Independent cattlemen make a good case that more beef packing companies is a good thing – for cattlemen. More companies mean more cattle buyers which mean, the thinking goes, higher bids for cattle. Competition improves the market. Thus, last week’s announcement that JBS-Swift had decided not to pursue its planned acquisition of National Beef, which would have concentrated more than 80 percent of the beef slaughter capacity in North America within just three companies, was met by sighs of relief among beef producers. Four cattle buyers competing to buy livestock aren’t as good as five or six buyers – but it’s better than three or two.
However, we’ve seen over the past six months that certain assumptions about how capitalism is supposed to work don’t always apply. A freewheeling, largely unregulated U.S. financial industry in the 1990s and early 2000s has helped sink the world’s economy to its eyeballs, for example. The only thing competition in the banking and investing sectors improved was the size of the sense of entitlement the financial Masters of the Universe crowned themselves with. So maybe more competition isn’t always the right answer.
Does old-fashioned competition-driven capitalism still work in the meat industry? Yes – and no. The cattlemen are right that a larger number of buyers competing to buy livestock will, in general, hike up livestock prices. And if it were 1975 or even 1995 I would be likely take the cattlemen’s side in their argument against concentration. But the growing globalization of the meat industry has changed some of the fundamental rules of the game. Higher-priced cattle – or hogs or chickens or lambs – in the U.S. isn’t necessarily a good thing anymore, not when multinational packing and processing companies can easily source their own raw materials from abroad. And when the truly growing markets for animal protein products are not at home but among the millions of people in Asia and elsewhere who are just now climbing out of abject poverty, stoking up the U.S. livestock markets to the fat-profit level isn’t a strategy for long-term sustainability, not when the livestock buyers work for companies that operate in Asia, too. It is not far-fetched to see a future in which the American demand for cheap food results in the U.S. becoming a net meat importer rather than exporter.
But it isn’t simply global economics that has changed the playing field for the big meat and poultry companies. The cost of doing business has skyrocketed too. Only the largest companies can afford the kind of sophisticated food-safety systems USDA as well as consumers now require. The labor situation, too, has become so problematic that increased automation is the only real answer for packers – and which but the biggest companies can afford automation technology? Which but the largest companies can afford the systems that protect the local environment and water supplies from a meat plant’s waste?
I think the best news to come out of last week’s announcement wasn’t that the JBS-National deal was off, but that the deal’s cancellation leaves two companies with cash-strong positions. National and its partner U.S. Premium Beef enjoyed its best year ever in 2008. JBS-Swift’s parent, JBS S.A. in Brazil, carries little debt. What cattlemen, hog producers and other livestock producers really need isn’t more buyers competing for their animals, it’s buyers with real cash in hand.
To post your comments on this story, click here:email@example.com.