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Can Canada’s beef industry take another path?

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It is interesting to note that there tends to be much more debate on these issues south of the border

Although the U. S. beef packing industry has always been concentrated, recent announcements pave the way for even higher levels of concentration. Specifically, the Brazilian beef processor, JBS, who last year purchased the third-largest packer in the United States (Swift and Company), announced its intention in March of this year to purchase the fourth-and fifth-largest packers (National Beef and the beef packing operations of Smithfield), as well as Smithfield’s shares in Five Rivers Ranch Cattle Feeding. Not only would these acquisitions make JBS the largest beef packer in the United States and further increase industry concentration, they also open the way for a high degree of vertical integration in the beef industry.

These developments are interesting, since if they proceed they would reposition the beef industry with an industry structure that is more in line with that in the poultry and pork sectors. However it is not clear how the U. S. Department of Justice will rule on these latest acquisitions. (editor’s note: this article was prepared in September. Last month the U. S. Department of Justice (DOJ) filed a civil anti-trust lawsuit to block JBS-Swift & Co.’s proposed acquisition of National Beef Packing Co.)

There are a number of economic and political factors to consider when determining whether to allow the acquisitions to proceed. Currently, there is overcapacity in the packing industry, a result of falling cattle numbers. The increased concentration resulting from the proposed acquisitions would assist in rebalancing supply and demand, albeit with the likely impact

of reducing cattle prices paid to cow-calf producers. Allowing the purchase of Five Rivers Ranch Cattle Feeding to proceed would assist the beef industry in achieving the kind of efficiency gains that the poultry and pork industries have obtained with their substantial vertical integration and non-price co-ordination. However, allowing vertical integration on this scale is likely to be unpopular with producer groups and policy makers, who have traditionally called for limits to be placed on vertical integration.

Canadian producers obviously have an interest in the outcome; typically the industry structures that emerge in the United States eventually make their way north. It is interesting to note that there tends to be much more debate on these issues south of the border, with considerable research being undertaken in universities and policy centres and with producer groups taking strong policy stances.

The debate and discussion surrounding the JBS acquisition raises questions about the Canadian beef industry’s views on this topic. If there is a lack of formal discussion and debate in Canada, will the Canadian beef industry be caught flat-footed and struggling to remain competitive with the U. S. system? Is there any room for the Canadian industry to pursue a different path? Would a somewhat independent path be good for Canadian beef producers, and for the industry as a whole?

Murray Fulton is a professor in the Department of Bioresource Policy, Business and Economics (formerly Agricultural Economics) at the University of Saskatchewan. Kathy Lang holds a Bachelors and Masters degree from the department. This article appears on The Illative Blog

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