For Immediate Release: January 18, 2022
Contact: R-CALF USA CEO Bill Bullard
Phone: 406-252-2516; r-calfusa@r-calfusa.com
Billings, Mont. – R-CALF USA applauded today’s joint announcement by Jonathan Kanter, U.S. Department of Justice (DOJ) Assistant Attorney General for the Antitrust Division, and Lina Khan, Chair of the Federal Trade Commission (FTC), that they are updating federal merger review guidelines. The following is a statement by R-CALF USA CEO Bill Bullard regarding that announcement:
“The cattle industry is the single largest sector of American agriculture, generating about $67 billion in annual cash receipts and R-CALF USA is the largest U.S. trade association that exclusively represents cattle producers within the U.S. cattle industry. We are very pleased by today’s announcement.
“The previous merger guidelines did not adequately address buyer power upstream in the supply chain. And far too much emphasis was placed on market efficiencies, which has resulted in the dismantling of the competitive marketing channels within our supply chain. This, in turn has hollowed-out Rural America. In addition, far too little attention was given to regional and local buyer power, where the competitiveness of regional and local markets can vary widely and harm to the supply chain can be devastating.
“The previous guidelines mistakenly presumed that the marketplace is competitive today and thus any post-merger reviews, based on changes from today to tomorrow were inherently skewed. Under the old guidelines, the trigger for antitrust scrutiny did not take into account that the market’s pre-merger condition already lacked competition. New guidelines should require a comprehensive analysis of the market’s preexisting competitiveness prior to the application of review triggers.
“For the cattle industry, this analysis would require a review of historical indicators of competitivities, such as the cattle industry’s historical cattle cycle driven by supply and demand signals. Today, that cattle cycle has been destroyed, much like what happened to the pork and dairy cycles after the concentrated meatpackers captured their respective supply chains. Unless a determination is first made regarding the extent to which a marketplace is competitive, the assessment of a merger’s potential to lessen competition would be perfunctory at best.
“Another deficiency in the old guidelines was a lack of attention to mergers in which one player has dominant control over product substitutes, in this case pork, chicken and soon, lab-grown protein. Failure to address such substitutes invites internal anticompetitive practices such as varying the output and price of substitute proteins to manipulate the demand for live cattle.
“Yet another serious deficiency in the old guidelines was their omission of factors unique to an industry that can make that industry uniquely susceptible to seemingly innocuous events. Indeed, the previous guidelines suggested that non-horizontal mergers, such as a vertical merger capturing the competitive marketing channels of the cattle supply chain, is less likely than horizontal mergers to create competitive problems. We believe that was a serious mistake.
“For example, treating the cattle supply chain as similar to the poultry or pork supply chain would ignore critical factors including that cattle have the longest biological cycle of any farmed animal, fed cattle are highly perishable, it is uneconomical to transport fed cattle long distances, and the cattle market is highly susceptible to even slight changes in supplies.
“Other factors that must be considered under new guidelines include that the cattle market is highly sensitive to shifts in procurement methods, some of which accord packers the same control as if they owned cattle outright; demand for cattle is bounded on a weekly basis, which basis is determined by the packers; and, that cattle producers are subjected to market access risk, meaning the availability of a timely market outlet, which, again, is controlled by the packers.
“In April of 2018 the Government Accountability Office (GAO) investigated the 2015 price-collapse in our industry. It found that packer concentration in any given area was associated with lower fed cattle prices in that area. The GAO surmised that some packers may have been able to exercise market power in areas with less competition. They also found that the farmer’s share of the consumer beef dollar dropped from about 65% in the 70’s to about 40% in 2018, suggesting to us that the present marketplace exploits producers on one end of the supply chain and consumers on the other.
“We look forward to working with both the DOJ and FTC as they begin the important process of updating the federal merger guidelines.”
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R-CALF USA (Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America) is the largest producer-only lobbying and trade association representing U.S. cattle producers. It is a national, nonprofit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle industry. Visit www.r-calfusa.com or, call 406-252-2516 for more information.
