The future may be tumultuous: Chambers fears a threat from the expansion of Brazilian beef packer JBS SA, which buys cattle from farmers and sends them to slaughter. Last year, JBS launched its North American business by
buying the United States' third-largest beef company, Swift & Co., in a $1.5 billion deal. That acquisition made JBS, founded in 1955, the world's largest beef packer. And it's poised to become the largest beef packer in the U.S. as well, by
buying the beef-processing assets from both U.S. Premium Beef LLC and Smithfield Foods Inc. for a total of $1.3 billion. JBS is strengthening its global position by bidding for Australian meat processor Tasman Group Services Pty. Ltd. for $149 million.
The U.S. acquisitions have many cattlemen riled. Chambers says he fears the deal "will basically make us tenant farmers on our own land" because he, and others like him, will have to accept "take-it-or-leave-it bids" for their cattle. "They will pay whatever they want to give," he says.
Antitrust experts who focus on agricultural issues are also worried that the deals will eliminate options for the people who raise cattle, and raise prices for the public.
Chambers is deeply concerned about economic pressures he faces to preserve his son's legacy. He grew up helping his father on the cow-calf enterprise, so named because the farm kept the cows and their female calves, shipping their half-grown bull calves to feedlots in Iowa to fill out on corn.
The perceived threat from foreign acquisitions is only the latest worry for cattlemen during the last three decades. "From 1980 to 1998, the demand for beef in the U.S. was cut in half -- it dropped every single year during that time," says Ted Schroeder, a professor of agricultural economics at Kansas State University. Schroeder says the beef industry began to enjoy a growth spurt in 1998, thanks in part to a strengthening economy and the popularity of the high-protein Atkins diet. But the growth was short-lived, because in 2003, inspectors at the U.S. Department of Agriculture confirmed a case of bovine spongiform encephalopathy, known as "mad cow disease." The news sent a shock wave through the industry; other countries with a taste for choice U.S. cuts, such as Japan, shut their borders to American beef.
At the time, South Korea was the third-largest export market for U.S. beef products, with annual sales of more than $815 million. The country cut its beef imports in the wake of the disease's discovery but resumed reduced beef imports in 2006. However, on April 18, South Korea announced it would fully reopen its borders to U.S. beef, and Agriculture Secretary Ed Schafer said he hoped the move would engender confidence in countries such as Taiwan, Japan and China to resume buying American beef.
The growth is a huge leap for JBS, whose founder, José Batista Sobrinho, started the company by slaughtering "an animal or two a day" to supply restaurants in the infant city of Brasília, which was hacked out of the rainforest to become the capital of Brazil in 1960. Wesley M. Batista, CEO of North American JBS Swift & Co., and the founder's son, attempted to assuage senators concerned about the growth of JBS and offered the reasons behind its U.S. expansion plans in a Senate hearing May 7, promising that JBS would exploit its position as a global company to aggressively market beef from America's heartland.
"JBS now has global operation that we plan to use as a platform to expand the sale of U.S. beef and pork around the world," he said.
And Batista pointed to his company's track record in the U.S. After buying Swift, he said, "we expanded operations, we added additional shifts, we hired more employees, we improved operations, and we bought more cattle." He argued that the outlook for beef is bright in the U.S., and said the new JBS Swift will "buy more animals, expand operations and hire more workers."
If those promises are kept, it could go a long way toward improving the fragile state of the domestic beef industry, says Gary Brester, an agriculture economics professor at Montana State University. "If they are able to open markets because of who they are and who they know, that could provide tremendous benefits. The market right now is pretty flat."
Dillon Feuz, who teaches livestock marketing at Utah State University, testified at the same hearing that JBS' dominant role in the global beef trade "could lead to increased U.S. beef exports and therefore improved beef and cattle prices." But he acknowledged in an interview before his testimony that cattlemen see the deal as a tough one to swallow amid worries that they will have only three buyers instead of the current five for the steers they sell.
A focal point of the deal is Five Rivers Ranch Cattle Feeding LLC, a joint venture between Smithfield and Continental Grain Co. established in 2005. Five Rivers is a loose-knit cluster of feedlots with a capacity of 815,000 head of cattle, a few facilities in the northern Texas panhandle and northeastern Colorado and one each in Idaho, Kansas and Oklahoma. A total of more than 2 million head of cattle can be fattened to about 1,300 pounds each and hauled to nearby processing plants each year.
