The hyper-consolidated poultry industry might consolidate even more
Just four companies — Pilgrim’s Pride, Tyson, Perdue, and Sanderson Farms — slaughter and pack nearly 60 percent of the meat-chickens raised in the United States, reported [PDF] the researcher team Mary Hendrickson and William Heffernan.
That dominance gives these corporate giants what economists call monopsony power — the leverage to dictate to their suppliers (farmers) how chicken is grown and at what price. For a luminous explanation of how monopsony works, see Barry Lynn’s essay on Wal-Mart in the June 2006 Harper’s.
Hendrickson and Heffernan report that the share of the poultry market controlled by the top four players has increased steadily over the years, rising from 35 percent in 1986 to today’s 58.5 percent level. As poultry packers grew in size, the price farmers received for their chickens dropped, and thousands of poultry farmers went out of business. The surviving farmers scaled up, hoping to make up on volume what they were losing in reduced prices. The result: vast, toxic-waste-concentrating chicken factories.
Well, it looks like the chicken industry is about to get more consolidated. Last week, Sanderson Farms — the fourth-largest poultry packer — announced plans to raise $1 billion in the the stock market for "future acquisitions and other strategic opportunities." Meanwhile, top player Pilgrim’s Pride has seen its share price plummet over the past year, driven down by internal financial problems.
Rumors are swirling that Sanderson will use its hoard to snap up Pilgrim’s Pride — which would mean that just three companies would control nearly 60 percent of the market.
At first glance, it might seem odd that the fourth-largest player would buy the top dog (or, to use a topical metaphor, the mother hen). But as I reported recently, Pilgrim’s Pride has gotten itself in serious financial trouble and has actually flirted with insolvency.
Indeed, even though Sanderson has a fraction of Pilgrim’s Pride’s market share, the stock market market currently considers it a much more valuable company. At current share prices, Sanderson is valued at $714 million, while PP fetches only $250 million.
With its (relatively) strong share price and coming cash hoard, it looks like Sanderson will snap up its rival and leap to the top of the pecking order.
Yet more consolidation is bad for farmers and bad for the environment. The Bush Justice Department — or what’s left of that sad, disgraced agency — will likely wave such a deal through. Maybe the next administration’s attorney general will start enforcing antitrust law?