Why the Federal Government Should Block the Tyson-Hillshire Merger
After several weeks of musical merger chairs, the dust finally settled this weekend leaving Tyson Foods the winner in a bidding war for Hillshire Brands. The nation’s biggest meat and poultry company offered one billion dollars more than it offered a week and a half ago and the deal is now worth about $8.5 billion. The other bidder, Pilgrim’s Pride, withdrew its bid, and the original deal for Hillshire to buy food manufacturer Pinnacle Foods will be scrubbed to pave the way for the Tyson takeover after Hillshire pays Pinnacle a $163 million “breakup” fee.
This has been great for Hillshire shareholders because all the bidding activity jacked up the share price by almost 60 percent in a few short weeks. But it is a raw deal for consumers and farmers who now face a much more consolidated market for pork. And giving more market power to Tyson allows it to use its “protein power” as the dominant pork, poultry and beef position to pit cattle ranchers against contract chicken growers against hog farmers. Here are a few reasons why the federal government should block the merger:
- It makes the biggest meat company even bigger: There is no real justification for letting the biggest meat and poultry company get even larger by buying the eleventh largest meat company. Tyson argues that it wants to strengthen its mix of value-added, branded meat products by capturing Hillshire’s Jimmy Dean sausage, Ball Park franks and Hillshire Farm lunchmeats. Tyson is already a major name in American supermarkets, so it shouldn’t be so hard for it to bring a more expansive portfolio of brands and products to market.
- The merger strengthens Tyson as “protein powerhouse:” Increasingly, the biggest meat and poultry companies don’t think of themselves as producing beef, pork, chicken or turkey, they consider themselves to be “protein producers.” When a company sells all the items in the meat case, it can effectively manipulate prices to push consumers where there is the highest profit. If cattle prices are high, it can increase poultry production to lower prices for chicken and lure consumers away from beef that is more expensive to produce. This harms farmers who produce livestock because Tyson can always shift away from the peaks of the cattle or hog cycles by playing farmers off against one another. And it erodes consumer choice by constantly manipulating prices to fatten the company’s bottom line
- It gives Tyson more latitude to exploit contract farmers: Tyson practically invented the modern serfdom of contract poultry farming. These contracts are rigged in favor of the companies that enforce rigid obedience and discipline with retaliation, fear and unfair and deceptive practices. Farmers are often forced to make expensive building upgrades (over several hundred thousand dollars) just for the privilege of raising chickens owned by companies like Tyson. The merger would give Tyson another profitable revenue stream that could cross-subsidize the contract abuses that have become all too common in the contract poultry industry.
The food and agribusiness industries are already entirely too consolidated, and the livestock processing industry is the most concentrated of all. The proposed Tyson-Hillshire merger rewards shareholders but punishes America’s farmers and consumers. The Department of Justice must prevent the nation’s largest meat and poultry company from merging its way to monopoly.