For JBS, acquiring feedlots with such tremendous local capacity means it can more efficiently control its supply of cattle and more effectively supply its processing facilities to meet consumer demand. With large stocks of cattle at hand, it is easier to ship in feed and trim costs.
That efficient vertical integration would only account for a portion of JBS' synergies from the deal, Batista told the Senate, but that's the issue that has cattlemen up in arms.
Randy Stevenson, a cow-calf producer in Wheatland, Wyo., grew up running cattle with his father and three brothers. Like Chambers, he's hoping his sector of the beef industry remains profitable so he can pass on the business to his 11-year-old son.
During an interview while hauling 17 Black Angus cows to market, Stevenson said he's afraid that the vertical integration JBS plans to put into effect will eliminate the competition for his cattle.
"It's very necessary to have unfettered access to the market," Stevenson said. Multiple bidders will give him top dollar for his cattle. Without bidders, he'll have to take what he can get -- he and other smaller ranchers could get squeezed out.
Buyers who bid on lots of his cattle from various meatpackers won't have any incentive to shop the spot market because they will have large contracts with ranchers and might be able to afford to absorb short-term market anomalies such as fluctuations in demand. "They are using access to the market as a form of market power," Stevenson said.
The ability to vertically integrate by allowing more consolidation among meat packers and letting them use large feedlots like Five Rivers "is economic waterboarding," according to Stevenson.
In an effort to broker peace between the cattlemen and meatpackers, Sen. Herb Kohl, D-Wis., who chairs the Senate Judiciary Committee with antitrust oversight enforcement, asked Batista whether he would be willing to divest Five Rivers to get the deal approved.
Batista cautiously replied that the synergies from Five Rivers helped form the rationale for doing the deal in the first place and influenced the decision over how much to pay.
Kohl asked David Balto, an antitrust lawyer with the Center for American Progress, whether the deal would be more palatable if Five Rivers were sold. Balto said he wasn't sure such a move was adequate to maintain competition.
Stevenson said he views the government's role in this is to stop the mergers and maintain oversight of the market for the good of both those who sell cattle and those who eat the meat.
The USDA regulates myriad issues in the meatpacking industry and enforces the Packers and Stockyards Act, which is aimed at maintaining fair-trade practices and protecting payments in the livestock, meat and poultry industries. The Department of Justice also exercises antitrust authority over the cattle industry. In fact, the nation's primary law that polices competition, the Sherman Antitrust Act, was passed in 1890 during a time of increasing concerns about consolidation of the nation's meatpacking industry.
Today the DOJ says it's on the lookout for criminal conspiracies to suppress competition. It also can bring a case against companies that practice exclusionary conduct to acquire or maintain a monopoly. But, most visibly, the agency is supposed to review proposed mergers in order to stop those "likely to substantially lessen competition in a market" under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Just what that means is open to wide interpretation, and Kohl criticized the DOJ's lack of antitrust enforcement generally and in the agriculture sector specifically. "In the opinion of many experts, the Justice Department has often failed to take effective action as merger after merger in the pork, milk and seed markets have sharply increased concentration and reduced competition," Kohl said at the JBS hearing.
In addition to the expected exhortation directed at officials at the DOJ to look closely at the JBS deals, Kohl also announced at the hearing that he had directed the Government Accountability Office to study whether the spate of mergers in the agriculture industry has helped lead to a spike in food prices.
The DOJ has a lawyer, Doug Ross, whose job is to deal with agricultural issues. As the special counsel for agriculture, he travels across the country, meeting with farmers and other participants of the dairy, grain and livestock industries, to get first-person accounts of what's happening in the feedlots and fields. At the May 7 hearing, Ross played down suggestions that tougher antitrust enforcement is needed. "While the antitrust laws play an important role in helping keep markets in competition, they will not address all of the complex issues facing American agriculture in this time of change," he said. "There is a broad range of agriculture policy issues for the government to focus on, and antitrust enforcement is only one part of that."
Other antitrust lawyers, including professor Peter Carstensen, of University of Wisconsin Law School, say more antitrust enforcement is necessary.
