JBS S.A. made major strides in the U.S. beef industry in 2008, acquiring Green Bay, Wis.-based Smithfield Beef Group and Loveland-based Five Rivers Ranch Cattle Feeding and making a bid for Kansas City, Mo.-based National Beef Packing Co.
Acquisition of all three companies would propel Brazil-based JBS - the nation's third-largest beef processor after it purchased Greeley-based Swift & Co. last year - to the No. 1 beef processor in the nation and the world.
But the U.S. Department of Justice threw a stumbling block in the way of that plan on Oct. 20 when it filed a lawsuit in U.S. District Court to prevent the purchase of National Beef, citing anti-trust issues that could potentially impact cattle producers and beef consumers.
"The proposed transaction would eliminate head-to-head competition between the merging parties and likely would diminish the vigor with which JBS and the two other significant packers (Tyson Foods and Cargill) each will compete to purchase fed cattle and produce and sell USDA-graded boxed beef, making interdependent or coordinated conduct among these large packers more likely," the DOJ lawsuit stated. "Similarly, grocers, food service companies and ultimately United States consumers likely will pay higher prices for USDA-graded beef. Accordingly, JBS's acquisition of National likely will substantially lessen competition in violation of Section 7 of the Clayton (anti-trust) Act..."
Cattle producers across the nation, led by Billings, Mont.-based R-CALF USA, had called for the DOJ to block all of the JBS purchases, particularly National Beef. In November, R-CALF was joined by the Lincoln, Neb.- based Organization for Competitive Markets in adding their weight to the DOJ lawsuit.
"Our industry needs more competition, not more concentration, and our lawsuit is an important step in stopping ongoing concentration so we can soon focus on rebuilding the competition we've already lost," said OCM Executive Director Fred Stokes.
A total of 17 state attorneys general have also joined in the DOJ lawsuit, including Colorado's. "This merger has the potential to significantly increase the price of beef for Colorado families and to alter the important role that cattle production plays in Colorado," said Colorado Attorney General John Suthers.
JBS officials have said little publicly about the proposed National Beef merger, but Wesley Batista, JBS USA's president and CEO, issued a statement on Oct. 20 in response to the DOJ lawsuit.
"We disagree with the Department of Justice's decision to try and block the transaction's conclusion," Batista said. "This transaction is highly pro-competitive and will generate significant efficiencies and synergies that will benefit our cattle suppliers and our beef customers. We believe the government's case is misplaced and we will continue to negotiate with the Department of Justice to approve the acquisition and will defend this suit in court."
Not all in the beef industry are lining up against the JBS-National merger. The state of Nebraska declined to join in the DOJ lawsuit, and Steve Kay, editor and publisher of Cattle Buyers Weekly, said he believes the lawsuit's contention about lower beef prices for producers and higher prices for consumers is "absolute nonsense."
"We've had increasing consolidation in the beef industry for the last 20 years and it's not seriously impacted producers or consumers," Kay said. "From my perspective, the Justice Department simply doesn't understand the dynamics of the beef packing industry at all."
According to Kay, National Beef is 58 percent owned by cattle producers who obviously must believe a sale is good for them.
"National wanted to sell for two reasons: an excellent premium price being offered by JBS and they were going to be able to be part of JBS's overall U.S. operation," he said.
Kay said reducing the number of big U.S. beef producers to three - JBS, Tyson and Cargill - would maintain a viable and competitive beef industry. He said JBS's participation in the U.S. beef industry has been positive and welcome.
"From my perspective, JBS is the best thing to happen to this industry in a very long time," he said. "They bring superb organizational skills and much-needed equity."
JBS has been able to raise about $3 billion in equity over the last two years and just finished its best quarter in its 55-year history.