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OVERVIEW:
SPINACH GROWERS WERE WARNED ABOUT PRODUCE SAFETY
By Stacy Finz and Erin Allday
PATTERN OF E. COLI OUTBREAKS IS SEEN
By Associated Press
E. COLI CASES PROMPT CALLS TO REGULATE FARM PRACTICES
By Daniel B. Wood
SPINACH SCARE HITS SALINAS HARD
By Meredith May and George Raine
SPINACH PRODUCERS TAKE FINANCIAL HIT
By Julie Schmit
SMITHFIELD FOODS AGREES TO BUY PREMIUM STANDARD
By Scott Kilman
SENATORS, OTHERS QUESTION MERGER IN PORK INDUSTRY
By Jerry Perkins
"SMITHFIELD FOOD'S DEAL PERPETUATES CONCENTRATION AND LACK OF COMPETITION"
National Farmers Union
AG LAWYERS SAY SMITHFIELD DEAL RAISES CONCERN FOR MARKETS By
Curt Thacker
SPINACH GROWERS WERE WARNED ABOUT PRODUCE SAFETY
By Stacy Finz and Erin Allday
San Francisco Chronicle
September 19, 2006
Just ten months before fresh spinach started sending people to the hospital, state and federal officials warned Salinas Valley growers and packers to clean up their act after a decade of deadly E. coli bacteria breakouts.
In November 2005, the FDA sent a letter to growers, packers, processors and shippers warning them to improve produce safety."In view of continuing outbreaks," the agency wrote, "we encourage firms to consider modifying their operations accordingly to ensure that they are taking the appropriate measures to provide a safe product to the consumer."
The recent outbreak is the 20th time in a decade that leafy greens from Monterey County have been contaminated by the deadly O157:H7 strain of E. coli bacteria. In this instance, a number of the people infected said they had eaten packaged fresh spinach. Epidemiologists have since traced the spinach to Earthbound Farm's Natural Selection label, which according to the company is grown in the Salinas Valley and in neighboring San Benito County.
Investigators haven't been able to determine whether the source of the bacteria is in the farms or in the processing plant where the vegetable is packaged, but said they are leaning toward the fields. "We're trying to get to the bottom of this," said Dr. Mark Horton, state public health officer for the California Department of Health Services. "But we've not been able to identify a smoking gun. A lot more has to be done."
"The safety of our products from the farm to the fork is our No. 1 priority," said Hank Giclas of Western Growers, a trade association that represents California farmers, packers and shippers. "We have begun an intensive process of examining everything we do to keep the bacteria from getting into our products."
The toll of people who have been infected in the recent epidemic has risen to 114 people in 21 states, including California, according to the federal Food and Drug Administration. One of those people, a 77-year-old woman from Wisconsin, has died, and 18 people have suffered kidney failure. Horton said he expects more cases will be reported.
Natural Selection has voluntarily recalled all its spinach products and River Ranch has pulled its spring mix, which contains Natural Selection's spinach. But officials warn that consumers should not eat raw spinach of any kind --- even organic. The FDA says spinach is safe to eat after cooking the vegetable at 160 degrees Fahrenheit for 15 seconds. But state health experts advise against it.
"If you have something in your refrigerator that's contaminated, you throw it out," said Dr. Kevin Reilly of the state health department. Canned and frozen spinach are safe to eat, according to both agencies.
Inspectors from the FDA and from California health services visited farms in Monterey County on Monday evening to take samples and examine the fields for possible contamination. Investigators have been running similar tests since 1995, when the first case of E. coli was reported by people who had become ill after eating fresh lettuce. But the source of contamination was never found.
Attorney William Marler, who has represented a number of families infected with E. coli after eating fresh vegetables from the Salinas Valley, said he thinks it is more than likely that water is contaminating the crops. "The common denominator in the other outbreaks was either surface water contamination, flooding or irrigation," he said.
All water sources were tested, according to experts, but nothing came back positive for the bacteria.
E. coli is spread through mammals' fecal matter. Symptoms such as diarrhea, cramping and bloody stools typically occur within two to three days of exposure, but can take up to a week to appear.
Healthy adults are more likely to recover from the bacteria, according to the FDA. Young children and the elderly are the most vulnerable.
