MEAT giant JBS has cleared one of the two main regulatory hurdles in its $1.45 billion takeover of big smallgoods company Primo (Australian Consolidated Food Holdings).
However, in a warning shot fired over JBS' bows, the Australian Competition and Consumer Commission (ACCC) has flagged its wariness about a consolidating abattoir industry trend.
JBS Australia's proposed acquisition of Primo will not constrain market competition, said the ACCC.
Primo is set to be sold to the meat processing and export giant in a strategic value-adding move set to aid JBS’ Asian market growth.
Livestock producers have been particularly worried about two more abattoirs joining the powerful JBS network and further reducing processing competition options.
Farmers, abattoirs, meat and small goods suppliers and customers responded to the bid announcement last November by making submissions to the ACCC and the Foreign Investment Review Board.
Although the Brazilian-based giant JBS - the world's biggest animal protein processing company - has only been in Australia for seven years, it already owns 11 abattoirs (10 are operating) in five States, including Queensland's big Dinmore and Rockhampton plants. Primo operates abattoirs at Port Wakefield in South Australia, processing pigs, and Scone in NSW's Hunter Valley, which processes cattle.
The ACCC received submissions from “a range of interested parties”, who expressed concern that the proposed acquisition would result in less competition in the fat cattle market in northern NSW and Queensland.
Farmers and meat retailers are increasingly frustrated by consolidation of meat processing activities which are limiting the choice of independent meatworks bidding for livestock or offering service kill options to producers or butchers.
“The ACCC undertook a detailed assessment and determined that Primo is currently not a strong competitive constraint on JBS,” ACCC chairman Rod Sims said, noting JBS’s abattoirs in Queensland and Primo’s abattoir at Scone are more than 500 kilometres apart.
“Furthermore, the increase in market share as a result of the proposed acquisition would be relatively small and JBS would continue to be constrained in the market for the acquisition of fat cattle by a number of alternative abattoirs and supermarket chains, in the northern NSW and southern Queensland region.”
While the ACCC determined the proposed sale would be unlikely to raise "significant competition concerns", the watchdog is wary of the potential impact of further consolidation of abattoirs.
“The ACCC will continue to monitor this industry and any future acquisitions will face additional scrutiny,” Mr Sims said.
Nationals Senator John Williams is seething at the decision, labelling the ACCC "out of touch with reality".
“I find it confusing that on one hand the ACCC will not oppose this acquisition, yet in the next breath says it is wary of the potential impact of the further consolidation of abattoirs," Senator Williams said.
“If that is true, why didn’t it act in this instance?"
The buy-up still requires Foreign Investment Review Board approval before it can go ahead.
The Primo Group, the largest processed ham bacon and smallgoods business in Australia and New Zealand, owns the Primo, Hans and Beehive brands and key processing operations in five locations.
Primo, established in NSW by the Lederer family in 1985, has been majority owned by Singaporean-based equity fund manager Affinity Equity Partners for the past three years.
Affinity bought 70.1 per cent of the business in late 2011 in a deal which then valued the company at $740 million.
The Lederer's Primo business activities also include the Joes Meat market and Farm Fresh Meats butchery chain in NSW and suburban shopping centre interests, although JBS is considered unlikely to keep the retail operations in the long-term.
Affinity has described JBS - the world's largest processor of fresh meats - as "the logical owner for Primo".
Although JBS processes pigmeat at its Devonport plant in Tasmania for a third party, the Primo takeover is the first major move into the pork sector by the big red meat business.
It wants to take advantage of Primo Group's growing export operations across Asia, including China.
JBS said the purchase was consistent with the global strategy of Brazilian parent company JBS S.A. to grow its presence in value-added products.
JBS Australia's chief executive officer Brent Eastwood has made a point of noting the new owners "do not intend to make any meaningful changes to Primo Group's operations for the foreseeable future".
Primo Group chief executive officer, Paul Hitchcock insisted operations at Primo sites would remain "very much business as usual" for employees, suppliers and customers.
The Primo takeover follows the 2011 merger of Teys and Cargill's six abattoirs in NSW, Queensland and SA and the earlier sale of Country Fresh Australia's NSW and Queensland plants to SA's Thomas Foods International, plus recent smaller meatworks closures in eastern Australia.