O.K. 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 a cool $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 – Dow Chemical which then split off its agricultural business to create Corteva Agriscience, Bayer – Monsanto, Chem-China – Syngenta, Potash Corporation of Saskatchewan – Agrium, Dairy Farmers of America – Dean Food, as well as Archer Daniels Midland’s on-again, off-again, on-again consideration of acquiring Bunge Ltd and JBS’ attempt to fully own Pilgrim’s Pride.
All these deals received U.S. Department of Justice hell-yeah-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.
Cargill processes 21% of all U.S. soybeans. Yeah, one of every five bushels. And Cargill is rapidly attempting to expand its soybean footprint.
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 boiler prices. Including….wait for it….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 MFU’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.
About Dave Dickey
Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for Investigate Midwest covers agriculture and related issues including politics, government, environment and labor. His opinions are his own and do not reflect Investigate Midwest. Email him at dave.dickey@investigatemidwest.org.
