In recent years, livestock producers, family farms and Attorneys General offices in the dominant agricultural states have been alarmed with the aggressive pursuit of the U.S. meat packers by foreign investors.
According to a report prepared by the U.S. Department of Commerce and the President’s Council of Economic Advisors:
The United States has been the world’s largest recipient of foreign direct investment since 2006. Every day, foreign companies establish new operations in the United States or provide additional capital to established businesses. With the world’s largest consumer market, skilled and productive workers, and a highly innovative environment, appropriate legal protections, a predictable regulatory environment, and a growing energy sector, the United States offers an attractive investment climate for business and investment firms worldwide.
Investment into the United States comes mostly from a small number of industrial developing countries. Since 2010, Japan, Australia, Korea and seven European countries collectively have accounted for more than 80 percent of new Foreign Direct Investments. Although small, flows from emerging economies such as those of China and Brazil are growing rapidly.
In March 2007, the Brazilian, family-owned JBS announced it had reached an agreement to acquire Greeley, Colo.-based Swift and Co. Founded in 1855, Swift was the third-largest processor of both beef and pork in the United States, with annual sales of $10 billion. Its share of the U.S. beef slaughter, at 12.6 percent, was the equivalent of 4.8 million head.
JBS was already the largest beef processor and exporter in Latin America, with plants in Brazil and Argentina slaughtering 3.4 million head of cattle annually and racking up $1.8 billion in sales.
JBS’ interest in the U.S. meatpacking industry continued, and in March 2008, the company made the announcement it had offered to purchase two other packers: Smithfield Beef, No. 4 in size with 11.4 percent capacity, and No. 5 National Beef, with 6.5 percent. Additionally, JBS-Swift intended to purchase Five Rivers Feed yards, which Smithfield co-owned with Continental Grain.
These lots had capacity for 1.6 million head — 14 percent of the entire U.S. feedlot herd. The deals raised alarms, particularly in Kansas, where JBS-Swift and National are the dominant cattle buyers.
Members of the JBS-controlling Batista family tried to gain support from cattlemen by meeting with them to lay out plans for expanding exports and new product development. The fate of these transactions, however, came into the hands of the U.S. Department of Justice. The Antitrust Division sued in U.S. District Court in Chicago to prevent the National Beef portion of the acquisitions to be completed.
In May 2013, Smithfield Foods, at that time the world’s largest hog processor, announced it had reached agreement to sell to Chinese meat producer Shuanghui International for nearly $5 billion. This was the largest announced acquisition of a U.S. company by a Chinese buyer.
China is the world’s largest producer and consumer of pork, and as per-capita consumption continues to rise, Chinese pork producers will need alternative sources. Shuanghui’s chairman said in a statement the deal aims to expand Smithfield’s products into the Chinese market.
Under the terms of the acquisition, Shuanghui acquired all outstanding shares of Smithfield, the producer of popular packaged meats such as Eckrich, John Morrell and Farmland for $34 a share. That was a 31 percent premium to Smithfield’s shareholders at closing the day of the purchase. At that point, Smithfield ceased to be a publicly traded company, becoming a wholly owned independent subsidiary of Shuanghui International. Shuanghui stated it did plan to keep Smithfield’s management team and all of the company’s operations in place after the transaction.
The latest big investment
On July 1, 2015, the big news in the pork industry was Cargill’s sale of its entire swine and pork business to JBS USA. It was a well-kept secret — I haven’t found anyone who knew anything was in the works. That is what I would expect from these two companies, which traditionally have played things close to the vest. JBS will pay $1.45 billion for all of Cargill’s current pork business including packing plants, feed mills and hog production facilities. Completion of the acquisition is subject to regulatory review and approval. If approved, the majority of U.S. domestic hog processing will be owned by foreign investment groups. Cargill has long been the fourth-largest U.S. pork slaughter firm, trailing Smithfield, Tyson and JBS.
Included in JBS’ acquisition of Cargill’s pork business are two Midwest meat-processing plants, one in Ottumwa, Iowa, and the other at Beardstown, Ill. Both plants were acquired by Cargill in 1987, and in 2014 they processed a combined total of 9.3 million hogs. The purchase by JBS also includes five feed mills (two in Missouri, and one each in Arkansas, Iowa and Texas), and four hog farms (two in Arkansas and one each in Oklahoma and Texas).
JBS first entered the U.S. pork market with the acquisition of Swift and has steadily improved performance ever since. The company has more than 6,000 team members and the total daily capacity to process more than 50,000 hogs at processing facilities in Marshalltown, Iowa, Worthington, Minn., and Louisville, Ky. The announced transaction will enhance JBS USA Pork’s ability to meet increasing global demand for high-quality, innovative fresh and frozen pork products.
The purchase continues JBS’ aggressive buying of meat and poultry assets around the globe, so the fact that it is buying should be no surprise. The transaction will get some close scrutiny from the Department of Justice as it does increase concentration in an already a moderately concentrated sector. Putting together No. 3 and No. 4 in the packer rankings will increase the industry’s four-firm concentration to 63 percent by moving Hormel to the No. 4 spot.
Who will have the key to the ownership and control of the livestock supply chain? Should the focus be on the global marketplace, or are producers heading toward a captive vertically integrated foreign supply chain?
What would we have to lose or gain from foreign investment? Let’s look at what investment into our meat industry may give us:
- A reduction in debt and reliance on the banks.
- Possible foreign investor demand for a higher ROI than our current bank rates
- Ability to invest in brands and develop value-added products.
- The possibility for processors to invest in new technology, best practices and efficient marketing.
- The possibility of foreign investment maintaining employment, employee benefits and support for community involvement.
This may look positive in the short term, but what about the long-term future of the industry and the family-owned producer? What about the industry/family farm we want to leave our grandchildren? Will foreign investment lead to loss of control of our supply chain? Producers around the world are learning that without control of our supply chain, their futures are uncertain.
At this point, the future is full of questions, so for now, I prefer to believe, as it currently states on the back of the U.S. dollar: “In God We Trust.” NP