September 20, 2006

 

Sale of Premium Standard Farms to Smithfield raises competition issues

 

 

The sale of Premium Standard Farms, the US's second largest pork producer to Smithfield Foods, the top producer in the country, has raised competition worries among Iowa senators and has sent jitters down the spines of independent producers.

 

The deal, valued at US$810 million, would give Smithfield control of 20 percent of US hog production and 31 percent of pork processing.

 

Senator Tom Harkin and Senator Charles Grassley, 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.

 

Harkin, the ranking Democrat on the Senate Agriculture Committee, called for the Justice Department to look at whether the merger violates antitrust laws.

 

National Farmers Union President Tom Buis declared the deal would rob independent producers of their market.

 

In defense, the companies say that they can better serve customers as a combined entity.

 

Dennis Treacy, Smithfield vice president of environmental, community and government affairs, acknowledged that the purchase meant more consolidation in the pork industry.

 

However, the purchase, which enables greater vertical integration, gives Smithfield the ability to promote the safety of its pork products as the company would be able to manage the whole process from production to processing and packaging.

 

The markets are demanding traceability and the purchase gives Smithfield the ability to produce safe, traceable and consistent pork, Treacy said

 

The deal is expected to close in the first quarter of 2007 and the company is confident the deal would be cleared.

 

Neil Harl, professor emeritus of economics at Iowa State University, said Justice Department lawyers are unlikely to stop the sale.

 

For 25 years, deregulation of businesses has been the prevailing trend, Harl said

 

Premium Standard has pork plants in Missouri, Texas and North Carolina with annual capacity of 4.6 million hogs slaughtered.

 

Smithfield's acquisition of Premium Standard is unlikely to affect hog prices as there would not be any addition of hogs to the industry.