Marler has already filed federal lawsuits against Natural Selection and Dole, which sold Natural Selection baby spinach under its own name, in Oregon, Wisconsin and Utah on behalf of victims from those states. One of his clients, Gwyn Wellborn of Salem, Ore., suffered kidney failure, requiring four blood transfusions and eight plasmapheresis exchanges, according to the suit.
Samantha Cabaluna, a spokeswoman for Natural Selection, said she wasn't aware that lawsuits had been filed. Marty Ordman of Dole said he would not discuss the claim pending litigation.
E. coli outbreaks, especially in produce, have become increasingly common in the past two or three decades. Experts in the agriculture industry said Monday they expect that trend to continue. The country's centralized food processing system is at least partly to blame because produce from one source is distributed all over the country. If just one corner of farmland becomes contaminated, bacteria can spread all over the United States.
"We don't see this disease in India, Africa, China. We only see it in highly technologically advanced countries, and the reason is because of this highly centralized food processing system," said Lee Riley, professor of infectious disease and epidemiology at UC Berkeley.
The FDA and state health departments need to develop more stringent regulations to control the spread of bacteria, experts generally agree. And there are precautions that growers and food processors can and should be taking --- not allowing potentially contaminated surface water to run onto farmland, for example, and aerating land that might be tainted. But the fact remains, there's only so much a farmer can do to protect a crop.
"We're still learning about what we can do to prevent contamination in the field,'' said Jenny Scott, a microbiologist and vice president of food safety programs for the Food Products Association. "Animals poop in the field, we have cattle grazing in the nearby field, we have water runoff. It can be very difficult to prevent these outbreaks unless we grow everything in a greenhouse, which isn't practical."
Not only are outbreaks difficult to contain, but they're hard to investigate. In most outbreaks, government agencies are able to trace the bacteria to a specific product, but more often than not, the exact cause of the contamination is never known, said Trevor Suslow, a food safety researcher in the plant sciences department at UC Davis.
By the time researchers are able to pinpoint a source of contamination, the conditions that led to it no longer exist. On the farm, the product has been long harvested and the soil dug up and prepped for the next product. In the factory, equipment has been cleaned.
The country's major E. coli outbreaks started in the early 1980s in the meat processing industry as fast food became especially popular around the country and national regulations had trouble keeping up with diet trends, Riley said.
Through the 1980s and into the early 1990s, most E. coli outbreaks were in meat and dairy products, including a handful of highly publicized outbreaks at fast food restaurants. Now, as fresh produce has become increasingly mass-processed, more cases are showing up in fruits and vegetables.
And consumers have less control. With meat products, people can cook meat at home and kill any bacteria themselves. With produce that is supposed to be eaten raw, the only thing consumers can do is wash it --- and with E. coli, that's often not enough. The bacterium can hide in leafy green vegetables where it's difficult to wash off, and it only takes a very small number of E. coli cells --- as few as ten --- for a person to become sick.
"I don't think that the regulatory agencies are quite on top of how to approach produce yet," he said. "They're beginning to address this issue in more detail and more closely. They need to institute a more rigorous monitoring system, but it's hard. This problem is not going to go away."
The United States is the world's second-largest producer of spinach (Spinacia oleracea), with 4% of global output. China, the largest producer, accounts for 76% of output. A coolseason crop that grows quickly and can withstand hard frosts, spinach is a native of Asia and has been cultivated in China since at least the 7th century.
Spinach use was recorded in Europe as early as the mid-13th century, and seed accompanied colonists to the New World. U.S. consumption per capita: 1.4 pounds Value of California crop in 2004: $199,920,000 California acreage: 32,000, or slightly larger than the city of San Francisco Top Counties: --- Riverside Co. --- Monterey Co. --- San Benito Co. --- Santa Barbara Co. --- Ventura Co. Total U.S. production in 2002: 240,000 tons --- California: 69% --- Arizona: 16% --- Texas: 5% --- New Jersey: 3.4% --- Other: 6.6%
Sources: California Department of Food and Agriculture, U.S. Department of Food and Agriculture, Chronicle research by Johnny Miller
PATTERN OF E. COLI OUTBREAKS IS SEEN
By Associated Press
September 19, 2006
Federal health officials said Monday that before the current E. coli outbreak there had been 19 food-poisoning outbreaks since 1995 linked to lettuce and spinach. At least eight of those were traced to produce grown in the Salinas Valley in California. The outbreaks involved more than 400 cases of sickness and two deaths.
