Dr. Pat McCloughan Dublin 31 August 2016 The possible transaction - - PowerPoint PPT Presentation

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Dr. Pat McCloughan Dublin 31 August 2016 The possible transaction - - PowerPoint PPT Presentation

Mar 23, 2023 109 likes •224 views

Dr. Pat McCloughan Dublin 31 August 2016 The possible transaction between ABP and Slaney would be a full-function JV that would see the creation of a new entity independent of its parents (ABP and Linden) News of the proposal came to

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  • Dr. Pat McCloughan

Dublin 31 August 2016

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The possible transaction between ABP and Slaney would be a full-function JV that would see the creation of a new entity independent of its parents (ABP and Linden)

News of the proposal came to light in the media in 2015 and again in the parties’ press release of March 2016

The proposal has not been notified to DG Comp

The parties have been in pre-notification with DG Comp

The IFA commissioned PMCA to provide an independent, expert view on competition issues and the report has been given to DG Comp

Legislative tests – SIEC (EU), SLC (Ireland and UK)

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Competition economics assessment of the proposal

Three stages

 Relevant market definition  Assessment of competition in the relevant market currently  Assessment of the likely effects of the proposal on competition

Extensive range of information/data on the market

Includes previous CCPC/Competition Authority merger determinations and the BIDS proposal

Key market – procurement of cattle for slaughter in IE

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Broadest to progressively narrower relevant markets

 All types and grades of cattle  Prime cattle (steers, heifers and young bulls)  Premium cattle (steers and heifers)  Premium cattle meeting the MII (Meat Industry Ireland) grade  Premium cattle meeting the MII grade and weight specification

Slaughterers/processors – DAFM export-approved processors and abattoirs under local authorities

Geographic markets – State/Ireland and south Leinster

In addition, possibility of specialty breeds of cattle

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Long-term trend in market size – smaller kill

Low switching of processor by farmers (role of agents)

ABP the largest beef processor, Slaney the largest plant

High regulatory barriers to entry

Entry barriers also through the reputation and vertical integration of leading incumbents

Multi-market contact

Price transparency

Single route to market via agent/processor – contrast with the situation in England

Past attempted coordination in the form of the BIDS

Farmer situation precarious – low incomes

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Market structure effects

The Herfindahl-Hirschman Index of market concentration

HHI the sum of the squared market shares of all firms

Polar values – 0 (perfect competition) and 10,000 (monopoly)

HHI less than 1,000 – low concentration

HHI between 1,000 and 2,000 – concentration

HHI > 2,000 – high concentration

‘HHI delta’ – 250 or more in concentrated market

Concentration per se not definitive of competition

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ABP Slaney Pre- Transaction HHI Post- Transaction HHI HHI Delta 1 All Cattle at DAFM Export-Approved Plants and LA Plants 20.5% 5.3% 1,162 1,379 217 2 All Cattle at DAFM Export-Approved Plants 21.9% 5.6% 1,275 1,522 246 3 Prime Cattle Comprising Steers, Heifers and Young Bulls at DAFM Export-Approved Plants 25.0% 6.4% 1,406 1,725 319 4 Premium Cattle Comprising Steers and Heifers at DAFM Export- Approved Plants 26.1% 7.2% 1,408 1,783 374 5 Premium Cattle Comprising Steers and Heifers meeting the MII Grade at DAFM Export-Approved Plants 26.9% 7.6% 1,480 1,888 408 6 Premium Cattle Comprising Steers and Heifers meeting the MII Grade and Weight Specification at DAFM Export-Approved Plants 27.8% 8.4% 1,541 2,010 469 Procurement of Cattle for Slaughter in the State Parties' Market Shares Market Concentration Estimated Market Shares and Concentration (Cattle Slaughtered)

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ABP Slaney Pre- Transaction HHI Post- Transaction HHI HHI Delta 1 All Cattle at DAFM Export-Approved Plants 17.6% 13.0% 1,362 1,820 458 2 Prime Cattle Comprising Steers, Heifers and Young Bulls at DAFM Export-Approved Plants 21.2% 15.0% 1,435 2,074 639 3 Premium Cattle Comprising Steers and Heifers at DAFM Export- Approved Plants 22.3% 16.8% 1,453 2,203 750 4 Premium Cattle Comprising Steers and Heifers meeting the MII Grade at DAFM Export-Approved Plants 23.5% 18.1% 1,568 2,419 851 5 Premium Cattle Comprising Steers and Heifers meeting the MII Grade and Weight Specification at DAFM Export-Approved Plants 24.1% 19.9% 1,625 2,584 959 Estimated Market Shares and Concentration (Cattle Slaughtered) Procurement of Cattle for Slaughter within 60 Miles of Slaney's Bunclody Plant Parties' Market Shares Market Concentration

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Competitive effects – theory of potential harm (losers being farmers and end-users in the supply chain)

 Unilateral effects – could give ABP/Slaney a powerful market position regionally/locally in the south Leinster area owing to the significance of Slaney’s Bunclody facility  Coordinated effects – given the objective features of the relevant market, the proposal could increase the risk of coordinated effects

Overall conclusions of the PMCA report

 Weak competition pre-proposal  Proposal risks an SLC in the State or an SIEC at EU level  Involvement of the CCPC and possibly the CMA too

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