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OCM tells Senate that Smithfield-Farmland deal could cost producers more than $250 million each year

(Friday, July 25, 2003 -- CropChoice news) -- From a news release:

Contact: Steve Cady, 402.792.0041

July 23, Lincoln, NE ~ Organization For Competitive Markets’ general counsel, Michael Stumo, told the Senate Antitrust Subcommittee today that hog producers could lose over $250 million per year if Smithfield Foods is allowed to acquire the pork business of Farmland Foods. The Subcommittee on Antitrust, Competition Policy and Consumer Rights – a subcommittee of the Senate Judiciary Committee - held a hearing on agricultural consolidation with a focus on the Smithfield Farmland deal.

On Tuesday, July 15, Smithfield announced it had offered to buy Farmland’s pork processing business as the bankruptcy court disposes of Farmland’s assets to pay creditors. Smithfield is the nation’s number one pork processor and Farmland is number six on the list. Farmland filed for Chapter 11 reorganization bankruptcy in May 2002, not a Chapter 7 liquidation bankruptcy proceeding.

“There is no reasonable argument that this acquisition will be good for hog prices,” Stumo told the committee. “In the past ten years, we have seen increasingly bloated packer and retailer gross profit margins. Yet consumers experience higher pork prices while live hog prices trend lower.”

OCM has been joined by the Consumer Federation of America and Public Citizen who oppose the acquisition as bad for consumer prices and choice.

Assuming that the elimination of a major hog buyer, Farmland Foods, reduces hog prices by merely one dollar per hundred weight for the carcass price, hog producers will lose over $250 million per year. This is $2.70 per 270 pound hog, 375,000 hogs per year, for 250 plant operation days per year. If we lose $2 per hundred weight, the loss would be over one-half billion dollars per year for Rural America.

“This transaction is driven by Smithfield’s unquenchable desire for market power and the bankruptcy court’s creditors committee desire to get paid in full,” continued Stumo. “But the interests of Smithfield and the creditors committee are inconsistent with the public interest in fair and open hog markets from which Rural America derives a large portion of its income.”

“Farmland Industries, the parent cooperative, has not yet filed a reorganization plan,” said Stumo. It should reorganize around its profitable pork division. It has already sold off its beef, grain, and fertilizer businesses.

While the creditors are pushing liquidation, and Smithfield has scared off other bidders, Congress and the Department of Justice should make all efforts to determine that the Smithfield bid is unlawful under antitrust laws. Then the bankruptcy court can either entertain bids from entities other than the Big-Five packers or pressure the creditors into endorsing a reorganization around Farmland Foods, the pork division.

The Organization for Competitive Markets is a multidisciplinary, nonprofit organization dedicated to reclaiming the agricultural marketplace for farmers, ranchers and rural communities. http://www.competitivemarkets.com