The Competition Bureau is allowing the sale of two of the largest independent hog producers in Western Canada to two major processors.
The bureau issued “no action letters” to Olymel L.P., regarding its purchase of Big Sky Farms Inc., and to Maple Leaf Foods, for its acquisition of Puratone Corp.
Despite a finding by the bureau that the vertical acquisition by two processors of hog suppliers would likely lead to anti-competitive effects on competing processors, it signed off on the deal citing competition between the two processors.
“I think this is sort of interesting, as it’s consistent with so many other relatively concentrated/duopoly/oligopoly markets in Canada such as telecom, rail, etc.,” says Steve Szentesi of Steve Szentesi Law Corp. in Vancouver.
Separate investigations concluded the sales were unlikely to lead to a substantial prevention of competition.
In October, Olymel announced it was buying Humboldt, Sask.-based Big Sky, the largest independent hog producer in Western Canada, for $65.25 million. The company went into receivership in September.
On Nov. 1, Maple Leaf Foods Inc., announced it had agreed to acquire Puratone, the second-largest independent hog producer in Western Canada, for $42 million. The Niverville, Man.-based producer was also struggling, having entered creditor protection in early September.
Owing to transportation costs and limits on the time and distance that live hogs can be transported safely, the bureau determined the relevant geographic market for the purchase and sale of live hogs was likely limited to the province where the processor or producer, as applicable, was located and the adjacent Prairie provinces.
Generally, Szentesi says there tends to be less guidance from the bureau for vertical mergers involving suppliers/distributors/customers, compared to horizontal mergers involving direct competitors.
A statement from the bureau indicated that, consistent with the approach to vertical mergers outlined in the bureau’s Merger Enforcement Guidelines, the bureau considered whether post-transaction Olymel or Maple Leaf would have the ability and incentive to foreclose rivals’ access to live hogs in upstream markets or to limit or cease their purchases of live hogs from upstream rivals, and if so, whether such ability and incentive would likely result in a substantial lessening or prevention of competition in upstream markets or among pork processors for the sale of pork primal cuts in the downstream market.
In both investigations, the bureau concluded the mergers were unlikely to lead to a substantial lessening or prevention of competition for a number of reasons, including the inability to create or increase market power upstream due to an excess demand for hogs and the inability to create or increase market power downstream due to, among other factors, effective remaining competition.