The Future Economy

Imagine yourself living the dream of universe an entrepreneur. You are a business man of the 21st hundred you allow a popular product that many firms want to purchase. You feel financially secure with your future because of the amount of buyers for your product. Then 5 years go bye, and the once abundant number of firms has dwindled down to a couple of major corporations. You try to think to yourself how did this happen? You then realize that all the little companies that fought for your business, and helped you liquidate the highest capital are gone.They were acquired by or merged with larger firms. You know that when this happens the market gets smaller and there are less people to buy your product. With few options of companies to sell your product to, comes a smaller amount of profit for you. Two more years go bye and the market gets more concentrated, the remaining giants quarter now offer you any price they want. If you choose non to accept it, you dont sell your product. Your dreams of being your own boss and selling a quality product for a fair price are fading away.Some people may think that this story couldnt happen, but mergers and acquisitions civilise place everyday in the corporate world. This story that I just told you about is real. Instead of being about business men of the 21st blow my article was about the beef cattle grangers of southwestern Wisconsin.The article talks about Virginia-based Smithfield foods, acquired American Foods Group and Packerland Holdings Co. Smithfield is the res publicas largest pork processor they have a 20% market share. Besides the two recent acquisitions Smithfield also has ownership of Cudahy-based Patrick Cudahy Inc. As a result of this Smithfield will now be the peoples forth-largest beef processor, with a 9% market share.Smithfields merger is part of an overall consolidation among the nations larger food processors, which includes the companies of the nations beef industry. Wisconsin is known to man y people as the dairy state because of our cheese and milk production. While this is true, when the dairy cows get onetime(a) and there milk production drops they get sold to beef processors. Due to this, Wisconsins number of beef cattle has been increasing. Wisconsin had 1.29 million dairy cows as of July 1, according to the Wisconsin Agricultural Statistics Service. The state had 260,000 beef cattle, a 2% increase from July 2000.If I had the other three firms information on the market value they have. I could figure out if the market is highly concentrated or somewhat competitive using the Herfindahl-Hirschman Index which you showed us in class.Wisconsin beef producers are decidedly concerned about the latest news of Smithfields plans involving Packerland and American Foods. Tom Thieding, a spokesman for the Wisconsin Farm Bureau Federation said, Any time in a consolidation, you just lose the marketing and price opportunity.State Agriculture Secretary Jim Harsdorf also expressed his concern about the consolidation saying we need to apply sure theres still opportunity and competition out there, or the producers are the ones who are going to see their margins cut. The nations broth sector is already highly concentrated, a point that is made repeatedly by farm organizations and others. Serious questions have been raised about vertical and plane integration and market power that puts small livestock producers at a disadvantage and puts consumers at risk. The farmers know that the Smithfield acquisitions further concentrate U.S. meatpacking and eliminate an fundamental competitor in the purchase of livestock, very likely resulting in lower prices for producers.Smithfield believes that it must consolidate in order to keep up with other companies and to append for their customers. But to make a profit the beef and pork processors will be under pressure to pay fair prices to farmers. But the farmers have a very important role in this equation, they supply the product. If the farmers dont have an economic incentive to produce, the processors will not be able to press home to their customers.Smithfields plan to buy American Foods could be reviewed by the U.S. Department of Justice to address the possibility of an just. As we learned in class the antitrust policy tries to promote competition and discourage collusion. But Smithfield believes that American Foods is small enough that the deal wont need regulatory review. The deal with Packerland foods was reviewed and approved by the federal government. Smithfield believes that they are a growing company they will not approach the size of industry leaders IBP, ConAgra and Excel.To beef producers the debate is not theoretical. Mike Riechers, a cattle farmer in southwestern Wisconsin said he believes the competition among cattle buyers dropped in 1998 after Packerland took over the operations Murco Foods. With Smithfield get Packerland and American Foods farmers are concerned that competiti on could drop even further.In conclusion, consolidation is taking many other forms mergers, partnerships, integration, and similar terms are being used to describe a variety of business arrangements that result in the same final product fewer people making decisions in agriculture. In many ways, agriculture is just catching up with the rest of the business world, which has been consolidating at a record pace for the past several years. Meanwhile the farmer will become a grower, providing the labor and often some of the capital, but never owning the product as it moves through the food system and never making the major management decisions. Most consumers already put no thought into the financial cost of growing the hay that fed the cow that ends up on your plate.