Study shows JBS-Swift acquisitions could have implications for beef industry.
In 2007, JBS S.A., Latin America's largest beef processor, purchased Swift & Co., the third largest beef processor in the United States. In March 2008, JBS-Swift then announced the acquisition of National Beef, LLC and Smithfield Beef Group, Inc., which included 100 percent interest in the Five Rivers Ranch cattle feeding operation with a one-time feeding capacity of 811,000 head. These acquisitions have renewed concerns about industry consolidation.
A recent study suggests that there are both good and bad elements of these acquisitions. Darren Hudson, the Larry Combest Agricultural Competitiveness Chair at Texas Tech University and one of the study's authors, says this wave of consolidation is a little different than what occurred in the 1980s.
"While capturing efficiencies and lowering costs are certainly goals, the Five Rivers acquisition means that JBS-Swift is strongly moving into cattle feeding," says Hudson.
Vertical coordination, as it is called, is not illegal, but has been the source of ire for some in the beef industry. Attempts to limit packer ownership of cattle have appeared in several pieces of legislation, including the last two farm bills, but have ultimately been dropped before the bills' passage.
"Packer ownership and other forms of non-price control of cattle in the feedlot are often seen as reducing competition for live cattle and putting producers at a disadvantage," says Hudson, "but there are also potential benefits."
Increased efficiencies through better control of the flow of cattle through the system, better quality control, and reduced risk through contracts to producers are all cited as potential benefits of the vertical coordination.
"It is still a matter of some debate about the ultimate impacts of consolidation on farmers," says Hudson. "The difficulty arises in measuring the benefits of reduced price risk to producers. What is worth a lot to one producer may not be worth much to another."
In the meantime, researchers believe over-capacity in beef processing is making these acquisitions attractive as a means for firms to survive. However, careful attention to the impacts of these changes is needed to protect farmers from uncompetitive pricing in the market.