The Australian Competition and Consumer Commission has outlined its preliminary competition concerns about JBS Australia’s proposed acquisition of the Rivalea pork supply chain business in a statement of issues released today.

JBS in June announced its intention to buy the Rivalea pork business in a deal worth about $175 million.  The business is seen as complementary in the supply of raw material to JBS’s enormous Primo Smallgoods business, purchased for $1.45 billion back in 2014.   

If the Rivalea acquisition proceeds, JBS, Australia’s largest red meat processing company, will have a significant Australian presence in pig farming, export accredited pork abattoirs and smallgoods through its Primo brand.

Mick Keogh

“The ACCC’s preliminary view is that while JBS and Rivalea do not compete closely, the proposed acquisition may give rise to vertical integration concerns,” ACCC deputy chair Mick Keogh said in a statement today.

“Rivalea’s Diamond Valley Pork abattoir currently provides service kills to third parties. The ACCC is concerned that post-acquisition, JBS may have the incentive – particularly due to its ownership of Primo – to frustrate service kills at that abattoir by increasing prices, offering less favourable terms, or foreclosing access,” Mr Keogh said.

The ACCC said it was also concerned that JBS might increase the price of fresh pork or reduce supply to competing smallgoods producers and pork wholesalers.

“The ACCC is considering whether rival smallgoods producers and wholesalers’ reduced access to fresh pork or increased costs may also impact retail supply,” Mr Keogh said.

“We are concerned that JBS’s existing interests may give it the incentive to restrict access to service kills at the Diamond Valley Pork abattoir, as well as frustrating access to fresh pork for its downstream rivals in smallgoods production and fresh pork wholesaling.”

“Our concern is not limited to JBS potentially denying access to processing facilities, but is also about the price and terms on which access would be provided,” Mr Keogh said.

The proposed acquisition was unlikely to raise horizontal overlap concerns in relation to the acquisition of slaughter weight pigs, supply of service kills or pork processing, as JBS and Rivalea did not compete closely in the market, the ACCC said.

The ACCC has published a statement of issues and is seeking further information from interested parties by 30 September.

JBS Australia response

JBS Australia said over the past four months, it had engaged constructively with the ACCC over Rivalea – as it had on other mergers undertaken in Australia.

“We welcome the ACCC’s preliminary view that JBS and Rivalea do not compete to a significant extent in the acquisition of slaughter-weight pigs, supply of service kills and supply of pork processing due to the location of their respective abattoirs,” the company said.

“While no ‘issues of concern’ were identified by the ACCC, we acknowledge the two ‘issues that may cause concern’ that they have identified for further consultation around third-party processing at Diamond Valley Pork and access to fresh pork for downstream businesses,” JBS said.

JBS said it intended to provide a comprehensive response to the ACCC regarding these matters during this next phase of public consultation.

Service kills

JBS said it understood the role that Rivalea’s Diamond Valley Pork pig processing facility played in offering its long-term customers access to service processing, on a commercial basis.

“JBS has repeatedly and publicly said it will continue to provide service kills at DVP, and we have provided these assurances in writing to all existing DVP customers and the ACCC,” the company said.

It is worth noting that JBS is a minor processor of pork in Australia. At its Port Wakefield facility in South Australia, the company provides pig processing services for a major retailer and other customers, who buy the pigs from producers and have them slaughtered for a fee.

“JBS has a long and proud history of supporting and growing its Australian businesses – investing heavily in its local operations and domestic brands, while at the same time providing employment opportunities and supporting the regional economies in which we operate,” chief executive officer Brent Eastwood said.

“We will employ this same locally-minded approach at Rivalea.”

• ACCC’s final decision on the acquisition will be handed down by 9 December.

Background

JBS operates abattoirs, value-adding facilities and feedlots for a number of species across Australia’s eastern seaboard. JBS’ abattoir at Port Wakefield (SA) supplies service kills and further processing such as boning and value-adding services. JBS also supplies fresh pork, value-added pork, pork smallgoods and cooked pork products in Australia.

Rivalea has commercial activities in feedstock production, pig farming, service kills, processing such as boning and value-adding services, and the distribution of fresh pork and value-added pork products to wholesalers and retailers in Australia. Rivalea has ownership interests in two abattoirs in Australia, one in Laverton, (Vic) and one in Corowa (NSW) that supply slaughter and processing services.