms several of the topics Bullard addressed with Justice Department personnel, including myths JBS attempts to claim will result in benefits not only to the industry, but also to the communities in which they are located, as well as the false notion that three major packers are all that are needed to maintain robust competition in the U.S. cattle market.
Also to be addressed will be the issue of how the Justice Department views the U.S. cattle market, both in terms of the products within the market (cows, bulls, calves, yearlings and fat cattle) and the geographic scope of the market, which is limited by transportation costs.
Additionally, upcoming R-CALF USA news releases will examine the negative ramifications to independent U.S. cattle producers should the Justice Department apply the traditional 5 percent price decrease to gauge whether antitrust laws should be enforced. R-CALF USA believes that the 5 percent standard is far too high to evaluate the U.S. cattle industry. R-CALF USA also will examine why the U.S. cattle industry is so highly sensitive to price changes, as well as the potential anticompetitive effects and unilateral effects of coordinated tacit or express collusion by the major packers and the evidence of market power abuses by each of the merging packers.
Interestingly, in a Bloomberg News article dated Sept. 3, 2008, it was reported that “JBS SA, the world's biggest beef producer, tumbled 9.4 percent to 5.80 reais after Moody's Investors Service said it may cut the company’s debt rating to B2 from B1 if U.S. antitrust regulators approve pending acquisitions of National Beef Packing Co. and Smithfield Beef Group Inc. this year. In a statement yesterday, Moody’s cited concerns about JBS’s ability to generate cash to pay debts once the acquisitions are completed.”
Yet it seems as if JBS SA is suddenly and quickly trying to raise cash here in the United States.
On Monday, Feedstuffs reported that JBS SA announced “its board of directors has approved an American Depository Receipt (ADR) program that will allow investors in the U.S. to acquire JBS stock by buying ADRs. JBS noted that considering its relevant involvement in the U.S. market and the company’s ‘larger community of contributors, suppliers and clients, this step represents an opportunity to increase the liquidity, visibility and value of JBS shares.’”
Note: To view Bullard’s PowerPoint presentation, please visit the “Competition Issues” link at www.r-calfusa.com, or contact R-CALF USA Communications Coordinator Shae Dodson to request a copy.