The outbreaks led the Food and Drug Administration to write to California farmers last November, urging them to improve the safety of produce. "In light of continuing outbreaks, it is clear that more needs to be done," Robert Brackett of the F.D.A. wrote in a November 4, 2005, letter.
Suggested actions included discarding any produce that comes into contact with floodwaters. Rivers and creeks in the Salinas watershed are known to be periodically contaminated with E. coli, Mr. Brackett said.
The agency does not consider the current contamination deliberate. "There is always a question in the back of our mind whether it may have been a deliberate attack on the food supply," said Dr. David Acheson of the Center for Food Safety and Applied Nutrition. "Currently, there is nothing in the epidemiology to consider this deliberate."
State and federal officials have traced the current outbreak to a California company's fresh spinach, but they have not pinpointed the source of the bacteria that have killed one person and sickened at least 113. On Monday, Illinois and Nebraska joined the list of states with confirmed cases.
The F.D.A. and the California Department of Health Services were reviewing irrigation methods, harvest conditions and other practices at farms possibly involved in the outbreak. Test results on samples from produce packing plants are due in a week or more, Dr. Acheson said.
E. COLI CASES PROMPT CALLS TO REGULATE FARM PRACTICES
By Daniel B. Wood
The Christian Science Monitor
September 18, 2006
The quest continued over the weekend to pinpoint the source of E. coli bacteria that has tainted fresh or packaged spinach, even as some consumer groups called for greater federal authority to regulate farming practices.
Over the weekend, federal health officials expanded their initial September 13 warning not to eat bagged spinach to include any fresh, raw spinach. As of late Saturday, the Centers for Disease Control and Prevention reported 102 cases of E. coli exposure in 19 states since August 2, including one death in Wisconsin.
In looking hard at America's regulation of food handling from farms to dinner tables, the process generally gets high marks --- and has been improved in recent years to reduce the risk of bioterrorism, experts say. But this latest incident, taken with earlier reports of E. coli contamination in greens, exposes a glaring weakness, they add: effective health standards and cleanliness enforcement on the farm itself.
Consumer watchdogs hope the more-frequent appearance of E. coli in leafy vegetables will finally cause Congress to expand the reach of the Federal Drug Administration (FDA) to farms. "We think this incident shows the FDA is suffering from the same weak-kneed approach that they had before they were given more power to regulate beef in the 1990s" after several outbreaks of E. coli were linked to ground beef, says Caroline Smith DeWaal, director of food safety for the Center for Science in the Public Interest.
"No one is really in charge of food safety on the farm, and the FDA has come in with fairly weak guidelines there that they can only suggest but not enforce. They need direction from Congress to address standards on the farm."
Scientists say E. coli bacteria live in the intestines of cattle and other animals and are passed to plants through contact with fecal matter. Produce could become contaminated several ways: manure used for fertilizer, fecal runoff into streams that are used for farm irrigation, or even droppings from birds that had swallowed manure. As a result, stricter FDA oversight is needed at sites where produce is grown, many observers say. Currently, FDA enforcement authority begins in the packaging facilities where produce is washed and packaged for transport.
The exposure "could come from literally dozens of sources, and it may be awhile before they identify them," says Ron Gaskill, director of congressional relations for the American Farm Bureau Federation. In any case, rules and practices expanded in recent years should allow the investigation to go faster than in previous years.
Mr. Gaskill and several others say U.S. standards known as the Hazard Analysis Critical Control Point system will allow officials to pinpoint the source of the tainted spinach. The laws require each handler in the food chain - from picker to processor, washer, packager, and transporter --- to log who they received the food from and who they gave it to.
"We are doing a far greater job than in past years in being able to trace where food has come from and gone to," says Gaskill. Several years ago, US health officials traced tainted strawberries to Mexico and shut down a processing plant until standards were met. And in 2002, Congress tightened regulations even further, out of concerns about bioterrorism.
