Every 10 years or so a major transaction happens in the U.S meat packing industry. The last big trade was when JBS went on a buying spree between 2005 and 2010. Then a couple years ago Smithfield sold to a Chinese company. Now another Brazilian meat packer enters the U.S. market and purchases National Beef. Authorities approved the sale last week after several senators and producer groups called on the Treasury Department to scuttle the sale.
I really don’t think there is any reason to panic. Even though National Beef is the fourth largest beef packer in the U.S., they only have two packing plants in western Kansas and slaughter about 3.3 million head a year.
When JBS tried to buy National in 2009 the Justice Department put the brakes on that deal, which would have given JBS all of the packing capacity in western Kansas.
Marfrig Global Foods bought 51 percent of the company; they will become the second-largest beef packer in the world. They currently own 31 plants in Brazil, Uruguay and Chile. They already have a large global presence. Adding National gives them access to major Asian markets that Brazil is banned from accessing. The move gives them access to U.S high quality grain-fed beef. National currently does business in 40 countries. And we all know that U.S. exports are growing rapidly. This is a good business move on Marfrig’s part.
Marfrig will pay $969 million for their 51 percent. Ironically, JBS offered $970 million for 100 percent of National in 2009, so the company has doubled in value over nine years. Leucadia National Corporation, an investment group, has owned 79 percent of the company since 2011. They will sell most of their interest, along with a couple other very small owners, but will retain 31 percent. U.S Premium Beef will own 15 percent, and Tim Kline, current CEO of National, will own 3 percent of the company. From a business point of view this was good business for Marfrig and Leucadia; National is a well-run company.
What galls U.S. cattlemen is the recent news about “Operation Carwash,” the political scandal involving Brazilian politicians who were fingered for graft, and JBS owners, Wesley and Joesley Batista, were accused of insider trading and bribing politicians. The brothers spent some time in jail and made a plea bargain deal with the Brazilian courts to pay a $3 billion fine, which was suspended last February.
At the same time, USDA allowed Brazil to start exporting fresh beef to the U.S., which was ultimately found to be sub-standard product. USDA then halted Brazilian fresh beef exports to the U.S. in June of 2017. The entire episode made the U.S. beef industry skeptical about Brazil’s trustworthiness.
JBS went on their $20 billion buying spree between 2005 and 2010, with the help of Brazil’s economic development bank, BNDES, under extremely favorable terms and questionable underwriting circumstances. The entire JBS South American episode has left a bad taste in cattle producers’ and politicians’ mouths.
Several U.S. senators were concerned about the Marfrig deal and referred it to the Treasury Department to have the Committee on Foreign Investment in the U.S review the deal. The senators said, “The security, safety and resiliency of our food system is integral to the overall security of our nation. In light of the recent acquisitions of U.S. food and agricultural companies such as Smithfield by Shuanghui in 2013 and the acquisition of Syngenta by ChemChina in 2016, it has become increasingly clear that growing foreign investment in U.S. agriculture requires a thorough review process to safeguard the American food system.”
Also, last week it was announced that JBS has sold the Five Rivers Feedlots to Pinnacle Asset Management for $200 million. Other partners are Arcadia Asset Management and Ospraie Management, entities with long histories in the cattle feeding industry and risk management business. The Batista-controlled J&F investments will finish feeding the cattle they already own in the 11 feedlots that Five Rivers manages; nothing changes except ownership. Five Rivers will continue to supply JBS with fed cattle. There doesn’t seem to be any real industry concern over the sale because the new owners are well-established domestic players.
But is foreign investment in U.S. agriculture getting out of hand? Feeding the world is big business but do U.S consumers give ag the respect it deserves? It seems like the rest of the world is clamoring to get into ag and feed their people. Who would have ever thought the next round of agriculture consolidation would start going global? — PETE CROW
“Who would have ever thought the next round of agriculture consolidation would start going global?”
