Sale of Swift & Co. Signifies Need to Reform Industry

Billings – The world’s largest cattle herd soon will have greater access to the world’s largest beef-consuming market if U.S.-based Swift and Co. – now the third largest beef packer in the U.S. – is sold to Brazil’s JBS-Friboi. The sale would reportedly result in JBS-Friboi becoming the world’s largest beef packer.
calendar icon 1 June 2007
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Brazil, with estimated 207 million cattle,over 50 million of which are estimated to be beef cows, has the world’s largest cattle herd. By comparison, the U.S. has less than half that, with approximately 97 million cattle, 33 million of which are beef cows.

“What all this means for U.S. cattle producers is that the sleeping giant is awakening and quickly moving in our direction,” said R-CALF USA Trade Committee Chair Eric Nelson. “U.S. cattle producers cannot expect to win the competition with Brazil in a marketplace that turns a blind eye to anti-competitive practices and does not include rules that recognize the unique characteristics of the U.S. cattle industry. In a free-for-all competition with Brazil under current market conditions, Brazil could drive our domestic prices into the basement, resulting in a mass exodus of U.S. cattle producers.”

The U.S. cattle industry needs to immediately begin to prepare for competition with Brazilian packers and Brazilian cattle producers, Nelson said. The first step is to obtain the marketplace reforms necessary for independent cattle producers to effectively compete with either domestic or foreign packers.

“What all this means for U.S. cattle producers is that the sleeping giant is awakening and quickly moving in our direction,”

R-CALF USA Trade Committee Chair Eric Nelson.

“We must put a halt to the anti-competitive practices that packers, whether domestic or foreign, use to gain leverage over U.S. cattle prices,” Nelson emphasized. “Congress is considering such reforms right now in the 2007 Farm Bill. These reforms include the implementation of mandatory country-of-origin labeling (COOL), the Competition and Fair Practices Act, the Captive Supply Reform Act, and the limitation on packer ownership of cattle.”

Despite its herd size, Brazil is neither the world’s largest beef producer, nor the world’s largest beef consumer. Those two distinctions are reserved for the United States. Nonetheless, Brazil is by far the world’s largest beef exporter. Brazil also covets the U.S. beef market. In a Reuters news article dated Sept. 9, 2005, Edivar Vilela de Queiroz, president of the Sao Paulo Beef Industry Association (Sindifrio), was quoted as saying, “The U.S. industry has a big interest in having access to Brazilian beef supplies, as they are far cheaper than those on the North American market. We could sell a good volume of beef to produce U.S. hamburgers.”

Indeed, the beef from Brazilian cattle would be far cheaper than beef in the U.S. as the average price paid for Brazilian cattle in 2004 was approximately $60.60 (U.S.) per hundredweight. This is considerably less than the average 2004 U.S. choice steer price of $84.80 (U.S.) per hundredweight.

With its monstrous herd and low cost of production, in 2004 Brazil became the world’s largest exporter of beef. This feat was made possible by significant government subsidies to Brazilian livestock producers. Among those numerous subsidies, Brazilian livestock producers are eligible to participate in a $545 (U.S.) million subsidized loan program. This MODERAGRO program provides subsidized loans up to $50,000 (U.S.) to Brazilian livestock producers with a fixed interest rate of 8.75 percent.

In addition to infrastructure challenges, Brazil’s already explosive growth in beef production and beef exports has been hampered by foot-and-mouth disease (FMD). Currently, the U.S. prohibits fresh or chilled beef from Brazil and allows only pre-cooked beef due to FMD concerns. Despite this, in 2006 Brazil was the fifth largest exporter to the U.S., exporting over 270 million pounds of beef. In 2004, the U.S. Department of Agriculture (USDA) predicted that Brazil would be free of FMD with vaccination by 2005. However, Brazil experienced another outbreak in 2005 and Brazil now expects to eradicate FMD by 2009.

“In this fast-changing global economy, our industry cannot expect to remain competitive without an effective plan to maintain the profitability of independent U.S. cattle producers,” Nelson asserted. “These marketplace reforms are the first step of the comprehensive plan that R-CALF USA members are aggressively fighting to accomplish, and we’re urging every U.S. cattle producer to get behind this effort to preserve our industry’s independence and profitability.”

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