The E. coli presence in spinach may have escaped notice in part because, unlike other contaminants, it can be difficult to detect and a little can cause much harm to humans, scientists say. "Even after processing and washing, sorting and quality searching, it is still possible for just a few cells to survive," says Luke LaBorde, associate professor of food science at Pennsylvania State University.
"It might be that the FDA now sees it is time to come up with new standards for the farm," he says. But enforcement would be difficult, he acknowledges. "The FDA regulatory authority begins with processing, which is industrial and is a whole different ball of wax," says Dr. LaBorde. "But growing is not covered under the laws and regulations. Given our manpower, how could it be done given the wide distribution of farms?
SPINACH SCARE HITS SALINAS HARD
By Meredith May and George Raine
San Francisco Chronicle Staff
September 19, 2006
SALINAS, California --- When truck driver Daniel Rivas pulled his load of baby lettuce into a packing plant Monday, he heard the bad news --- at least 60 of the employees who depend on his hauls for their livelihoods had been laid off.
That's because production of spinach, which Rivas also hauls, has all but stopped in the Salinas Valley with the E. coli outbreak that has sickened 114 people in 21 states. After the disease was traced to a company whose fresh, bagged spinach comes from the Salinas Valley, growers here began plowing under their crops, and that means no paychecks for some migrant workers who toil in the "nation's salad bowl" and potential disaster for the industry.
"I've been hauling vegetables all over this valley for eight years, and I've never seen anything as bad as this," Rivas said. "I don't know what those spinach guys are going to do. They'll have to go on unemployment, I guess."
Production of spinach in California more than doubled in four years, to 32,000 acres in 2004, according to the U.S. Department of Agriculture. A total of 17,000 of those acres are in Monterey County. But with the federal Food and Drug Administration having warned consumers not to eat fresh spinach, "growers are not harvesting," said Richard Smith, a University of California farm adviser in Monterey County.
"All the orders have dried up, and (federal officials are) recommending people not buy any spinach right now,'' Smith said. "You can't kill a market any better than that.''
Among those plowing under spinach is River Ranch Fresh Foods in Salinas, which sells bagged, raw spinach under the Popeye Fresh brand.
"Spinach planting is an incredibly programmatic system," said Barry Eisenberg, vice president of technical services for the company. "The crops we have now we planted 30 to 40 days ago, and we can't just leave it in the field.
"There are no orders for spinach, so we have no choice," he said. "This is hitting everyone in the valley really hard. I have no idea how much money we are losing."
Less than a week into the outbreak, neither does anyone else.
"I would not want to guess at this point about the impact,'' said James Bogart, president and general counsel of the Grower-Shipper Association of Central California. "Rest assured it will be substantial and potentially devastating."
Salinas Valley spinach is planted and harvested most of the year, from March through November. Monterey County's crop is valued at $188 million annually, about five percent of the county's total agriculture output of $3.4 billion, according to the Monterey County Farm Bureau.
"This is tragic for the families, for the people who have been made ill," Bogart said. "But it is also a tragedy for the entire industry.''
He added, "We are doing our best to make the safest product in the world even safer. We are holding ourselves to a virtually unachievable standard --- no food-borne illnesses anytime, anywhere. We are striving to meet that goal.''
Bob Perkins, executive director of the Monterey County Farm Bureau, said, "I have the sense that the consumer is eager to hear this problem has been put behind us so they can go back to eating spinach. Here on the farms, everyone wants to know the answer. Where did it come from, and what do we do about the problem?''
Farmworkers interviewed in the fields Monday said inspectors from the Food and Drug Administration had been inspecting crops and talking with workers about wearing gloves and taking other sanitary measures.
Some farm workers who reported to the fields Monday were laid off or given other assignments, said Marc Grossman, a spokesman for the United Farm Workers in Sacramento.
"Right now it's OK --- there's still time left in the harvest season, and they can shift to other vegetables or they can pick up work weeding the other fields," Jesse Camacho said as he finished his day supervising the harvest at Pisoni Farms in Chualar.
But soon the baby lettuce, cauliflower and broccoli that grow in the valley will all be picked. "It's going to get difficult in mid-October when the season ends," Camacho said. "You're going to see more guys than usual looking for jobs."
