Thursday, July 17, 2003

Antitrust News: Seeking Antitrust Pork

If you wonder why members of Congress don't regularly scrutinize the abuses of antitrust regulators, it's largely because these same members like to use antitrust as a political weapon themselves, as this AP story demonstrates:
Both of Iowa's U.S. senators have asked federal antitrust officials to oppose the sale of Farmland Industries' pork processing division to rival Smithfield Foods.

"Today's (Tuesday's) announcement that Smithfield Foods plans to purchase Farmland Foods is bad news for the future of our nation's independent pork producers and for Iowa," said Sen. Tom Harkin, an Iowa Democrat. "It represents even more economic concentration and vertical integration in an already rapidly consolidating industry."

In a letter sent Tuesday, Sen. Chuck Grassley, an Iowa Republican, asked the antitrust division of the Department of Justice "to carefully scrutinize this proposal and consider the projected impact on independent producers."

Bankrupt Farmland Industries Inc. announced Tuesday that it had agreed to sell its pork unit -- its remaining major business -- to rival Smithfield Foods for $363.5 million. That signaled the end of efforts by the nation's largest agricultural cooperative to rebuild.

With annual sales of about $1.8 billion, Kansas City-based Farmland Foods is the sixth-largest pork producer in the nation. Smithfield Foods is the country's largest pork producer and processor.

"Farmland is a significant buyer of hogs, especially in Iowa and the Midwest," said Harkin, the ranking Democrat on the Senate Agriculture Committee. "With this move, Smithfield is further strengthening its power and leverage over family pork producers."

Grassley, a member of the Judiciary Committee, has sought to have federal regulators more carefully review agribusiness mergers to ensure competition.

"If a Smithfield acquisition of Farmland is allowed, it could shut out the family farmer from fair and open markets. I believe it would have a serious, adverse impact on family farmers and independent producers in Iowa," Grassley said.

Smithfield shares closed Wednesday at $22.86, down 28 cents.
Now if you're the Antitrust Division, do you refuse the "request" of a powerful senator like Chuck Grassley, a man who controls your agency's budget? Even if Grassley's motives are simply to pander to political groups in his state—and that's almost certainly the case—the Justice Department must take the senator seriously. And therein lies the fundamental problem of antitrust: In the end, it's nothing more than a political tool to manipulate marketplace outcomes.

It's also ironic that two senators are lobbying for greater regulation of pork, since what they're proposing is itself "pork" in that they want the government to favor the economic interests of farmers over pork proecssors.

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