The federal government’s Competition Bureau has ruled that the purchase of the largest beef packing plant in Eastern Canada by the largest packing plant in Western Canada would not lessen competition in the Canadian cattle industry.
Morgan Currie of the bureau’s mergers branch said after studying records from both companies and talking to cattle producers and the retail industry, the agency felt the merger would not lead to a substantial lessening of competition, despite the fact that the merged company would have more than half the country’s combined slaughter capacity.
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“The test is will it lead to a substantial lessening of competition,” said Currie, whose agency concluded the two companies operate in two distinct markets and would continue to compete in different markets.
Cargill is one of Canada’s largest agricultural companies with interests in several Canadian operations, including a fully integrated beef packing facility in High River, Alta., which has slaughter, beef processing, rendering and hide operations. Cargill also operates two multi-species case-ready meat facilities in Ontario and Quebec.
Better Beef produces boxed beef at an integrated packing facility in Guelph, Ont., the largest plant in Eastern Canada. The company also owns a feedlot and two multi-species case-ready, meat-packing facilities in Guelph and Stoney Creek, Ont.
Currie said the companies’ areas of influence and concentration are distinct. While the Cargill plant draws its cattle mainly from Alberta and Saskatchewan and some from Manitoba and the northern United States, Better Beef buys mainly from Eastern Canada and Manitoba.
In 2004, Better Beef’s purchase of fed cattle in Alberta was negligible and its purchases in Manitoba were less than 10 percent of Manitoba’s total fed cattle inventory, said the Competition Bureau report.
“Even though both Cargill and Better Beef were both purchasing Manitoba cattle, the direct competitive overlap was limited,” the report said.
As part of its investigation, the bureau ordered the companies to turn over detailed financial records and information on where they bought their cattle, the price paid for them and any future construction plans to see if they were competing and if the competition would be lessened, as western cattle organizations had worried.
“We were really concerned about the level of concern people we talked to expressed,” said Currie, who added the bureau took a close look at Manitoba’s markets, where there was some overlap.
Larry Schweitzer, president of the Manitoba Cattle Producers Association, said despite the report’s findings he’s concerned that buyers from the merged company will not bid aggressively for Manitoba cattle.
“I hope they compete with each other,” said Schweitzer, who wants to have the opportunity to decide if his cattle go east or west, depending on which plant is offering the best price.
Talk of a second shift at the Guelph plant would force buyers to come into Manitoba more often and he wants assurances their producers won’t get a watered down price.
“We’ll be affected all right,” said Schweitzer, a feedlot operator from Hamiota.
Darcy Davis, chair of the Alberta Beef Producers, said his organization met with the Competition Bureau twice to forward its concerns about the sale and how it would limit competition in the already small packing industry.
“We would like to see as much competition on the buy and sell side as possible,” he said.
Davis is hopeful that some of the newly announced packing plants will offer at least some competition for the newly merged company.
“We’ll have to see how it affects the market.”
Mark Klein, director of communications with Cargill Meat Solutions, said the company believes the distance between the two packing plants prevents competition overlap and creates distinct cattle markets.
“There are a lot of kilometres in between those two regions,” Klein said.
“We believe the Competition Bureau’s conclusion was in line with our thinking. We’re pleased that they have the same conclusion that we did.”
Now that the bureau has eliminated a potential roadblock to the merger, Cargill hopes to complete the purchase by September.
Currie said the four-month investigation was the most complex investigation the bureau has undertaken for some time.
“We felt like the ground was shifting under our feet.”
When the bureau started its investigation the American border was still closed to Canadian cattle and it was unknown how a Montana judge’s ruling might affect future cattle decisions. In July the first shipment since May 2003 of Canadian cattle younger than 30 months moved into the United States.
It became clear during the investigation that not everyone in the cattle industry was opposed to the merger.
“Ontario individuals seemed to be positive at the merger, but people in the West less so,” said Currie.
Grocery retailers, especially in Eastern Canada, had little concern about how the merger might affect case-ready beef. The retailers felt they possessed enough countervailing power, including the ability to do their own meat cutting, to counter the merger’s potential market power.
The retailers also felt that entry into the case-ready market was not difficult if they saw the competition lessening.
Jan Slomp, regional co-ordinator of the National Farmers Union in Alberta, said the Competition Bureau’s decision shows how inadequate the rules are for judging a merger’s impact on an industry.
“The Competition Bureau is outdated and is not the right tool to deal with the marketplace today,” Slomp said.
“I think it is just another big step toward vertical integration of the beef industry.”