Meredith May reported from the Salinas Valley and George Raine from San Francisco
SPINACH PRODUCERS TAKE FINANCIAL HIT
By Julie Schmit
USA TODAY
September 19, 2006
SALINAS, California --- When Dale Huss looks at a brilliant green field of spinach, he sees tens of thousands of dollars a day in lost sales. He fears many such days are ahead because of federal safety warnings to consumers not to eat fresh spinach and the mystery about how E. coli bacteria may have contaminated fresh bagged spinach.
"Demand is zero" for prepackaged spinach and bunched spinach, says Huss, general manager of Ocean Mist Farms of Castroville, California.
Huss says 100 of Ocean Mist's 600 workers are idle. He expects that to last a week or more because the spinach harvest has been put on hold. He may simply have to plow under the crop and ready the soil for planting next year.
"This is a very sad deal" for growers and especially for those who have fallen ill from E. coli, he says.
While the Food and Drug Administration continues to hunt for the source of the E. coli outbreak, the economic damage spreads.
Not only are growers sitting on millions of dollars of crops that may never make it to market, workers, truckers, packagers and retailers are also being affected, says Daniel Sumner, agricultural economist at the University of California, Davis.
Sumner expects losses of $50 million to $100 million if the source of the outbreak is identified and contained within a month. Most of that will fall to agriculture businesses, but restaurants and grocers will be hurt, too.
"Even restaurants that specialize in salads will have losses as consumers shift to other foods," he says.
The key to recovery, Sumner says, is for regulators, growers and packers to convince consumers that the outbreak has been identified and that the system is safe. When that has happened after previous outbreaks of food-borne illnesses, sales have come back quickly, he says.
There was little progress toward that aim as of Monday. The FDA reiterated consumer warnings. It also said the investigation was ongoing. Two companies have recalled spinach product: Natural Selection Foods, also known as Earthbound Farm, and Salinas-based River Ranch Fresh Foods, which obtained spring mix in bulk from Natural Selection.
More than spinach is on the line in the Salinas Valley. Monterey County, where Salinas is located, also produces 60% of all lettuce grown in California, which accounts for 75% of the nation's production, says the California Farm Bureau Federation.
"We're all put in one big salad," says Chris Bunn, manager of Crown Packing in Salinas. It doesn't produce spinach, but it does produce lettuce. Bunn fears consumers may shy away from all packaged salads, even if they don't include spinach.
Bruce Axtman, CEO of market researcher Perishables Group, says that's not too likely if the current outbreak doesn't turn up in other products.
"There will be a little hit here and there, but not to any great degree," Axtman says.
In the past three years, prepackaged products have overtaken non-packaged offerings as consumers look to save time, Axtman says. For the year ending July 1, supermarkets sold $293 million in prepackaged spinach, vs. $32 million in bulk spinach, Perishables says.
Beyond the current crisis, growers say the most important thing is to make changes to prevent reoccurrences.
Since August, the FDA and California state officials have been inspecting lettuce in the Salinas region.
The FDA, in a letter to the industry in November, said it was aware of 18 outbreaks of food-borne illness since 1995 caused by E. coli in which fresh or fresh-cut lettuce was implicated. In one more case, fresh-cut spinach was implicated. The FDA traced eight of the outbreaks to Salinas Valley.
Growers, who say they've stepped up food-safety protection measures in recent years, say they're perplexed and eager for the FDA or others to identify the problems.
"We're doing things we've never done before in terms of food safety," says Bob Martin, general manager of Rio Farms in King City.
Not only are field workers more educated about the need to wash hands, he says, but they now wear hairnets and rubber gloves. "They didn't do that five or six years ago," says Martin.
In the past, every field manager had a dog in the back of his pickup, who might defecate in the field. No more, Martin says. Even mice are targeted with traps around fields, so they don't get into mowers when spinach is being harvested.
Trevor Suslow, a research specialist at the University of California, Davis, who has worked closely with industry on good agricultural practices, agrees growers have made big strides. He also says Natural Selection has been "a true leader in addressing the concerns" in both the general and organic produce industries.
That Natural Selection has, so far, been tagged as a possible source of the tainted spinach "underscores the challenges for all of us," he says.
