July 30, 2014
On July 16, Tyson food, Inc. (Tyson) announced a hostile takeover of Hillshire Brands Co. (Hillshire) with the hope that the Department of Justice (DOJ) would quickly approve the merger. On July 24, NSAC along with 81 other like-minded organizations wrote a letter opposing a quick review and asking for DOJ to undertake a more thorough investigation of this significant merger.
Tyson may be best known for chicken, but it is also one of the largest beef and pork processors in the world. Tyson began to branch out from chicken in 2001 when it purchased IBP, Inc., one of the largest beef and pork packers in the country. The year prior, 2000, Tyson had $7 billion in sales, which has grown to $34 billion today making it the largest meat and poultry processor in the country.
Hillshire is a pork processor and prepared foods company. They are probably best known for their line of sausages and hotdogs marketed under the very familiar Jimmy Dean and Ball Park brands. However, Hillshire also operates the second largest sow processing facility in the country and 10 processed foods plants mostly in the middle part of the country.
This merger is concerning for several reasons, chief among them is that it will further reduce competition in the already highly consolidated meat packing industry, particularly in the pork sector.
Less competition is bad for farmers and bad for consumers.
How farmers are impacted
When there is less competition among companies that purchase livestock from farmers there is downward pressure on the prices paid to farmers for the animals they raise. Fewer buyers means fewer competitors for the farmers goods. If a farmer happens to live in a part of the country where only one livestock or poultry processor operates, which is often the case, they have no choice but to accept the price that the company offers. This turns farmers into pure price takers, meaning, they have to take whatever price is offered. Even as food prices have increased in recent years the percentage of the retail price of food that farmers receive remains about 15.8 cents of every food dollar.
How consumers are impacted
Consumers are impacted in two different ways. This merger may result in consolidation among the products made by the two companies, which will result in fewer choices of among sausage, bacon, and hot dog makers for consumers. This means Tyson could choose to discontinue offering their own brands of sausages and bacons in favor of retaining only Hillshire’s brands. In fact, it has been reported that Tyson’s plans to close some of its processing plants in order to move production to Hillshire facilities.
When this happens consumer have less choice. When consumers have less choice companies have more power to raise prices and consumers have no choice but to pay the higher price if they still want sausage or bacon on their breakfast table. Tyson and Hillshire’s product lines overlap extensively, both sell breakfast meat and lunchmeat and they both sell frozen meat products (like frozen breakfast sandwiches). If some or all of either company’s products disappeared from the shelf many consumers will have few if any choices for purchasing their sausage and hot dogs.
The Tyson-Hillshire merger would combine the largest meatpacking and poultry company in the world with the 11th largest. This is on top of the fact that four companies already process more than 60 percent of the hogs in this country. Given the overlapping nature of the products and markets these two companies operate in, it is critical that DOJ take as much time as they need to review this the hostile takeover attempt by Tyson of Hillshire.