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 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) 2
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 3
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 4
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 5
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 6
Estimated Market Shares and Concentration (Cattle Slaughtered) Parties' Market Shares Market Concentration Pre- Post- Transaction Transaction Procurement of Cattle for Slaughter in the State ABP Slaney HHI 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 25.0% 6.4% 1,406 1,725 319 Export-Approved Plants 4 Premium Cattle Comprising Steers and Heifers at DAFM Export- 26.1% 7.2% 1,408 1,783 374 Approved Plants 5 Premium Cattle Comprising Steers and Heifers meeting the MII Grade at 26.9% 7.6% 1,480 1,888 408 DAFM Export-Approved Plants 6 Premium Cattle Comprising Steers and Heifers meeting the MII Grade 27.8% 8.4% 1,541 2,010 469 and Weight Specification at DAFM Export-Approved Plants 7
Estimated Market Shares and Concentration (Cattle Slaughtered) Parties' Market Shares Market Concentration Pre- Post- Procurement of Cattle for Slaughter within 60 Miles of Slaney's Bunclody Transaction Transaction Plant ABP Slaney HHI 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 21.2% 15.0% 1,435 2,074 639 Export-Approved Plants 3 Premium Cattle Comprising Steers and Heifers at DAFM Export- 22.3% 16.8% 1,453 2,203 750 Approved Plants 4 Premium Cattle Comprising Steers and Heifers meeting the MII Grade at 23.5% 18.1% 1,568 2,419 851 DAFM Export-Approved Plants 5 Premium Cattle Comprising Steers and Heifers meeting the MII Grade 24.1% 19.9% 1,625 2,584 959 and Weight Specification at DAFM Export-Approved Plants 8
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 9
Recommend
More recommend
