Canadian view of Tyson sell out Print E-mail
Thursday, 03 July 2008
Canada's National Farmers Union is neither related to the U.S. association with the same name nor the U.K. association. Here is the Canadian view of Tyson's sale of the company's packing and feeding assets to XL Foods of Canada. Darrin Qualman, the group's Director of Research, is a smart guy.
I reprint their news release after the fold. But consider currency. The U.S. dollar was strong when Tyson went to Canada. Tyson could acquire cheaper Canadian cattle and process them. Tyson fed cattle there too. They could send either cattle or beef to the U.S., forcing U.S. prices down. Cattle analysts here just looked at U.S. supply and U.S. demand, which was less relevant to Tyson's supply lines which extended outside this closed system.
Now the dollar has fallen. Canada's dollar is high. Canada's BSE risk increases. Tyson is pulling out. Currency, I suspect, made the difference.
National Farmers Union [Canada]
FOR IMMEDIATE RELEASE JUNE 30, 2008
TYSON-XL SALE WILL FURTHER CONCENTRATE
HYPER-CONCENTRATED SECTOR
ROSSENDALE, Man—Tyson Foods announced last week it would sell its Brooks, Alberta packing plant, feedlot, and other Alberta assets to XL Foods, part of the Nilsson Brothers Group of companies.
Prior to the sale, Cargill, Tyson, and XL were the three biggest players in the Canadian packing sector, with Cargill and Tyson each having 28,000+ head/week capacity and XL having 10,000/week.
This merger of the assets of two of Canada’s big three will leave the largest two players in the Canadian beef packing sector—Cargill and XL (w/ Tyson assets)—with 80% of beef slaughter capacity. XL alone will have nearly half of Canada’s capacity—46.4%. (Capacity data from Canfax, 2007 Annual Report.) Not long ago, a market was considered concentrated and potentially uncompetitive if the four largest firms controlled more than 40% of capacity. The Canadian beef packing sector will be at least four times more concentrated than that, if the Tyson-XL sale is allowed to proceed.
“The rhetoric is ‘competition.’ The reality is a couple companies controlling each sector. The rhetoric is ‘free and open markets.’ The reality is a company that owns packing plants, feedlots, cattle on feed, the auction rings, and the feed mills. The rhetoric is working together as ‘a value chain.’ The reality is powerful processors and retailers capturing the profits while farmers are left with huge losses,” said NFU Board member and cattle farmer Fred Tait.
Canada’s big packers own, not only slaughter plants, but also feedlots, feeder cattle, auction marts, and feed mills. In many cases, the same company is buyer, seller, and auctioneer. There is little price discovery and a huge power imbalance between packer/feeders and independent cow-calf producers. Packer ownership and control of cattle—so-called “captive supply”—has been shown to depress prices. For decades, US groups have worked in that country to outlaw captive supply.
In 2005, the NFU predicted that the then-proposed Cargill takeover of Better Beef in Guelph, Ontario would have negative effects for farmers. The NFU was right. Some analysts now say that Ontario prices are the lowest in North America. The NFU was one of the few to oppose the merger.
“We will be strenuously opposing the Tyson-XL sale, at the Competition Bureau, and at every level of the political system. The Better Beef example showed us that these mergers and sales are bad for farmers. There is no way we can believe that allowing two firms to own virtually all of the Canadian packing sector will lead to vigorous competition or fair prices for farmers,” said Tait.
The NFU is working to dispel the fog of rhetoric around the cattle sector and to begin to build a more prosperous future for family farm cow-calf producers and independent feedlot operators. The NFU is doing analysis, writing reports, holding public meetings, and meeting with elected officials. Its aim is to begin a fruitful dialogue among cow-calf producers and independent feedlots about captive supply, packer power, and export markets. The NFU will release a major report on the state of the sector in the fall and it will be meeting with the Competition Bureau in the coming weeks to discuss Tyson and XL.
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For More Information:
Fred Tait, NFU Manitoba Board member: (204) 252-2773
Darrin Qualman, Director of Research: (306) 652-9465