Nillsons vs Americans

[dfarms11]

OK, I am going to stir up some good shit here. Everyone including myself just hates that the big Canadian packers where american owned. Now we actually have a Canadian company willing to buy it and everyone here is upset about it. Do we want to continue to be at the mercy of the american corp. or not? I know that nobody likes Nillsons but is this not what we've all wanted, a canadian owned packer?

[perfecho]

What I have always maintained was to have competition...be it American/Canadian/European. Unfourtunately this move lowers the competition. As I have posted before, I can work in a free enterprise system. I cannot in a free monopoly system.

[perfecho]

Actually. if memory is right...and I have nothing to back this up,was not Nilson very close to bankrupcy a few years back and with a major injection of foreign money, proceeded to purchase many of the auction markets and expand XL. Any one else recall this or just another one of my "dreams"?

[DiamondSCattleCo]

Perfecho, you are correct. I've heard from credible
(but not necessarily correct) sources that the money
came from Tyson.

As perfecho said, it would be nice to have a larger
Canadian packer, but not at the expense of losing
what little competition we do actually have right now.

Rod

[Willowcreek]

Now while Canada will have 2 controlling over 80% of the slaughter-the US will have only 3 controlling over 80% of the slaughter- and much more of the feeding and captive supply cattle used to manipulate down the market..

This is long- and I know you don't like R-CALF or Bill Bullard- but he tells it like it really is...And this will effect Canadian producers too...

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Originally published 6/27/08 by Cattlenetwork.com. To view the graphs visit http://www.cattlenetwork.com/content.asp?ContentId=232757.



Jolley: Five Minutes With Bill Bullard



I think we all know Bill by now. Top gun at R-Calf, he’s never backed down from a battle that he thinks will have a negative effect on the cattle industry. He’s helped the organization win a few big ones – COOL and the Canadian BSE issue come to mind.



Well, Battling Bill is spoiling for another one. JBS S. A. stuck their toe in North American waters when they bought the storied Swift business less than a year ago. The Batista family evidently liked what they saw and decided to grab the big, gold ring, adding National Beef, Smithfield Beef and Five Rivers to their portfolio just a few short months ago.

Based on government approval, that is. Seems like there were some pesky anti-trust issues to consider. The day the merger was announced, I stepped outside my home in Shawnee, Kansas and heard the collective gasp of disbelief all the way from R-CALF’s headquarters in Billings, Montana.



To no one’s surprise, the battle was immediately joined. Mr. Bullard and R-Calf stated their position in precisely worded terms. He spoke against the merger at a hearing in Washington that might have turned the tide. At least it brought to the attention of the beltway politicians that there were some serious votes to be counted in a major election year.



So let’s get to the heart of the R-Calf position and spend five minutes with Bill Bullard and his well-reasoned arguments against one of the largest and most compelling mergers in the history of the American meat industry.



Q. Bill, JBS has proposed to expand their presence in the U.S. market in a big way, offering to buy National Beef Packing Co., Smithfield Beef Group, and Five Rivers Ranch Cattle Feeding. It’s another step in a contraction of the beef packing business that’s been going on for at least two decades.



With several organizations either applauding the proposition or ignoring it, R-CALF spoke against it quickly and on May 7, during a hearing held by the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, you said it “would lessen competition in U.S. cattle markets and increase packer-held market power, ultimately harming both independent U.S. cattle producers and U.S. consumers.”



Chandler Keys, a spokesman for JBS, has said the investment the Brazilians are ready to make will improve the operational efficiencies of those businesses and suggested JBS’s larger presence would make U.S. beef more competitive in world markets. So let me start off with two questions. First, what short- and long-term harm to producers do you see in the contraction created by the JBS purchase?



A. Before explaining the harm this merger would cause, it is important to explain what it takes for a competitive cattle market to function properly: The nationwide competitiveness of the U.S. cattle industry requires that cattle feeders, who sell slaughter-ready cattle to meatpackers, have timely, unrestricted access to the marketplace (meaning to the meatpacker). When this fundamental economic law is understood, the short- and long-term harm to producers from the JBS merger becomes self-evident.



Today, four major packers act as gatekeepers to the market by controlling over 80 percent of the U.S. steer and heifer market. After the merger, only three major packers would control well over 80 percent of this market (this is because Smithfield Beef Group, which slaughters steers and heifers but is not among the top four packers, would also be acquired by JBS). Also today, access to the steer and heifer market is already limited because the four largest meatpackers amass sufficient supplies of captive supply cattle – cattle committed to the packer well in advance of slaughter – to enable the packers to avoid the steer and heifer cash market for days, if not weeks at a time.



For example, since the beginning of 2008, meatpackers procured less than half (43.2%) of their steers and heifers from the cash market in the Oklahoma–New Mexico–Texas market, which represents a significant decrease from 2005 when they procured over half (58.4%) of their cattle from the cash market. By increasing their inventories of captive supply cattle, packers can restrict access to their plants by producers who sell fed cattle in the cash market. And, because the current and expected cash market price provides the base price for all fed cattle procurements, the packers’ ability to shun the cash market, which directly results in a reduction in competition in the cash market, effectively lowers the price for all cattle procured by the packers.