"There's been a double whammy on cow-calf production," Carstensen says. The number of beef cattle has been in decline because farmers don't get much for their cattle, and the feed costs have been skyrocketing. "Not all the packers are exploiting the market, but a big chunk are," he says.
Called to testify by Kohl, whose constituents include dairy farmers who cull their aging cows for beef, Carstensen was caustic about the DOJ's antitrust enforcement efforts aimed at agribusiness. "In a nutshell, the government agencies charged with enforcing antitrust law have repeatedly failed to challenge or remedy the competitive problems that confront American agriculture," he said. "Given this pattern of failure, it is time for Congress to give serious consideration to creating alternative means of enforcing the commands of antitrust law."
That plea wasn't new to Kohl, who has already introduced a piece of legislation that would shift the traditional merger analysis and force merging parties in the agricultural sector to prove -- if necessary, to a federal judge -- that the deal would definitely not harm competition.
Kohl has also introduced a similar bill aimed at the petroleum industry, which has been generally criticized by antitrust lawyers in Washington, who say it's best to gauge competition using the same frame of analysis regardless of industry. They say the difference in merger enforcement lies not with the law itself, but in the individuals at the agencies who exercise prosecutorial discretion.
Assistant Attorney General Tom Barnett, who heads the DOJ's antitrust division, has not gone to court to challenge any mergers. Although he has required divestitures in several merger cases and notes that some proposed mergers have been scrapped as a result of his department's review, he also approved two highly controversial mergers, one between satellite radio companies XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc., and another between appliance makers Whirlpool Corp. and Maytag Corp.
Feuz, Brester and Schroeder all agree that while the deal hurts competition among buyers in some regions, they are similarly fatalistic about alternatives. Feuz, in an interview before his testimony, noted that "the misguided ethanol policy" currently embraced by many legislators, including Sen. Chuck Grassley, R-Iowa, whose constituents include many of the nation's most prolific grain farmers, is far more likely to have hurt cattlemen than the JBS mergers.
High prices for corn are turning many farmers from raising the varieties of corn eaten by people and animals to the kind used for ethanol. That means it's more expensive to feed cattle and more difficult to raise them profitably.
In fact, Brester notes, cattle aren't just for meat. After the premium cuts are removed, the packers squeeze every usable ounce from a steer, from hide for leather, to hooves and other parts for other animal feed. America exports most of its beef tongues to Egypt.
Every part of each animal has an effect on the packer's bottom line, Kansas State's Schroeder agrees. And, he says, those packers are similarly aggressive when it comes to buying the cattle they want to slaughter. "Historically, these guys are willing to beat each other up," he says. Even in areas where there are only two or three buyers, they always want to get the best cattle. But, he notes, if the merger happens and "if [the packers] collude, then the results are more deleterious."
And, Schroeder notes, the problem is that the industry is tight; there don't seem to be any alternative buyers with fresh capital and bright ideas to push the beef industry forward. "Yes, there is concentration. This merger means we go from five to three packers," Schroeder says. "But what is the alternative?"
After noting the concerns about concentration, Feuz concluded his testimony by reminding the Senate that consumers don't have to buy beef; they can buy a range of alternative proteins, from chicken or beef to tofu. And the marketplace is a global one. "To limit the ability of packers and feeders to enter into relationships that they believe will make them more efficient and more competitive in the global marketplace, I believe is counterproductive to the long-term survival of the U.S. beef industry."
Back in Georgia, the math just doesn't work. Chambers says he feels only two players in some markets simply isn't enough. "I don't see how you can make that dog hunt," he says. "If we don't stand up and say this is wrong, we're going to be at the mercy of the buyers."
Chambers adds one final dimension to the issue. In January, the U.S. tipped the scales on global trade for food, importing more than it exports. "To me, that is as much a homeland security issue as you can concoct," he says.
George Chambers' cattle ranch, about an hour's drive from downtown Atlanta, has been in his family since before Gen. William Sherman captured the rebel city and made his devastating push east to subdue the Confederacy. Today Chambers, who works the 1,130-acre ranch with his father, is raising a hybrid beef herd that mixes Black Angus, Horned Hereford and mild-mannered and grass-loving Charolais. "I'm the sixth generation -- and the seventh generation is taking a nap," Chambers says, referring to his two-year-old son. 
