IN THE early 1980s, before the Bureau of Competition policy moved from Consumer and Corporate Affairs to Industry Canada and before the repeal of both the Combines Investigation Act and the Foreign Investment Review Act, Cargill’s takeover of Better Beef would have been viewed differently by Ottawa.
Of course, back then, the industry itself was different. Ranchers produced for a domestic market and regional packers put Canadian beef in Canadian stores.
But with the signing of the Free Trade Agreement and mounting pressures for globalization, many sectors underwent rapid change, including agriculture. Within a few years, cheap offshore boxed beef, much of it coming in on supplemental permits, flooded the domestic market, displacing Canadian beef and driving down profit margins to packers. With the arrival of Cargill in 1989 and Iowa Beef Processors/Tyson in 1994, most of Canada’s small meat packers disappeared.
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Today, Cargill in High River, Alta., and Tyson in Brooks, Alta., control 65 percent of fed cattle slaughter in Canada. When Better Beef in Guelph, Ont., and XL Foods in Moose Jaw and Calgary are included, these four packers control 85 percent of Canadian fed cattle slaughter.
And hold on to your hat. Things are about to get more concentrated.
Last week, Canada’s federal Competition Bureau approved Cargill’s purchase of Better Beef, giving Cargill a 48 percent share of the Canadian fed cattle slaughter market and an 80 to 85 percent share of the Ontario market. Put another way, 80 percent of Canadian slaughter capacity now rests with two American firms: Cargill and Tyson.
Wasn’t it only a month ago that Wayne Easter, parliamentary secretary to the minister of agriculture, warned Ottawa that economic concentration in the farm supply and processing sectors has turned Canada’s farmers into price takers?
Making direct reference to Cargill’s market dominance, Easter noted in his recent report that Iowa regulations prohibit packers from owning, controlling or operating feedlots and Nebraska laws prohibit packers from taking direct or indirect ownership of livestock more than five days before slaughter.
Clearly, the Competition Bureau officers did not read or chose to ignore Easter’s report.
What avenues did the bureau have open to it? Legally, it can challenge a proposed merger before the competition tribunal. Practically, mergers are more often “negotiated” through the imposition of conditions intended to lessen the effects of market dominance.
While the Easter report provided solid resonance for such negotiations, there is no indication that the bureau gave any consideration to imposing conditions to the merger to mitigate Cargill’s market dominance in Western Canada.
Politically, of course, other factors come into play. If the industry itself supports a merger, it becomes more difficult for Ottawa to rule against it.
In this case, the Ontario cattle industry supported Cargill’s takeover because Better Beef, with an 80 percent share of the Ontario fed-cattle slaughter market, was considered a “bad player” that dealt with suppliers in a heavy-handed and arbitrary manner. Ontario cattle producers supported the merger because they figured Cargill couldn’t be worse.
In the West, ranchers already living with the effects of a Cargill’s market dominance are worried. The Canadian Cattlemen’s Association took no position on the merger, sending a clear signal to Ottawa.
Last week, the bureau stepped back and will allow the acquisition to proceed. In its announcement, it cited four reasons for approving the merger:
- Because the two main packing plants are physically distant – High River and Guelph – they don’t compete now in the purchase of cattle and hence the merger is not likely to “depress prices paid to ranchers to a level that is below the competitive price for a significant period of time” and result in a “substantial prevention or lessening of competition” in the purchase of cattle.
- July’s opening of the U.S. border to cattle younger than 30 months enhances competitive options for Canadian producers, mitigating the effect of Cargill’s 50 percent market share.
- Even if the border closes again, “the effects would not be significant enough to result in a substantial lessening of prevention of competition” because of the physical distance between the plants.
- Canadian retailers have told the bureau that Cargill’s significant dominance in the case-ready beef market will not reduce competition because they can always import boxed beef and/or reinstate in-store butchering.
Controlling fully 50 percent of the fed-cattle slaughter capacity in Canada and 80 to 85 percent in Ontario, Cargill now has us all in a nose twitch.
If, in future industry negotiations, Cargill threatens to pull up stakes and leave, who will fill its place? The implications suggest what Cargill wants, Cargill will get.
Already, the lion’s share of U.S. farm subsidies goes to concentrated agri-business players, not farmers. Cargill is a past master at it. Look what has already happened with BSE support. The farming of farm subsidies by large multinationals has implications for Canadian farmers, Canadian taxpayers and Canadian communities.
With Cargill and Tyson now controlling the packing sector in both Canada and the United States, the negative effects of market dominance on farmers and the communities they serve can only escalate.
Two American-based multinationals don’t need written memos and recorded phone conversations to divide the pie. As long as they each pay next-to-nothing for the product, both are ahead.
Farmers keep expecting so much more of government and keep getting so much less.
