IFA President Joe Healy said an independent report commissioned by the IFA on the proposed ABP/Slaney meats deal raises serious competition issues for farmers which must be addressed by the Minister for Agriculture Michael Creed and the Competition and Consumer Protection Commission (CCPC).
He was speaking at the launch of the report prepared by Dr Pat McCloughan of PMCA Economic Consulting, which the IFA has already submitted to DG Competition in Brussels.
Joe Healy said the main conclusion of the report is that the primary procurement market for farmers selling cattle in Ireland to the meat factories is characterised by weak competition and the proposed deal is likely to weaken competition even further, through a ‘substantial lessening of competition’ (SLC). He said the report outlines the chief concern over the proposed transaction is that it would make coordinated effects in the relevant markets more likely.
IFA has sent a copy of the submission to Agriculture Minister Michael Creed and the CPCC, as well as the Competition & Markets Authority (CMA) in the UK. Joe Healy said, “This report is very clear on the competition concerns in the beef sector, the income pressures that exist for livestock producers and the impact that any weakening of competition would have on their livelihoods”.
Joe Healy said farmers are already very concerned about the lack of competition in the beef sector and this report on the proposed ABP/Slaney deal will heighten their fears.
IFA National Livestock Chairman Angus Woods said, “Competition in the beef and lamb trade is always a contentious issue between farmers and factories. The Minister and the relevant authorities must be able to guarantee farmers that there is maximum competition operating in the market”. He said the report also highlights the necessity for DG Competition to examine the competition issues around rendering and factory feedlot cattle as well as the processors relationships with retailers.
Presenting the findings of the report, Dr Pat McCloughan pointed out that ABP and Slaney combined currently account for 25.8% of all cattle slaughterings in the state. When the market is narrowed down to premium cattle of steers and heifers meeting the MII grade and weight specifications, this figure rises to 36.2% of cattle.
Using competition economic analysis based on the HHI measure of market concentration, Dr. McCloughan’s report shows that across the full national geographic market, the HHI Delta is 469 for premium cattle purchased.
However, the analysis also reveals that when the more narrow relevant market of the South Leinster region is used, ABP and Slaney combined would have 44% of the premium cattle kill and the HHI Delta would rise to 959.
Dr McCloughan explained that a HHI Delta above 250 can be a cause of concern and when taken in the context of a market sector with high regulatory barriers to entry and high switching costs as well as other sources of weak competition, this raises serious competition concerns.
Dr McCloughan said “The market share of Slaney is much higher in the narrower geographic market of South Leinster and it emerges that Slaney is the closest competitor to ABP for premium cattle. In each and every analysis, the HHI Delta exceeds 250, by some margin”.
The PMCA economist outlined the growing gap in cattle prices between Ireland and Britain, our largest export market, and highlighted the structural differences in cattle procurement between the two markets. He said the only real route to market in Ireland for finished cattle is directly to the factories, while data from GB showed that 19.4% of slaughtered cattle came through the auction market system.
Dr McCloughan also said that the Irish beef processing industry is much more concentrated than that in England (which is about the same size as the Irish cattle procurement market), with large processors (slaughtering more than 50,000 head of cattle) accounting for 85% of the kill compared to 50% in England. In contrast, small and medium sized processors account for 43.3% of the kill in England and only 8.9% in Ireland.
On sheep meat, the report points out that Slaney/ICM is the largest processor of sheep/lamb meat in the State, with around 40% of the kill. While ABP does not process sheep/lamb meat in Ireland, it is active in this area in Northern Ireland and in England.
The ‘footprint’ of the parties (ABP and Slaney/ICM) is extensive in meat processing in Ireland and the UK, not to mention the competition implications of the proposal in retail markets in Ireland, the UK and the EU, owing to the fact that most of the beef and lamb meat produced in Ireland is exported. This in turn necessitates the view elaborated in the PMCA report that the proposal, if it is notified to the European Commission, should also involve the Irish and UK competition authorities.
The overall conclusion of the PMCA report is that the “relevant market affected by the proposed transaction is characterised by weak competition and that the proposed deal poses a risk of an SLC in the State or an SIEC at EU level” (significant impediment to effective competition, the merger control test applied by the European Commission, which is basically the same as the SLC test applied in Ireland and the UK).
The PMCA report also contains suggestions aimed at helping to inform the competition authorities in Brussels, Dublin and London for further examination in respect of the relevant market’s capacities, vertical integration and features that might serve to underpin processors’ apparent bargaining advantages over producers/farmers in Ireland.