U.S. Senator Paul Wellstone (D-Minnesota) has asked the U.S. Justice Department to launch an investigation into whether a proposed business-to-business (B2B) exchange by six leading meat companies would violate antitrust regulations.
Wellstone made the request Thursday out of concern that the proposed exchange could have a damaging effect on U.S. farmers. The exchange, which was unveiled earlier this week, includes Tyson Foods, IBP, Cargill, Smithfield Foods, Gold Kist and Farmland Industries, and is set for a summer launch.
The alliance, said to cost about $20 million (US$), is intended to make product comparisons and price negotiations easier and faster.
The six founding companies have combined sales of more than $40 billion, and each of the investing companies will hold a seat on the board of directors. “This exchange will be neutral, showing no favoritism among sellers or between buyers and sellers,” said Joseph W. Luter III, Smithfield Chairman.
According to Bill Buckner, president of Excel Corporation, the company that manages Cargill’s meat business, the meat industry has been lagging behind other industries in adapting to the computer age. “The automated exchange will improve efficiencies in an industry that still relies heavily on faxes and phone communications.”
In a letter to Assistant Attorney General Joel Klein, Wellstone said he believes the exchange warrants the “close attention” of the Justice Department.
“While this new alliance purports to enhance efficiencies, I am concerned about the market implications of our nation’s largest meat agribusinesses sharing marketing information and resources,” Wellstone wrote. “Therefore, I request that the Antitrust Division of the Justice Department initiate a complete and thorough examination of this alliance and its possible implications for our nation’s family farmers and consumers.”
Supporters of the new alliance say the antitrust concerns are not valid, and consumers will ultimately benefit. If processors and manufacturers can streamline their costs, supporters argue, consumers will ultimately benefit from lower prices at the supermarket.
As for the chances of long-term success for the exchange, one industry analyst sees only blue skies. “There’s no doubt in my mind it will succeed,” said Kevin Bost, meat market analyst for Topco Associates, a Skokie, Illinois procurement cooperative for food stores nationwide.
“I think the writing is on the wall that it’s not very far down the road that we’re going to trade meat over the Internet.” While that may be true, Wellstone evidently sees a possible clash of the old and new economies, with already beleaguered U.S. farmers as possible victims.
Competition Heats Up
Meanwhile, FoodUSA — which launched on Wednesday — posted 518 orders in its first day of operations. FoodUSA uses a simple bid/ask system to bring buyers and sellers together in a neutral exchange environment. The exchange was conceived in 1996 and founded as an Internet company last year.
While Wellstone says he has the interests of livestock producers in mind, others in the industry do not agree with him. Chuck Levitt, senior livestock analyst with Chicago-based Alaron Trading Corp., said the meat exchange would raise the level of price discovery for potential meat buyers, and it also has the potential to facilitate export demand, which can only benefit farmers.
“Anyone in the world with access to the Net can see what’s available,” Levitt said.