ABP/Slaney deal poses a ‘substantial lessening of competition’ in Ireland

The proposed ABP/Slaney meats deal poses a risk of a substantial lessening of competition (SLC) in the State, an independent report commissioned by the IFA on the tie-up has found.

Last year, it was announced that ABP was set to take a 50% stake in Slaney Foods, which involves the purchase of the Allen family stake in the business, sparking concerns among farm organisations.

The report, which was prepared by Dr Pat McCloghan of PMCA Economic Consulting, has already been submitted to DG Competition in Brussels, which is to investigate the proposed deal.

The overall conclusion of the PMCA report, which was presented in Buswells Hotel this morning, is that the “relevant market affected by the proposed transaction is characterised by weak competition and that the proposed deal poses a risk of an SLC in the State or an SIEC at EU level”.

An SIEC, a significant impediment to effective competition, is the merger control test applied by the European Commission, the equivalent of the SLC test applied in Ireland and the UK.

Combined, ABP and Slaney currently account for 25.8% of all cattle slaughterings in Ireland, however, he said that 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% of cattle.

Dr. McCloughan said that Slaney/ICM has the around 40% of the sheep kill (which ABP would control should the deal go ahead).

Using competition economic analysis based on the HHI measure of market concentration, Dr. McCloughan’s report found that across the full national geographic market, the HHI Delta is 469 for premium cattle purchased.

However, the analysis also reveals that when the more narrow relevant market of the South Leinster region is used, ABP and Slaney combined would have 44% of the premium cattle kill and the HHI Delta would rise to 959.

Dr McCloughan explained that a HHI Delta above 250 can be a cause of concern and when taken in the context of a market sector with high regulatory barriers to entry and high switching costs as well as other sources of weak competition, this raises serious competition concerns.

“The market share of Slaney is much higher in the narrower geographic market of South Leinster and it emerges that Slaney is the closest competitor to ABP for premium cattle. In each and every analysis, the HHI Delta exceeds 250, by some margin.”

IFA President Joe Healy said that the report on the proposed ABP/Slaney meats deal raises serious competition issues for farmers which must be addressed by the Minister for Agriculture Michael Creed and the Competition and Consumer Protection Commission (CCPC).

Speaking at the launch of the report, he said the main conclusion of the report is that the primary procurement market for farmers selling cattle in Ireland to the meat factories is characterised by weak competition and the proposed deal is likely to weaken competition even further, through an SLC.

He said the report outlines the chief concern over the proposed transaction is that it would make coordinated effects in the relevant markets more likely.

IFA has sent a copy of the submission to Agriculture Minister Michael Creed and the CPCC, as well as the Competition and Markets Authority (CMA) in the UK.

“This 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”.

“Farmers are already very concerned about the lack of competition in the beef sector and this report on the proposed ABP/Slaney deal will heighten their fears.”

Meanwhile, IFA National Livestock Chairman Angus Woods said, that competition in the beef and lamb trade is always a contentious issue between farmers and factories.

“The Minister and the relevant authorities must be able to guarantee farmers that there is maximum competition operating in the market.”

Growing gap in cattle prices between Ireland and Britain

The PMCA economist also outlined the growing gap in cattle prices between Ireland and Britain, Ireland’s largest export market, and highlighted the structural differences in cattle procurement between the two markets.

He said the only real route to market in Ireland for finished cattle is directly to the factories, while data from Britain showed that 19.4% of slaughtered cattle came through the auction market system.

Dr. McCloughan also said that the Irish beef processing industry is much more concentrated than that in England (which is about the same size as the Irish cattle procurement market), with large processors (slaughtering more than 50,000 head of cattle) accounting for 85% of the kill compared to 50% in England.

In contrast, small and medium-sized processors account for 43.3% of the kill in England and only 8.9% in Ireland, he said.

The ‘footprint’ of the ABP and Slaney is extensive in meat processing in Ireland and the UK, not to mention the competition implications of the proposal in retail markets in Ireland, the UK and the EU, owing to the fact that most of the beef and lamb meat produced in Ireland is exported.

This, in turn necessitates the view elaborated in the PMCA report that the proposal, if it is notified to the European Commission, should also involve the Irish and UK competition authorities.

The PMCA report also contains suggestions aimed at helping to inform the competition authorities in Brussels, Dublin and London for further examination in respect of the relevant market’s capacities, vertical integration and features that might serve to underpin processors’ apparent bargaining advantages over producers/farmers in Ireland.