MercoPress. South Atlantic News Agency

Uruguayan farmers fearful of consolidation in meat sector

The merger of two Brazilian giants could corner over 30% of abattoir capacity in Uruguay.

The possible merger between the leading Brazilian meat groups, Marfrig and JBS Bertin could create the largest corporation in the world and among other things dominate over 30% of the Uruguayan cattle demand market.

The latest reports from Sao Paulo indicate that the merger is “imminent” and the creation of the largest meat packing company in the world saw shares of Marfrig jump by 11% last Friday, according to the Bovespa index.

But in spite of the good news for financial markets, Uruguayan cattle breeders expressed concern since Marfrig has four of the most modern abattoirs and packing plants in the country, cornering 27% of cattle slaughters, which added to JBS Bertin, which also has interests in Uruguay, could increase the percentage to the high thirties.

Although theoretical the new corporation cattle slaughtering market share in Uruguay would not reach 50%, local cattle farmers feel that such a position, with no major competition, could be described as “an abuse of dominant position”, banned under Uruguayan competition legislation.

Cattle breeders are always most sensitive to any situation where the abattoirs concentrate too high a share of the cattle demand, acquiring a dominant position which opens the way for an “oligopoly”.

This was pointed out by Uruguayan cattle farmers at their latest annual congress in May and the president of the Uruguayan Meats Institute, INAC Luis Alfredo Fratti promised he would be making an inquiry presentation before the Committee for the promotion and defence of competition.

However Fratti also pointed out that what is happening with Marfrig and Bertin and their possible merger, is the consequence of a global consolidation tendency both among cattle breeding and meat packing conglomerates.

The president of INAC added that the path to follow is a diversification of investments, such as has been presented by the British group Breeders & Packers which also has an abattoir and packing plant which prepares and delivers directly to its retail interests in the United Kingdom.

“I think that the inquiry option, regarding any possible infringement of competition conditions is far more positive than any formal complaint or accusation at this stage”, underlined Fratti.

Actually the consolidation process in Brazil is supported by the administration of President Lula da Silva which will be providing funds, from the National Economic Development Bank, BNDES to help the new corporation.

With the plummeting of world beef markets as a consequence of the financial crisis followed by its impact on the real economy, several Brazilian international corporations faced financial strains and were helped out by the government.

This happened in the food sector and BNDES already has equity in both companies, MarFrig and JBS Bertin because of the financial support given to them.