Recent Acquisitions of U.S. Meat Companies

Recent Acquisitions of U.S. Meat Companies
Renée Johnson
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
In July 2007, JBS — a Brazilian company regarded as the world’s largest meat
processor — purchased the U.S. beef processor Swift & Co., then the third-largest U.S.
beef processing company. In February and March 2008, JBS signed agreements to
acquire the fourth- and fifth-largest U.S. beef packers, National Beef Packing Company
and the Smithfield Beef Group, respectively. These planned acquisitions have undergone
customary regulatory review by the U.S. Department of Justice’s (DOJ’s) Antitrust
Division. On October 20, 2008, DOJ and 13 states filed a complaint in U.S. District
Court to block the JBS buyout of National Beef Packing Company, citing concerns that
it could contribute to higher consumer prices and also lower producer prices. That same
day DOJ announced it would not challenge the JBS acquisition of Smithfield Beef
Group. Some in Congress publicly applauded DOJ’s lawsuit; opinion within the U.S.
meat industry is mixed. If the DOJ lawsuit is not successful and JBS acquires National
Beef in addition to Smithfield, this could raise the JBS combined share of the U.S.
commercial cattle slaughter market to about 30%, assuming it does not divest some
facilities. The proposed JBS acquisition of Five Rivers Ranch Cattle Feeding, which is
part of the Smithfield deal, could make JBS the largest cattle feeder in the United States.
Background
JBS (JBS S.A., for “South America”) is a publicly traded Brazilian meat processing
company, with headquarters in Sao Paulo. The company is active in the food sector
(mainly meats and meat by-products), among other sectors. Its principal meat activities
include preparation, packing, and delivery of fresh, chilled, and processed beef; it also
produces ready-to-eat meals and canned and cooked beef, hides, and other cattle parts.
JBS is regarded as the largest meat processor in the world, accounting for up to 10% of
the world beef market, with many company name brands and product lines.
JBS was established in 1953 by the Batista family. In 1993, it began to expand its
operations with a series of acquisitions throughout Brazil. Starting in 2005, it began to
expand its operations outside of Brazil, starting in Argentina. It now has operations
worldwide (mainly in South America, the United States, and Australia) and is a major

world exporter of beef products. Its recent acquisitions and expansion are part of its
stated globalization strategy.
In July 2007, JBS purchased the U.S. beef processor Swift & Co. (now known as
JBS-Swift & Co.), then the third-largest U.S. beef processor. Swift accounted for 12.6%
of the 2006 commercial slaughter (about 4.8 million head) and had U.S. beef sales of $5.6
billion in 2006 (four U.S. plants). JBS-Swift & Co. is reported to have since raised its¹
overall capacity, operating at about 18,800 cattle head per day.
In March 2008, available reports indicated that JBS had nearly 40 meat processing
plants in Brazil, Argentina, the United States, and Australia. Some reports indicated that
it may have as many as 90 plants worldwide, including facilities in countries such as India
and Italy. Under ongoing expansion plans, it is anticipated that JBS could reach 120
plants worldwide, and generate global annual revenues of US$21.6 billion (nearly double
its reported current levels). At that point JBS could be slaughtering up to 18 million cattle²
per year, also double its reported current levels.
Recent JBS Acquisition Activity
In February and March 2008, JBS signed agreements to acquire the fourth- and fifth-
largest U.S. beef packing companies, National Beef Packing Company and the Smithfield
Beef Group, respectively. Appendix A provides preliminary and readily available
information on the terms of the recent sales agreements between JBS and National Beef
Packing Company and the Smithfield Beef Group. Combined, these two acquisitions
could total nearly $1.6 billion. (As part of its recent acquisition strategy, JBS also
acquired an Australian beef processing company, Tasman Group.)³
Finalization of the sale of National Beef Packing Company and Smithfield Beef
Group was subjected to the customary regulatory review by the U.S. Department of
Justice’s (DOJ’s) Antitrust Division, which must approve the acquisition as required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (P.L. 94-435).⁴ In September
2008, JBS indicated that it is not considering further acquisitions of beef and pork
facilities in North America.⁵ Media reports have indicated that JBS is considering
expanding its beef operations in Australia.⁶

¹ Data from Cattle Buyers Weekly.
² “JBS’s spending spree totals $1.66 billion,” Cattle Buyers Weekly, March 10, 2008.
³ A reported $150 million sale involving 15,000 employees and 15 production units in Australia.
“JBS completes Tasman Group purchase,” Leather International, May 6, 2008, at [http://www.
leathermag.com/news/fullstory.php/aid/13049/ J BS_complete_T asma n_Group_purchase.html].
⁴ DOJ’s and the Federal Trade Commission’s Antitrust Enforcement Guidelines For International
Operations, April 1995, at [http://www.usdoj.gov/atr/public/guidelines/internat.htm].
⁵ Steve Kay, “International Appeal: One year after acquiring Swift&Co., JBS USA’s Wesley
Batista weighs in on its global strategy,” Meat&Poultry, Sept. 2008, at [http://www.meatpoultry.
com/ archives/archives.asp].
⁶ Steve Kay, “JBS looks to expand in Australia,” Meat&Poultry, Aug. 27, 2008.

