Beef packing industry consolidates further

As of April, 2007, the top four firms in the beef packing industry had 83.5% of the market share (.pdf). That's high enough to raise concerns about market power for both farmers (as cattle suppliers) and consumers (as beef food buyers).

Firm (number of animals slaughtered daily)
1. Tyson (36,000)
2. Cargill (28,300)
3. Swift & Co. (16,759)
4. National Beef Packing Co. (13,000)

Then, still in 2007, the Brazillian company JBS bought Swift. And kept on munching.

"Unbelievably," Gristmill reported in March this year, "the beef market is about to get dramatically more concentrated."

JBS ... signed deals to buy the fourth-biggest packer, National Beef Packing, as well as the beef-packing assets of hog giant Smithfield, the fifth-biggest beef packer.

If U.S. antitrust regulators wave the deals through -- and nothing in recent history suggests they won't -- JBS will control 33 percent of the market, Reuters reports. One company will slaughter one in three U.S. cows.

The environmental web magazine is worried, naturally. So are many cattle producers. And that's not all. This week, the sober policy outreach publication of the Agricultural and Applied Economics Association (AAEA) had this to say:

The acquisition of the fourth and fifth largest U.S. beef packers (National and Smithfield, respectively) would push JBS Swift Group past Tyson Foods as the largest beef processor in the United States. It will also contribute to further consolidation in the already–highly–concentrated U.S. beef processing sector. Consequently, the purchase is certain to invite close scrutiny from the Department of Justice (DOJ) as well as from other participants at every level of the beef industry. The deal has already sparked high–level debate, with Sen. Herb Kohl (D–WI), chairman of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, penning a letter to the DOJ urging them to block the proposed acquisitions.

The expansion of JBS is notable not only for its possible effect on the horizontal structure of the beef processing industry but also because it involves a substantial degree of vertical integration. Five Rivers Ranch is the largest cattle feeding entity in the U.S., with a one–time feeding capacity of over 800,000 head. Having consolidated ownership and, presumably, management of the largest feeding and processing operations in the country would be an unprecedented arrangement for the industry. This development is quite likely to reinvigorate the debate over statutory restrictions on vertical control of livestock by packers.