Why CRL weighed in on Tyson Foods acquisition of Hillshire Brands

By Catholic Rural Life on September 3, 2014

Ethical Food and Agriculture

Why CRL weighed in on Tyson Foods acquisition of Hillshire Brands

 

Those who receive our weekly eBulletin or follow us on Facebook recently read about our reaction regarding another merger in the agri-food industry. Catholic Rural Life joined with scores of groups from around the country asking the U.S. Department of Justice – specifically, their Antitrust Division – to take a close look as Tyson Foods sought to complete the acquisition of The Hillshire Brands Company.

[The syndicated columnist Alan Guebert reported on the proposed merger in his Farm & Food File post earlier this summer, Big Meat’s Next Fat Hog. He clearly explains how hog farmers and consumers will fare in a merger like this – not so good – whereas Tyson Foods will capture that much more of the food dollar.]

Our executive director Jim Ennis was quoted in the Arkansas Democrat-Gazette when a reporter asked why faith-based groups are expressing concern about the proposed acquisition. “The church has the obligation to look and see if this is fair and equitable,” he said. Ennis also noted that there is the possibility of monopolistic “mischief” when market concentration and consolidation occurs within a vital industry sector like agriculture and food. See the full article in our Facebook post of August 25.

To be clear, Catholic Rural Life is not pointing a finger at Tyson Foods or any specific agribusiness company. Our contention is that thestructure of the highly-capitalized agri-food industry is moving further away from the common good. As consolidation and concentration takes place in various agri-food sectors – poultry, pork, beef, grain processing, seeds, genetics – market power accumulates in the hands of just a few agribusiness giants. Tyson Foods happens to be one of them, along with firms such as Cargill, ConAgra, ADM, Monsanto, and Nestle.

Our long-time focus on agri-food consolidation

First, it is important to state that Catholic Rural Life has paid close attention to the structure of the agri-food sector going back to the 1940s. That’s when Msgr. Luigi Ligutti, perhaps our most distinguished director, led the way in critically examining the agricultural industry and its grievous impacts on farmers and rural communities. (“Rural Roads to Security” is his classic study written along with Fr. John Rawe, available online at https://archive.org/details/ruralroadstosecu00ligurich.)

As we came into the new century, Catholic Rural Life stayed intensely involved in the movement against concentration and consolidation in the agri-food sector. This was especially true as world trade negotiations were making it possible for transnational corporations to gain power over national and local food systems. What did all this mean to family farms? What did it means for rural communities? What about farmers and communities overseas? What about low-income families who felt even the smallest increases in food prices?

[Read more about why the Church speaks to such issues, as Jim Ennis explained in a commentary a few years ago.]

It was clear that faith groups like ourselves needed to fully understand and remain critical of the structure of the agri-food system and how some players (i.e., companies) gained significant market power as they merged with or acquired other companies.

Some did this vertically within the agri-food chain: A company became vertically-integrated when it controlled everything from “seed to supermarket” within a given food sector, such as the poultry industry.

Some companies also did this horizontally: After dominating in the poultry sector, for instance, they began to acquire or merge with pork, beef and fish production companies. International trade deals also made it possible to buy up companies in other countries; likewise, foreign conglomerates could also acquire U.S. companies.

Back to the recent Tyson acquisition

A couple days after that story ran in the Arkansas Democrat-Gazette (mentioned at top), the U.S. Department of Justice announced that the Tyson acquisition of Hillshire is permissible, but the proposed settlement will require Tyson Foods to divest Heinold Hog Markets, its sow purchasing business.

Justice officials said without the required divestiture, the transaction would have combined companies that account for more than a third of sow purchases from U.S. farmers, thereby likely reducing competition for purchases of sows from farmers.

“Farmers are entitled to competitive markets for their products. Today’s proposed settlement will help ensure that hog breeders in the United States will continue to receive the benefits of vigorous competition when selling sows,” said a statement from Bill Baer, assistant attorney general in charge of the Antitrust Division.

“Without the divestiture,” Baer said, “the proposed acquisition would have eliminated a significant customer for farmers’ sows and likely would have resulted in less competition in this important agricultural market.”

Our original contention

In an organizational sign-on letter delivered to the Antitrust Division, U.S. Department of Justice, on July 24, Catholic Rural Life joined with scores of others to voice our concern that the proposed merger would strengthen Tyson’s position as the largest meat and poultry company in the country by adding the 11th largest company, Hillshire, creating a firm with $38.3 billion in total annual sales.

The proposed horizontal and vertical merger, we argued, would harm hog farmers, consumers and other food manufacturers. The food and agribusiness sector is already excessively consolidated from seed to supermarket.

“This proposed merger comes after a year of intense acquisition activity in the food and agriculture sector, amounting to a growing wave of substantial mergers that threaten to accelerate the food industry’s tight control of this extremely concentrated sector of the economy,” the letter stated.

[Read more about likely impacts as expressed by the National Sustainable Agriculture Coalition. Catholic Rural Life is a long-time member of this coalition.]

Here’s how Tyson Foods announced its acquisition:

Aug. 27: Tyson Foods, Inc. announced the completion of its merger with The Hillshire Brands Company, a transaction that positions Tyson Foods as a clear leader in the prepared foods business.

The combination of Tyson Foods and Hillshire Brands creates a single company with more than $40 billion in annual sales and a portfolio that includes recognized brands such as Tyson, Wright, Jimmy Dean, Ball Park, State Fair and Hillshire Farm.

Tyson Foods CEO Donnie Smith explains: “Part of our strategic growth plan has been to shift toward higher-margin prepared and branded foods. This transaction gives us a portfolio of complementary, proven brands as a new springboard and accomplishes in a short time what would have taken us years to build on our own.”

The integration of the two companies is currently expected to generate synergy savings of $225 million in fiscal 2015 and more than $500 million by fiscal 2017.

And here’s how hog farmers and others see it:

Whereas the Justice Department should be commended for recognizing the buyer-power that pork processors and marketers have over hog farmers, they should have investigated this merger more fully and divested more businesses before rapidly approving this mega-meat-merger.

The pork packing industry remains overly concentrated; at best, the Justice Department provision of divestiture in the Tyson acquisition prevented concentration in the pork industry from getting any worse.

Nevertheless, many groups are fearful that consumers remain vulnerable to higher prices in a consolidated pork-processing sector. In a statement by Food & Water Watch, a leading organization in keeping an eye on corporate power in the agri-food sector, they said the merger will disadvantage both consumers and rival manufacturers.

“Tyson has struggled for years to develop credible value-added pork product brands and by approving this merger Tyson seizes a leading position in the sausage, breakfast sandwich, hot dog and lunchmeat markets.” Read more at Food & Water Watch

Final Word

As a final word in our reasons for staying engaged in agricultural and food industry practices is because, most plaintively, farmers ask us to speak up in the name of social and economic justice. They feel they have done everything expected of them and yet, through no fault of their own, they succumb to the tight margins forced on them by industry practices. Input costs keep steadily rising as commodity prices fluctuate to their detriment.

The market, in other words, holds no mercy. And yet, giant agri-food companies seem to increase their profits regardless of what farmers and consumers experience. The Church is called upon to speak truth to power.

[Read more about our perspective on Market Concentration and Livestock Operations. Take particular note of Issue Brief #4, “Hogging the Market: Meat Packers” to get an in-depth look at this part of the industry.]

 

Comments

Consumer Molly Francis | Thursday, September 04, 2014

In this case the Christian thing to do may be to become more vegetarian and buy your meat from the local farmer

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