On October 20, 2008, DOJ and 13 states filed a complaint in U.S. District Court to
block the JBS buyout of National Beef Packing Company, citing concerns that the deal
could contribute to higher consumer prices and also lower producer prices. That same day
DOJ announced it would not challenge the JBS acquisition of Smithfield Beef Group.⁷
The acquisition by JBS of the Smithfield Beef Group — the fifth-largest U.S. beef
processor — will result in further consolidation of the U.S. beef packing industry. In
combination with the 2007 acquisition by JBS of Swift & Co., this could raise the JBS
share of the U.S. cattle slaughter market from under 13% to about 19% (based on 2006
data). If the DOJ lawsuit is not successful and JBS acquires National Beef Packing
Company, this could raise the JBS combined share of the U.S. commercial cattle slaughter
market to about 30% (assuming JBS does not divest some facilities).⁸ If JBS proceeds
with the acquisition of Five Rivers Ranch Cattle Feeding, which is part of the Smithfield
deal, this could make JBS the largest feeder in the United States.
Table 1 shows the market shares for the top U.S. packers and feeding companies
based on available 2006 data (prior to changes in 2007 and 2008). For more information
on the ongoing consolidation and concentration trends in the U.S. livestock industry, as
well as information on the structure of livestock and meat production and marketing, see
CRS Report RL33325, Livestock Marketing and Competition Issues.
Table 1. Top Beef Packers and Cattle Feeders, 2006
Cattle SlaughterCattle Feeding
Com pany M arket^a Com pany M arket^b
ShareShare
Tyson Foods24.9%Five Rivers Ranch Cattle Feeding25.2%
Cargill Meat Solutions20.8%Cactus Feeders, Inc.21.5%
JBS-Swift & Co.12.6%Cargill Cattle Feeders, LLC14.0%
National Beef Packing10.4%Friona Industries, LP10.3%
Company
Smithfield Beef Group6.0%AzTx Cattle Company6.0%
Top 5 firms74.7%Top 5 firms76.9%
^Source:^Ca^{ttle Bu}^{yers W}^eekly^.
a.^M^a^r^k^e^t^sha^r^e^b^a^se^d^oⁿ^p^e^r^c^eⁿ^ta^ge^o^f^to^ta^{l num}^b^e^r^o^f^U.^S.^c^o^m^m^e^r^c^ia^{l c}^a^ttle^sla^ughte^r^.
b.^Mark^{et s}^h^{are bas}^e^{d on}^percen^tag^e^of^{total capacity}^(h^{ead per day}⁾^.

⁷ U.S. District Court, Northern District of Illinois Eastern Division, complaint filed by the U.S.
and 13 states vs. JBS S.A., Oct. 20, 2008; DOJ press release, “Justice Department Files Lawsuit
to Stop JBS S.A. from Acquiring National Beef Packing Co.,” Oct. 20, 2008, at [http://www.
usdoj.gov/opa/pr/2008/October/08-at-936.html]. See also John Wilke and Lauren Etter,
“Brazilian Beef Purchase Is Challenged by the U.S.,” Wall Street Journal, Oct. 20, 2008.
⁸ Some media reports indicated the likelihood that JBS may be required to shed some plants
under the acquisition (mostly located in the Southwest) to avoid anti-trust concerns. See, e.g.,
“JBS is Closer to Completing Acquisitions,” Cattle Buyers Weekly, Sept. 22, 2008.

Congressional and Industry Response
Congressional action on this issue has been relatively limited. Although Congress
has considered legislation and held hearings on livestock market competition issues in
general, it has not done so with regard to the JBS acquisitions in particular.
However, both Chairman Harkin of the Senate Agriculture Committee and Senator
Grassley publicly applauded DOJ’s October 20 lawsuit that could block JBS from
acquiring National Beef Packing Company. In addition, in June 2008, Senator Kohl
wrote a letter to DOJ’s Assistant Attorney General expressing concern about the
acquisition and its potential effect on consumer prices and market competition, as well
as options for independent ranchers to sell their cattle. In the letter, Senator Kohl urged
DOJ to “bring an antitrust enforcement action to block these acquisitions.”⁹
Opinion within the U.S. livestock industry is somewhat mixed, reflecting both
support of and opposition to the acquisition. Opposition has been voiced by groups
concerned about the potential for increased market concentration and vertical integration
in the livestock sector, which they fear could lead to lower producer prices. Leading this
group is the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America
(R-CALF USA).¹⁰ This group initiated a multi-signatory letter to DOJ — including more
than 70 national, state, and local industry organizations — urging the Department to block
the acquisition.¹¹ The National Farmers Union expressed support for DOJ’s lawsuit,
claiming it is the “right move to make.”¹² Other national farmer organizations, including
the American Farm Bureau Federation (AFBF) and the National Cattlemen’s Beef
Association (NCBA), expressed support for the outcome of DOJ’s investigation.¹³
However, other groups such as the Kansas Livestock Association (KLA) support the JBS
acquisitions, citing the potential for enhanced financial stability of the processing sector
following the sale.¹⁴