SMITHFIELD FOODS AGREES TO BUY PREMIUM STANDARD
By Scott Kilman
Wall Street Journal
September 18, 2006
Smithfield Foods Inc. said it agreed to acquire Premium Standard Farms Inc., one of the largest hog farmers in the U.S., for $693 million in stock and cash.
Smithfield, already the largest pork processor in the U.S. in terms of sales, would control 31% of the nation's pork-slaughtering capacity as well as 17% of the nation's capacity to raise pigs. The combination is subject to approval by Premium Standard shareholders and U.S. regulators.
Under terms approved by the directors of Smithfield and Premium Standard, each Premium Standard share would be converted into the right to receive 0.678 Smithfield share plus $1.25 in cash. Smithfield would also assume $117 million of Premium Standard debt.
Premium Standard's stock price jumped 14% early afternoon on the Nasdaq Stock Market, rising $2.43 to $20.16. Premium Standard shares had jumped late Friday, suggesting the possibility that traders had figured out that something was in the wind.
In early afternoon trading on the New York Stock Exchange, Smithfield's stock price was down 2.7%, or 79 cents, at $28.45.
The agreement continues a string of acquisitions by Smithfield that are designed to expand the reach of the largest vertically-integrated pork company in the U.S. In July, Smithfield agreed to acquire a stable of brands such as Armour and Butterball from ConAgra Foods Inc. for $575 million. In August, a joint venture that includes Smithfield completed the acquisition of some European meat businesses from Sara Lee Corp. for $575 million.
SENATORS, OTHERS QUESTION MERGER IN PORK INDUSTRY
By Jerry Perkins
Farm Editor,
Des Moines Register
September 19, 2006
Iowa senators and others expressed concerns Monday after the nation's largest hog producer and pork processor, Smithfield Foods Inc., said it will buy Premium Standard Farms Inc., the No. 2 hog producer and No. 6 pork processor.
U.S. Sen. Tom Harkin, Dem.-Iowa, and Sen. Charles Grassley, Rep.-Iowa, said the combined company's market power could harm small, independent pork producers and consumers. Harkin called on the Department of Justice to review the deal.
Dennis Treacy, Smithfield vice president of environmental, community and government affairs, acknowledged that the $810 million purchase represents more consolidation in the pork industry.
But, he said in an interview with The Des Moines Register, controlling hogs from the farm to the packing plant --- a system known as vertical integration --- gives Smithfield the ability to promote the safety of its pork products.
"Our large customers are asking us for animals that we know where they came from and who raised them," Treacy said. "This gives us the ability to produce safe, traceable and consistent pork."
The deal is expected to close in the first quarter of 2007, Treacy said. "We wouldn't have entered into this acquisition if we weren't confident it would be cleared," he said.
Premium Standard has pork plants in Missouri, Texas and North Carolina with the annual capacity of slaughtering 4.6 million hogs. Smithfield has no operations in Iowa, but it owns Farmland Foods and John Morrell, which have Iowa slaughtering plants.
Betsy Freese, livestock editor at Successful Farming magazine in Des Moines, said Smithfield will have 1.2 million sows in the United States and other countries after Premium Standard's production is acquired.
Smithfield's acquisition of Premium Standard won't have an impact on hog prices because it won't add to the number of sows in the hog industry, Freese said.
Harkin, the ranking Democrat on the Senate Agriculture Committee, called for the Justice Department to look at whether the merger violates antitrust laws.
Harkin said the merger will give Smithfield control of 20% of U.S. hog production and 31% of pork processing.
Grassley's office said the senator will send a letter to the Department of Justice about the deal. . . .
Neil Harl, professor emeritus of economics at Iowa State University, said Justice Department lawyers probably won't stop the sale. For 25 years, deregulation of businesses has been the prevailing political sentiment in Washington, Harl said. Hog and grain producers appear to be the most affected by increasing concentration on the seller and buyer sides of their markets, Harl said.
Largest U.S. pork producers in 2005 1. Smithfield Foods, Smithfield, Va., 798,000 sows. 2. Premium Standard Farms, Kansas City, Mo., 221,000 sows. 3. Seaboard Foods, Shawnee Mission, Kan., 213,600 sows. 4. Iowa Select Farms, Iowa Falls, Ia., 150,000 sows. 5. Christensen Farms, Sleepy Eye, Minn., 148,800 sows.*
Source: Successful Farming magazine.
