Brazilian Beef Purchase Is Challenged by the US

The Justice Department and 13 states challenged Brazil-based JBS Inc. over its buyout of National Beef Packing Co., saying the move by one of the world's largest beef producers would hurt U.S. farmers and consumers.

In a lawsuit filed on Monday in federal court in Chicago, the U.S. and states said the deal would lead to higher prices in restaurants and on grocery shelves, while pushing down prices paid to ranchers for cattle.

If the suit is successful, it would cut by half the scope of a planned $1.1 billion expansion into the U.S. beef market JBS announced in March. JBS said it would buy National Beef for $560 million, and in a separate $565 million deal, would acquire the beef operations of Smithfield Foods Inc. The Justice Department on Monday said it won't challenge JBS over the Smithfield deal.

"The deals would have taken the U.S. beef market from five significant competitors to three, accounting for 80% of the fed cattle in the U.S.," said Thomas Barnett, the U.S. antitrust chief. JBS is currently ranked third in the U.S. beef-processing business, behind Tyson Foods Inc. and Cargill Corp.

JBS said it will fight the government's lawsuit. "We're disappointed about the decision to block our acquisition of National Beef and we'll rise to its defense," said a JBS spokesman.

The Justice Department is increasingly active in food markets in the face of sharply rising prices. It already has under way investigations of alleged price-fixing in markets for citrus, tomato and egg products, but has been criticized for allowing too many mergers in the sector.

"For some time, I believed antitrust enforcers were asleep at the switch, and today's action couldn't come too soon," said Sen. Charles Grassley (R., Iowa).

Sen. Grassley and other lawmakers have pressed for more federal scrutiny in the agriculture market. The industry concentration "increases the ability of larger companies to engage in predatory business behavior and results in higher prices and fewer product choices for consumers," Sen. Grassley said on Monday.

The U.S. challenge comes at a tough time for beef producers, which haven't reported solid profits for years. The rising price of corn has made it more costly for ranchers to fatten their animals. At the same time, the price of beef hasn't risen as quickly as analysts expected, partly because the weakening economy has slowed demand and helped keep prices in check at grocery stores.

Like other meatpackers, JBS had planned on higher beef prices to offset rising prices for cattle, energy and the other costs of operating packing plants.

The industry's woes could be a boon for consumers, who have been faced with food prices rising faster than overall inflation. Food prices this year are expected to jump as much as 6%, compared with about 2% two years ago, according to the U.S. Department of Agriculture. The government is forecasting beef prices to rise by 7% next year, faster than for any other food.

Some cattle ranchers cheered the government's decision to challenge the JBS-National deal.

"We are grateful that the Justice Department and state attorneys general have considered our concerns and are taking meaningful action to protect U.S. cattle producers and consumers against the abusive market power that can result from industry concentration," said Max Thornsberry, president of R-CALF USA, a Montana-based association of independent ranchers.

The Justice Department's suit throws a wrench into JBS's global expansion plans. JBS is run by the Batistas, the company's founding family, which has been in the meat business for a half-century. The company's goal had been to buy American beef assets when a weaker dollar made them more attractive, then try to run plants more efficiently and open new global markets, expanding during tough times in the industry.