⁹ Letter to Thomas Barnett, Assistant Attorney General, DOJ, from Senator Kohl, regarding JBS-
Swift acquisition of National Beef and Smithfield Beef (June 24, 2008).
¹⁰ R-CALF USA represents cow-calf operators, cattle backgrounders, and feedlot owners in 47
states, along with other local and state association affiliates.
¹¹ Letter to Thomas Barnett, Assistant Attorney General, DOJ, from 72 signatory organizations,
regarding JBS Swift acquisition of National Beef and Smithfield Beef (March 25, 2008).
¹² NFU press release, “Dept. of Justice Moves to Block JBS-Swift’s National Beef Purchase,”
Oct. 21, 2008, at [http://nfu.org/news/2008/10/21/nfu-dept-of-justice-moves-to-block-jbs-swift%
e2%80%99s-national-beef-purchase.html]. NFU represents farmers and ranchers in all states.
¹³ “Groups weigh in on DOJ decision to file antitrust lawsuit,” Agri-Pulse, Oct. 22, 2008. AFBF
is a national farmer/rancher association; NCBA is the largest national group of cattle producers.
¹⁴ Letter to Thomas Barnett, Assistant Attorney General, DOJ, from the Kansas Livestock
Association, regarding JBS Swift acquisition of National Beef and Smithfield Beef (Sept. 25,

2008). KLA represents Kansas’s beef business.

Appendix A. Information on National Beef Packing Company and
Smithfield Beef Group
National Beef CompanySmithfield Beef Group
CompanyOn February 29, 2008, JBS signedOn March 4, 2008, JBS signed agreements to
Overviewagreements to acquire the fourth-largestacquire the fifth-largest U.S. beef packing
U.S. beef packing company, National Beefcompany, Smithfield Beef Group (parent
Packing Company (parent company, U.S.company, VA-based Smithfield Foods) and its
Premium Beef). National Beef issubsidiary cattle feedlot operation, Five
headquartered in Kansas City, MO.Rivers. Smithfield Beef is headquartered in
Green Bay, WI.
MarketNational Beef accounted for 10.4% of theSmithfield Beef accounted for 6% of the 2006
Share2006 U.S. commercial slaughter (about 3.5U.S. commercial slaughter (about 2 million
andmillion head) and had U.S. beef sales ofhead) and had U.S. beef sales of $2.6 billion in
Capacity$4.6 billion in 2006. Its current capacity is2006. Its current capacity is about 8,050 cattle
about 13,800 cattle head/day.head/day.
ActiveNational Beef has three beef processingSmithfield Beef has four beef processing
Facilitiesplants (Dodge City, KS, Liberal, KS,plants (Green Bay, WI, Plainwell, MI,
Brawley, CA); two case-ready beefSouderton, PA, and Tolleson, AZ); one grease
processing plants (Hummels Wharf, PA,producing plant (Elroy, PA); one cattle feedlot
Moultrie, GA); one plant specializing inunit (South Charleston, OH); and one
portioned products for commercialtransportation division. Acquisition would
establishments and end consumers (Kansasinclude Five Rivers, comprising ten cattle
City, KS); and one refrigeratedfeedlot units with a one-time feeding capacity
transportation company (Liberal, KS).of 811,000 cattle units (operations in CO, ID,
KS, OK, TX).
Reported It is reported that National Beef will beIt is reported that Smithfield Beef will be
Salesacquired for a total enterprise value ofacquired for a total enterprise value of
Termsapproximately US$985 million, wherebyapproximately US$565 million, which
JBS will pay members of National Beefincludes about $465 million for Smithfield’s
total proceeds of about $465 million in cashbeef processing properties, and $100 million
and $95 million in JBS stock, with anotherfor a 100% share of Smithfield’s feedlot
$425 million in National Beef’s currentsubsidiary Five Rivers. It is reported that JBS
debt and liabilities. plans to increase the working capital in Five
Rivers by approximately $200 million.
Source: Compiled by CRS using available data and information from Cattle Buyers Weekly and official
press releases (e.g., from U.S. Premium Beef on its agreement to sell National Beef Company to JBS S.A.,
dated March 4, 2008).