January 5, 2006

Mergers, acquisitions not as bad as they sound, USDA says

Mergers and acquisitions are not as bad as the industry fears, according to a USDA report released December 2005.

For many years, mergers and acquisitions in the industry have been viewed with scepticism, with the primary concern being that mergers were promoting anti-competitive pricing behaviour. The US senate hearing on the effect of mergers and acquisitions in meatpacking and slaughter industries is a good example of this concern, the USDA pointed out.

Indeed, mergers can cause loss of jobs and reduce wages when new ownership attempts to lower production costs by shedding workers. During the 1980-90s for example, 100,000 US workers in seven food-related industries--meatpacking, meat processing, cheese, fluid milk, flour milling, feed and oilseed processing--lost their jobs as the pace of mergers and acquisitions accelerated in these industries, leading to the mis-conclusion that worker dislocations are a natural follow-up, the USDA said.

However, contrary to the commonly held view that mergers and acquisitions caused worker dislocations and lost wages, empirical analysis of mergers in eight US food industries during two distinct merger waves, 1977-1982 and 1982-1987, showed that workers in fact experienced a modest increase in the number of job opportunities but little change in wages relative to their peers, according to the USDA report.

It also pointed out that mergers and acquisitions generally had a small but positive effect on wages during the period 1977-82. For example, substantial labour strife marked both merger waves for the meatpacking and meat processing industries during the period, but employment gains occurred in the newly acquired plants as plant buyers shift production from less efficient antiquated facilities to newer and more productive ones.

The USDA also said that plants that continued to produce carcasses rather than boxed meat products may have seen lower labour costs, but they have had to accept a much lower price for their output.

In fact, many of the large plants that produced carcasses later either disappeared or changed their product mix, as boxed meat and poultry production came to dominate the output mix of large plants.