Thus, the JBS merger would harm producers, both short- and long-term, in two ways: 1) By reducing the number of gatekeepers to the fed cattle market to only three, these three remaining gatekeepers’ ability to limit access to the market is strengthened; and 2) Through the direct acquisition of the nation’s largest feedlot company (Fiver Rivers Ranch Cattle Feeding), JBS will effectively increase its inventories of captive supply cattle, thus enhancing its ability to shun the cash market for extended periods of time.



Q. Second, with the retail price of beef expected to rise dramatically later this year due to major cost increases in feed and transportation, won’t the economies of scale created by the purchase of these packing businesses actually help the consumer? Or are we looking at short-term, weather-related price fluctuations that JBS will only exacerbate?



A. History disproves the theory that consumers have benefited from the so-called economy of scale created by the continual concentration of the beef packing industry, and there is no reason to expect that consumers would benefit from any further concentration. The following chart suggests that at current concentration levels, packers have already exceeded the economy of scale beneficial to consumers and have now achieved a new plateau that accords them sufficient buying power to continually increase consumer prices while capturing an ever-increasing share of the profits, and without passing those increased profits back to producers.



When the spread between producer prices and consumer prices grows wider, as is clearly shown in the chart, it means that the marketplace is becoming inefficient and unjust for producers and consumers alike. The JBS merger will exacerbate this ongoing marketplace inefficiency and inequity.



Q. You’re hoping for some relief from the Justice Department but let me quote you again. “Unfortunately, the Justice Department does not have a good track record in protecting the interests of producers or consumers against mergers such as this.”



Looking at other businesses and what’s happened over the past decade proves you right. Right now, it looks like they’re going to OK a proposed merger of the two dominant satellite radio services – Sirius and XM - creating an almost total monopoly. So, realistically, what chance do you have and what are your options if the JBS deal is approved?



A. R-CALF USA has built its reputation by successfully fighting battles others said couldn’t be won. Winning two separate injunctions against USDA over the Canadian bovine spongiform encephalopathy (BSE) issue and winning country-of-origin labeling (COOL) in Congress are cases in point.



This, too, is a winnable fight, despite the fact that conventional packer-oriented organizations and the current Administration are not expected to help. We have turned, instead, to the state attorneys general, asking them to join the Department of Justice in its investigation of this merger and to challenge the merger. We have provided a number of state attorneys general with comprehensive reports that fully describe the cattle industries within their respective states so they can demonstrate the state-specific harm that would occur if they allow the consummation of the JBS merger.



We also have not given up on the Department of Justice, and in addition to having direct meetings with the agency, we have arranged interviews between the Justice Department and U.S. cattle feeders and have furnished five separate written submissions to the agency that provide compelling evidence that the JBS merger violates the Department of Justice’s merger guidelines. As you mentioned, we also were a witness at the May 7 Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights hearing on the JBS merger, right alongside JBS and its supporters, and as a result of R-CALF USA’s testimony, and the testimony of other groups in opposition, the Chairman of the Subcommittee recently sent a strong letter to the Department of Justice recommending that the merger be blocked because the JBS acquisitions would “greatly diminish competition…violate section 7 of the Clayton Act…(and) likely cause substantial harm to competition and consumers.”



As R-CALF USA’s membership grows, so does its ability to continue winning issues such as this for the benefit of cattle producers and consumers. These are battles that must be fought and won; otherwise, the U.S. cattle industry will go the way of the U.S. hog industry, where independent hog producers are the exception, not the rule.



Q. JBS management has declared in no uncertain terms that they’re going to aggressively pursue this expansion into the North American Market. Some observers say they are a strong, well-managed company that could prove to be an asset to the U.S. Cattle industry. Assuming you can’t stop their entry, is there any way you can accept their expanded presence?



A. R-CALF USA acknowledges that the JBS proposal would be good for JBS and its shareholders. The problem is that what is good for JBS and its shareholders is not at all good for R-CALF USA and its cattle-producing members. That is why this is a fight and not a negotiation. JBS wants to capture a greater share the U.S. beef market, just as it wants to capture a greater share of the profits from each animal it slaughters, and the proposed merger would help it accomplish both.



R-CALF USA will do all that its resources will allow to block this merger, using all legal and ethical means available. If this proves insufficient to protect the U.S. cattle industry, then we would immediately need to focus on changing the legal framework in which our industry operates to prevent the even further concentrated meatpacking industry from exerting its manifest market power over cattle producers.



This would entail such reforms as banning packer ownership of cattle and prohibiting captive supplies that are acquired through un-priced contracts (formula pricing), both of which are known to facilitate the packers’ exercise of market power to the detriment of cattle producers.



Q: How far are you willing to go to prevent the JBS purchase – the Supreme Court? If that’s the case, do you have a sense of the amount of time and money it will take to go all the way with such a suit?



