THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, October 13, 1995 TAG: 9510130551
SECTION: BUSINESS PAGE: D2 EDITION: FINAL
SOURCE: BY TOM SEERY, ASSOCIATED PRESS
DATELINE: DES MOINES, IOWA LENGTH: Medium: 56 lines
Smithfield Foods Inc. is drawing criticism as it prepares to acquire John Morrell & Co. and enter the Midwest.
The Smithfield-based food processor said last week that it has signed a letter of intent to buy Morrell for $58 million from Chiquita Brands International Inc. The purchase would vault Smithfield to No. 2 among the nation's pork processors behind IBP Inc. of Dakota City, Neb.
Included in the purchase are Morrell's pork plants in Sioux City, Iowa, and Sioux Falls, S.D. Critics of large-scale hog farming say the move is bad news for small farmers, because Smithfield likes to do business with large farms and to work with farmers who sign long-term contracts to supply hogs.
Smithfield also raises its own hogs in Virginia and North Carolina, and is among the nation's largest hog farmers.
Critics want the U.S. Justice Department to consider the long-term impact before allowing Smithfield's purchase of Morrell.
``Independent pork producers should be concerned about this merger,'' said Kelly Biensen, a hog farmer from State Center, Iowa, who is president of Friends of Rural America, an Iowa group fighting concentration in the pork industry. ``Smithfield's way of doing business is to tie up as much of its production as possible through contracts and other direct relationships.''
But that might not work in the Midwest where there are competing meat packers and smaller hog farms, said John Lawrence, an economist at Iowa State University.
``They still have to buy hogs and to get hogs they're going to have to bid competitively if they want them,'' Lawrence said.
He said there are no large-scale hog farms near Sioux City to fill Smithfield's needs on a contract basis.
``To get enough contracts to fill that plant, it's going to take a long time,'' Lawrence said. ``I don't think Iowa farmers need to fear that now, if at all.''
Meanwhile, Smithfield's competition with IBP could be good news for farmers, at least in the short run.
``It would make them a very strong competitor behind IBP. You get two big guys in the ring slugging it out, you don't have one dominant player,'' Lawrence said. ``Essentially it brings a new competitor into Iowa. It's going to be interesting to see how that plays out.''
Lawrence said he was not surprised by Smithfield's bid for Morrell.
``They had announced a couple of years ago that they wanted to be a major player in the packing industry. In order for them to do that, they needed to be where the hogs were at,'' he said. ``They helped grow the hog industry in North Carolina, but really the hogs are still in the Corn Belt, so they needed a presence here of some sort.'' by CNB