001136 Smithfield Says IBP Deal Would Benefit Pork Producers

Smithfield, VA - Joseph W. Luter, III, Chairman and CEO of Smithfield Foods, Inc., presented the following remarks at a meeting of the National Pork Producers Council:

"Smithfield Foods believes a strong meatpacking industry benefits hog producers. By working together, producers and packers can deliver a consistent, high quality product that meets the increasingly stringent demands of our customers, be they the giant foodservice companies, consolidating food retailers, international markets, or individual shoppers looking for new, value- added meat products. With beef and pork under one roof, we would be much better positioned to create new opportunities for producers by expanding our share of retailers' shelves and offering retailers centralized purchasing and procurement. We are already seeing this trend play out in the partnerships McDonald's has with its suppliers, which is a win-win for all: a consistent, high-quality product for the customer and a steady and stable market for the producer.

To reap the benefits of such partnerships, however, we need the scale and sophistication to serve the growing needs of consolidating retail and foodservice giants, and their customers. "To see how such a philosophy of partnership could work, we need only to look at other markets where it already exists.

In the U.S., where pork producers and processors are more often than not at odds with one another, pork lags poultry and beef in market share. In Europe, where producers and processors work together, pork leads the protein market handily. By working together, we have the opportunity to do the same here at home. "For all its benefits, we can appreciate that our proposed acquisition of IBP raises concerns of market concentration among some farmers and public officials. In fact, concentration is not really an issue here because we have a plan for the pro-active divestiture of assets that we believe will address these concerns. "Beyond that fact, we would like to put to rest once and for all the misapprehension that meatpackers make money at the expense of farmers.

- For the nine-year period 1991 through 1999, producers lost money in only two of nine years, 1994 and 1998, years that saw over-production as a result of high profits in the preceding years. By contrast, packers made money in only four of those nine years. In seven of those nine years, producers made more money per head than did the packers.

- For the 14-year period, January 1987 through January 2000, the average monthly profit per head for packers and producers was $18.70 per head for producers and only $2.00 per head for packers.

- For the 1986 through 1998 period, the major share of the pork dollar went to the farmers and retailers and a minimal amount went to the packers.

“While these points illustrate vividly that meatpackers do not profit at the expense of livestock producers, we would also like to confront one other misperception that we believe hurts all of us by fostering the perception that we hold divergent interests.

“We have over $1.2 billion invested in hog production operations and we own 60% of the hogs we slaughter. In many months we earn significantly more money from our production business than we do from our packing business. In sum, as the world's largest hog producer, we have a clear common interest with other hog producers in ensuring that hog farming remains a viable economic enterprise.

“We think it's time for a reevaluation of our mutual interests and a frank and open discussion about how we can best work together to our mutual benefit and to the benefit of our end customers.”

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