A. Though R-CALF USA firmly believes – as does the Chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights – that the proposed JBS acquisitions would violate U.S. antitrust laws, we have not filed a lawsuit at this time. Instead, we are focused on addressing this matter through the executive and legislative branches of our government. A lawsuit within our third branch of government – the judicial branch – would be the tool of last resort, and we have certainly used this tool in the past to protect the interests of our industry.



Lawsuits are expensive, and a lawsuit to address this matter would likely cost cattle producers $500,000 in the first few months and exceed $1 million before it was done, which is similar to the amount paid by producers in the lawsuits filed to protect against the introduction of BSE. If successful, however, such a lawsuit would likely have a far-reaching impact that could result in a reversal of the present trend toward more-and-more vertical integration and consolidation within our industry.



If cattle producers make sufficient contributions to R-CALF USA to pursue a legal challenge against this JBS merger, the R-CALF USA Board of Directors would make a decision when it was time to pursue the branch of last resort.



Q. The Grassley/Kohl bill you favor would force merging parties to prove that a merger would not result in anticompetitive practices or a lessening of competition. Seems like that’s tantamount to a putting a wolf in the chicken house. Why do you think it’s a better option than what we have now?



A. The Grassley/Kohl Agriculture Competition Enhancement Act of 2007 (ACE Act), S. 1759, in addition to shifting the burden of proving no competitive harm to merging parties rather than placing that burden on the shoulders of those likely to be harmed, as is presently the case, would also ensure that antitrust activities in agricultural markets are properly monitored and properly enforced. This agricultural-oriented ACE Act is crucial because the standards presently used by the Department of Justice to identify antitrust violations are not applicable for determining antitrust violations in the cattle market.



Case in point: when evaluating mergers, the Department of Justice calculates the price change that would likely occur as a result of a more concentrated industry to determine if the merger violates merger guidelines. This is called the SSNIP test (Small but Significant Non-transitory Increase in Price). The standard is typically 5 percent. In other words, if the merger results in a price decrease of no more than 5 percent, then the merger may not violate antitrust laws. This may work well in some economic sectors, but not in the livestock sector. This 5 percent threshold is far too high for the cattle industry.



For example, Iowa State University data show that the net returns (in current dollars) from feeding steers averaged only $16 per head over the 1994-2007 period. For a $1,000 per head fed steer, the 5 percent SSNIP test would allow a merger that would decrease price by $50 per head, which would mean that cattle feeders would be losing $34/head compared to the historical average. A price decrease of only 1.6 percent would completely eliminate the modest profits realized by cattle feeders over 1994-2007.



The well-known economist from Oklahoma State University, Clement E. Ward, appears to agree that the cattle industry must be evaluated differently. He stated in a 2002 research paper:



“Price distortions of 3 percent or less were found in most studies {of the concentrated packing industry}.While these fall well short of regulatory agency standards related to merger impacts and non-competitive behavior, even seemingly small impacts on a $/cwt. basis may make a substantial difference to livestock producers and rival meatpacking firms operating at the margin of remaining viable or being forced to exit the industry.”



This is but one of the reasons that R-CALF USA strongly believes the Grassley/Kohl ACE Act is essential in order to preserve the competitiveness of the U.S. cattle industry.



Q. What would you like to say about the competitive situation in the United States?



A. The U.S. live cattle industry is the last frontier for the meatpacking industry. The meatpackers already control the U.S. poultry industry from egg to plate. Within the past 25 years, meatpackers eliminated nearly 90 percent of the independent hog producers in the U.S., reducing the number of independent hog operations from 667,000 in 1980 to only 67,000 by 2005. The multinational meatpackers are now focused on the U.S. cattle industry and they want to control the production of cattle just as they now control the production of poultry and hogs.



Fortunately, the characteristics of the cattle industry are different than those of the hog industry, which is why the vertical integration of the cattle industry is progressing slower. However, the packers’ ongoing acquisition of U.S. feedlots, by ownership and by contract, is accelerating this integration and is creating an unprecedented level of concentration in the feedlot sector.



For example, in 1995 there were 41,365 feedlots that marketed approximately 23 million cattle to the packers. In 2007, only 2,160 feedlots marketed nearly 23 million cattle to the packers. By gaining control over the feedlot sector of the U.S. cattle industry, the packers will increase their control over every facet of cattle production. This is because the feedlot sector is at the top of the pyramid of the U.S. live cattle industry (the price a feeder pays to a cow/calf producer is based on the expected future price of a slaughter-ready animal). What happens at the top of this pyramid will work its way down to every segment of the live cattle industry, ending with the seed-sto ck producer.



The number of cattle operations in the U.S. is on a downward spiral, as 40 percent of the operations in existence in 1980 have already exited the industry. This is by design – the current framework of our industry allows meatpackers to systematically reduce competition, and until we change that framework, producers will continue marketing into a system that persistently pays producers prices too low to sustain their operations. None of the traditional representatives of the cattle industry have taken steps to change this, and that is why R-CALF USA was formed.

[Burbert]

When you say Nillsons, you are actually saying, the Province of Alberta, now totally in the cow business. Boy the cow guys stand to get screwed now!!!!