OK. Here we go again.
Just when you thought there were no more big ag mega-mergers to be had, along comes Cargill and Continental Grain, which owns chicken-producing Wayne Farms. The two companies are teaming up to buy Sanderson Farms, the third-largest chicken producer in the U.S., for $4.5 billion.
The deal would merge Wayne Farms and Sanderson Farms to create a new private chicken corporation (Wayderson? Sanderway?) beyond the limited transparency required by currently being a public company on Nasdaq.
In case you've not been paying attention, there has been a series of stunning agricultural consolidations in the last decade, including DuPont and Dow Chemical, which then split off its agricultural business to create Corteva Agriscience, Bayer and Monsanto, Chem-China and Syngenta, Potash Corp. of Saskatchewan and Agrium, Dairy Farmers of America and Dean Food, and Archer Daniels Midland's on-again, off-again, on-again consideration of acquiring Bunge and JBS's attempt to fully own Pilgrim's Pride.
All these deals received U.S. Department of Justice thumbs-up approval with relatively few squabbles.
Now comes Cargill, the second-largest private company in the United States, looking to establish a beachfront in the U.S. chicken trade. Cargill is a behemoth in its own right. Cargill oversees chicken businesses in Europe, Asia Pacific, Latin America and Canada. Cargill also sells additives and chicken feed mixes to its soon-to-be U.S. competitors.
And therein is the problem for U.S. regulators. The feds like to evaluate agricultural mergers on the basis of market share — how much will any particular merger shrink competition. Tyson, JBS/Pilgrim's Pride, Sanderson Farms and Perdue account for 54% of all U.S. broiler chicken production.
If Wayne Farms and Sanderson Farms merge, that percentage will climb to 60%. That in itself should be a big red flag. But the laissez-faire antitrust U.S. Justice Department has allowed the four largest beef packing companies to grow from roughly 40% of the U.S. market to more than 80% ... all since 1982.
Seed companies, the same thing. The four largest seed manufactures went from a 21% market share in 1994 to 66% by 2018.
But what is most concerning about a Cargill acquisition of Sanderson Farms is vertical integration. Vertical integration occurs when a single company controls more than one stage in the supply chain.
If that is not enough, Cargill is among the largest U.S. wet-corn producers. And Cargill trades in corn and soybeans, informed by boatloads of information about commodity supply chains, both domestically and internationally.
If Cargill was inclined, it could undercut feed prices to temporarily lower chicken production prices in order to hurt competitors.
And lest we forget, the Department of Justice continues to investigate a decade-long price-fixing scandal involving chicken broiler prices. Including … Sanderson Farms. And Consolidated Grain's Wayne Farms.
And, for good measure, Cargill is facing an antitrust lawsuit over its turkey business.
As it turns out, chicken wholesalers and retailers have been ripped off for years by all this collusion. The cost of the chicken in your freezer wasn't so much determined by classic supply and demand economics but by how much money Big Poultry wanted to skim off the top.
Farmers who raise all this chicken for Big Poultry do not want the Department of Justice giving the Cargill-Sanderson merger a green light.
Minnesota Farmers Union President Gary Wertish left no room for interpretation: “Increased consolidation does not benefit farmers, nor consumers. Instead, it concentrates power into the hands of a few and leaves farmers with fewer market opportunities and consumers with higher prices.”
The union's full board voted unanimously in opposition to Cargill buying Sanderson Farms and sent a letter to Minnesota's congressional delegation voicing its displeasure. I expect there'll be a whole lot more of that.
The bottom line is this deal will not benefit farmers. Nor should you believe Cargill's spin that it will benefit the public.
And neither should the DOJ.
Dave Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station where he won a dozen Associated Press awards for his reporting. His opinions are his own and do not reflect the Midwest Center for Investigative Reporting, which first published this piece. Email: email@example.com.
This article originally appeared on Des Moines Register: Opinion: Feds should deny Cargill-Sanderson Farms merger