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Will Irish Slaughter Deal Affect Competition?
The European Commission’s competition authority has given the go-ahead to the deal that will see the leading Irish beef processor ABP take a 50 per cent stake in Slaney Foods.
The move, which will see the joint control of Slaney Foods by meat processor ABP Group and farmer-owned agri-food company Fane Valley has been cleared unconditionally.
The Commission concluded that the proposed acquisition would not adversely impact effective competition in the EU’s Single Market.
However, the deal has received severe criticism from the Irish farming community.
IFA president Joe Healey and Pat McCloughan
IFA President Joe Healy said the serious issues around weak competition in the beef sector, highlighted in the PMCA report commissioned by IFA into the ABP/Slaney deal, have not gone away and must be addressed if livestock farmers are to achieve a sustainable income from their production of top-quality Irish beef.
Mr Healy said farmers cannot understand why the Irish Competition and Consumer Protection Commission (CCPC) refused to investigate the case.
“The CCPC turned a blind eye to the serious competition issues in the Irish market for the purchase of cattle. They effectively washed their hands of the ABP/Slaney deal by leaving it to the Brussels authorities,” he said.
The Commission’s investigation focused in particular on the impact of the proposed transaction on competition in the markets where the activities of the companies overlap.
The Commission concluded that the deal would not raise competition concerns in relation to any of these markets.
In terms of the potential impact on the markets for purchasing live cattle, the Commission made an assessment of any potential increase of the slaughterhouses’ buyer power to the detriment of farmers, which could affect local farming communities in particular.
The assessment felt that various slaughterhouses with spare capacity will continue to operate in Ireland, including in the southeast area, where the Slaney Foods cattle slaughtering facility is located.
Because of this, the Commission found that farmers will continue to have sufficient alternative buyers for their animals after the merger.
The Commission also assessed the potential impact on competition in the downstream markets relating to the sale of fresh meat.
The investigation found that a number of strong competitors will remain active after the merger.
The Commission therefore concluded that the parties will not be able to increase prices or impose detrimental conditions on retailers and industrial meat processors and ultimately on consumers.
As regards the collection of animal by-products generated by slaughtering activities in Ireland, the Commission found that the volumes of animal by-products that competing renderers currently collect from the Slaney Foods/Fane Valley are modest.
The investigation also showed that, after the merger, rendering plants would continue to have sufficient access to animal by-products.
Finally, the Commission found that the transaction was unlikely to have a negative impact on slaughterhouses in relation to their disposal of animal by-products.
ABP Food Group and Fane Valley Group have welcomed the decision by the Commission to approve the Slaney Foods joint venture.
Frank Stephenson, CEO ABP Food Group, said: “The joint venture will enable both ABP and Fane Valley, through the Slaney Foods joint venture, to grow our respective businesses by bringing a stronger product offering to international markets where we compete with much larger global players.
“Today’s decision, which follows a thorough evaluation by the DG for Competition at the EU Commission, will allow the parties to enhance an already highly competitive beef processing sector in Ireland and to grow their main export markets through the JV.
“This transaction has always been about securing better international markets for meat products and developing an industry that needs to evolve to remain relevant and compete effectively on the global stage,” he said.
Trevor Lockhart, CEO Fane Valley Group said: “This is a positive outcome for the respective businesses and a step in the right direction for the red meat industry in Ireland.
“It is imperative for the long term sustainability of the sector that we develop highly effective business models that maximise the opportunities to sell quality beef and lamb from Ireland in the international marketplace.
“That has been the combined goal of ABP and Fane Valley from the very outset,” he said.
The decision will give the ABP Group control of 50 per cent of Slaney Foods beef operations, along with a 50 per cent share of Irish Country Meats’ sheep meat processing capacity.
Currently, both ABP and Slaney account for 28.5 per cent of all cattle slaughterings in Ireland.
In 2015, ABP slaughtered approximately 340,000 head of cattle, while Slaney processed almost 94,000 head.
But when the market is narrowed down to premium cattle (steers and heifers) meeting Meat Industry Ireland grade and weight specifications, this figure rises to 36.2 per cent of cattle.
The purchase will also see ABP having a hand in 40 per cent of the national sheep kill and 50 per cent of the State’s rendering capacity.
In early September, the notification of the possible merger had sparked serious concerns among farm organisations in terms of both the competition in the market and the concentration of the kill.
IFA said competition in the beef and lamb trade is always a contentious issue between farmers and factories.
An IFA report on the Irish beef industry concluded that competition amongst beef processors would be significantly diminished particularly in the South Leinster region by the deal.
The report said that farmers are rightly concerned over the dominance of a number of major players both at processing and retail level.
Following the European Commission decision, Mr Healy said the conclusion by DG Competition that farmers ‘are able to switch slaughterhouses if they can get better prices’ is totally at odds with the reality of the beef trade, where the weekly quotes to farmers show little or no variation.
“It also flies in the face of the main conclusion of the PMCA report, which was that the market for cattle is characterised by weak competition and the ABP/Slaney deal is likely to weaken competition even further, through a ‘substantial lessening of competition’ (SLC),” he said.
The IFA Livestock Chairman Angus Woods said the reality today is farmers are being forced to sell at a loss-making base price of €3.70/kg, with factories claiming they cannot take stock for another week, at which point the price may be even lower.
At the same time, prices for the equivalent beef animals in our main export market in the UK are rising and making £3.64/kg, or €4.30/kg, which is €220 per head more than Irish prices. It’s clear that if we had real competition, farmers would be getting better prices for cattle”.
He said the PMCA report outlines that the chief concern over the proposed transaction is that it would make coordinated effects in the relevant markets more likely.
“The report is very clear on the competition concerns in the beef sector, the income pressures that exist for livestock producers and the impact that any weakening of competition would have on their livelihoods.”
The report pointed out that ABP and Slaney combined currently account for 25.8 per cent of all cattle slaughterings in the state.
When the market is narrowed down to premium cattle of steers and heifers meeting the MII grade and weight specifications, this figure rises to 36.2 per cent of cattle, the IFA said.
It added that the analysis also shows that when the narrower relevant market of the South Leinster region is used, ABP and Slaney combined would have 44 per cent of the premium cattle kill.
On sheep meat, the report points out that Slaney/ICM is the largest processor of sheep/lamb meat in the State, with around 40 per cent of the kill. The report also raised serious competition concerns over vertical integration including rendering and factory feedlot cattle.
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