Food & Power: The Month in Review — JBS is moving headquarters to Ireland

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The Month in Review

As the summer winds down, here’s a look at some of the biggest stories in food and agriculture consolidation.

· Three major mergers in the agrochemical sector are facing antitrust review in several countries. The European Union has opened an antitrust investigation into the proposed $122 billion Dow/DuPont merger, citing concerns that a merger between the two agrochemical giants would result in higher input prices for farmers. U.S. Senator Chuck Grassley (R-IA), chair of the Senate Judiciary Committee, shares those concerns, and will hold a hearing in late September to discuss the three proposed mergers in the agrochemical sector. However, the Committee holds little power to block the mergers, which are under review by the Department of Justice and Federal Trade Commission. Meanwhile, ChemChina’s pending $43 billion takeover of Syngenta was approved by the Committee on Foreign Investment in the United States, which evaluates deals for national security threats. The council deemed the deal not a threat to national security because a quarter of Syngenta’s sales are in North America. However, the decision of CFIUS has no effect on antitrust agency approval. If these deals, along with the proposed Bayer/Monsanto merger, are approved, the agrochemical industry will be dominated by just three multinational players. As we’ve written, this consolidation is further amplified by a web of cross-licensing agreements between the companies.

· JBS, the world’s biggest beef company, will move its headquarters to Ireland from its home country of Brazil. The decision is generally believed to be motivated by Ireland’s low corporate tax rate, a strategy called an "inversion." In the US, food companies have also used inversion deals to dodge taxes; for instance, in 2014 Burger King acquired Tim Hortons and located their new joint headquarters in Canada. The Obama administration has attempted to stymie such deals. In April, pharmaceutical giants Pfizer and Allergan called off a $160 billion merger after rule changes from the Treasury Department limited the benefits of tax inversions. JBS, which has annual sales around $42 billion, recently bought Moy Park, an Irish pork company, for $1.5 billion.

· Consolidation and increased power in the hands of corporate players seems to have resulted in a failure of the cattle futures market. Cattle prices have been fluctuating wildly this year, which experts and ranchers attribute at least partially to the introduction of high-frequency trading into the futures market. Many futures exchanges are now refusing to list new contracts. Experts say that there is so little trading of physical cattle occurring that the market "can’t get the signals it needs to set prices." Until about a decade ago, around 50% of cattle sales were in-person cash negotiations; today, only about 20% of transactions happen in the traditional manner. Ranchers are seeing cattle prices fall to five-year lows, and could see as much as a 10% drop in revenue since 2014.

· US dairy farmers will receive more assistance from USDA, as dairy revenues fall lower than since the Great Recession. Secretary Vilsack announced that the agency will purchase about 11 million pounds of cheese from farmers across the country. The agency will also extend the enrollment period for the Dairy Margin Protection Program (DMPP) by three months, through December. As we have reported, many dairy farmers have lost faith in the DMPP after just 0.1% of funds were distributed to farmers in 2015, and the U.S. Treasury pocketed the remaining $73 million in collected premiums.

About the Open Markets Program

The Open Markets Program promotes political, industrial, economic, and environmental resilience. We do so by documenting and clarifying the dangers of extreme consolidation, and by fostering discussions of ways to reestablish America’s political economy on a more stable and fair foundation.

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