"SMITHFIELD FOOD'S DEAL PERPETUATES CONCENTRATION AND LACK OF COMPETITION"
National Farmers Union
September 18, 2006
National Farmers Union President Tom Buis made the following statement after number one pork producer Smithfield Foods announced that it is purchasing number two producer Premium Standard Farms.
"This deal perpetuates the consolidation and concentration of the meat industry in the United States. Approval of merging the number one and number two pork producers all but guarantees independent producers will be left without a market.
"National Farmers Union has been steadfast in its call for the federal government to start playing an active role to ensure fair, open, transparent, accessible and competitive markets for all agricultural commodities. The current lack of enforcement of anti-trust laws has failed America's food producers and consumers.
"Smithfield Foods is the number one pork processor and producer in the United States. Premium Standard Farms is the second largest producer, with 225,000 sows. With the announcement today, Smithfield Foods will attain over one million sows, far exceeding any competitor.
AG LAWYERS SAY SMITHFIELD DEAL RAISES CONCERN FOR MARKETS
By Curt Thacker
Dow Jones Newswires
September 19, 2006
KANSAS CITY, Missouri --- The plan by Smithfield Foods to purchase Premium Standard Farms raises concerns about the ability of the hog market to remain competitive should the deal be allowed to proceed, two agricultural lawyers told Dow Jones Newswires.
The deal would push Smithfield's hog processing capacity up to 31% from 26%, according to industry analysts. The acquisition of PSF's swine operations would give Smithfield 17% of the nation's hog production capacity as both firms are vertically integrated. The deal is subject to approval by PSF's stock holders and U.S. regulators.
David Domina, lead attorney with Domina Law in Omaha, Nebraska, in an e-mail reply to Dow Jones Newswires, said he has concerns about the Smithfield-Premium Standard Farms merger. "Pork producers have largely lost their market for butcher hogs. This additional concentration in the industry seems likely, to me, to make matters less competitive at the cash trade marketplace," Domina wrote.
The Packers and Stockyards Act was passed in 1921 with then purpose "to assure fair competition and fair trade practices, to safeguard farmers and ranchers ... to protect consumers ... and to protect members of the livestock, meat and poultry industries from unfair, deceptive, unjustly discriminatory and monopolistic practices...," according to the U.S. Department of Agriculture.
Domina also said "generally, the Department of Justice uses market share to determine acceptability of a merger." The DOJ's "guidelines provide that 'market shares will be calculated using the best indicator of firms' future competitive significance. Dollar sales or shipments generally will be used if firms are distinguished primarily by differentiation of their products.
Unit sales generally will be used if firms are distinguished primarily on the basis of their relative advantages in serving different buyers or groups of buyers. Physical capacity or reserves generally will be used if it is these measures that most effectively distinguish firms. Typically, annual data are used, but where individual sales are large and infrequent so that annual data may be unrepresentative, the Agency may measure market shares over a longer period of time'."
Michael Stumo, general counsel with the Organization for Competitive Markets based in Lincoln, Nebraska, told Dow Jones Newswires in a telephone interview that the announcement of the merger is "troublesome" because the company can fill its core needs from its own hog production facilities so it doesn't need to purchase many hogs in the open markets. This can result in "depressed demand for hogs," and "provides an opportunity for market manipulation," he said.
Stumo also said he doubts that the DOJ's anti-trust division will take an interest in this case because this administration has not shown a desire to do so in such matters.
Until the 1980s, the pork industry was typically made up of many medium to smaller swine operations that provided hogs to the plants and sold mainly on an open market basis. Since then, vertically integrated operations and contracted production practices have expanded, and with typically greater efficiencies and deeper pockets, these firms have continued to grow. Only about ten percent of the hogs produced now are sold via the open markets.
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The Agribusiness Examiner Issue #456 (Special Issue on Spinach Contamination)
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Monitoring corporate agribusiness from a public interest perspective
Issue #456
By Editor\Publisher: A.V. Krebs
Corporate Agribusiness Research Project, September 20, 2006
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