Des Moines Register
09-19-06
Senators, others question merger in pork industry
The companies say that, as a combined entity, they can better serve customers.
By JERRY PERKINS
REGISTER FARM EDITOR
Iowa senators and others expressed concerns Monday after the nation's largest
hog producer and pork processor, Smithfield Foods Inc., said it will buy Premium
Standard Farms Inc., the No. 2 hog producer and No. 6 pork processor.
U.S. Sen. Tom Harkin, D-Ia., and Sen. Charles Grassley, R-Ia., said the
combined company's market power could harm small, independent pork
producers and consumers. Harkin called on the Department of Justice to review
the deal.
Dennis Treacy, Smithfield vice president of environmental, community and
government affairs, acknowledged that the $810 million purchase represents
more consolidation in the pork industry.
But, he said in an interview with The Des Moines Register, controlling hogs from
the farm to the packing plant - a system known as vertical integration - gives
Smithfield the ability to promote the safety of its pork products.
"Our large customers are asking us for animals that we know where they came
from and who raised them," Treacy said. "This gives us the ability to produce
safe, traceable and consistent pork."
The deal is expected to close in the first quarter of 2007, Treacy said. "We
wouldn't have entered into this acquisition if we weren't confident it would be
cleared," he said.
Premium Standard has pork plants in Missouri, Texas and North Carolina with
the annual capacity of slaughtering 4.6 million hogs. Smithfield has no operations
in Iowa, but it owns Farmland Foods and John Morrell, which have Iowa
slaughtering plants.
Betsy Freese, livestock editor at Successful Farming magazine in Des Moines,
said Smithfield will have 1.2 million sows in the United States and other countries
after Premium Standard's production is acquired.
Smithfield's acquisition of Premium Standard won't have an impact on hog prices
because it won't add to the number of sows in the hog industry, Freese said.
Harkin, the ranking Democrat on the Senate Agriculture Committee, called for the
Justice Department to look at whether the merger violates antitrust laws.
Harkin said the merger will give Smithfield control of 20 percent of U.S. hog
production and 31 percent of pork processing.
Grassley's office said the senator will send a letter to the Department of Justice
about the deal.
National Farmers Union President Tom Buis said the deal "all but guarantees
independent producers will be left without a market."
Neil Harl, professor emeritus of economics at Iowa State University, said
Justice Department lawyers probably won't stop the sale. For 25 years,
deregulation of businesses has been the prevailing political sentiment in
Washington, Harl said. Hog and grain producers appear to be the most affected
by increasing concentration on the seller and buyer sides of their markets, Harl
said.
Largest U.S. pork producers in 2005
1. Smithfield Foods, Smithfield, Va., 798,000 sows.
2. Premium Standard Farms, Kansas City, Mo., 221,000 sows.
3. Seaboard Foods, Shawnee Mission, Kan., 213,600 sows.
4. Iowa Select Farms, Iowa Falls, Ia., 150,000 sows.
5. Christensen Farms, Sleepy Eye, Minn., 148,800 sows.*
2006 rankings to be released Friday at www.agriculture.com
Source: Successful Farming magazine.