Photo courtesy of iStock.

Last month the world’s largest meatpacker JBS quietly bought up assets from one of its exclusive suppliers, TriOak Foods. The 17th largest pork producer in the country, TriOak supplies piglets and feed to a network of over 300 contract farms primarily around Iowa and western Illinois. Notably, TriOak owns and operates multiple piglet breeding facilities that raise pregnant sows in open pens compliant with California’s Proposition 12. More vertical integration between TriOak and JBS will help the packer secure and expand its supply of Prop 12-compliant pork.

The deal gives an already powerful JBS more control over hog farmers. Only 2% of hogs are sold at auction in the cash market in the U.S. The rest are raised on contract under various arrangements including total corporate ownership and contract farms working for middlemen like TriOak. The switch to contract hog production drove most hog farms out of business over the course of a decade: in 1992, there were more than 240,000 hog farms in the U.S., compared to 56,000 in 2012. JBS’s acquisition only pushes the industry further towards complete packer ownership and away from competitive open markets.

“These types of mergers are increasing corporations’ ability to collude and control markets more than they already are,” says Tim Gibbons, communications director for the Missouri Rural Crisis Center, a farm and rural membership organization. “They enable corporations to make as much money as possible, pay farmers less, and charge consumers more.”

TriOak is an Iowa-based pork producer that operates in five states. It has doubled in size since 2007, largely thanks to acquisitions, and in 2021 it owned 70,000 breeding sows. TriOak also owns three feed mills, four grain elevators, and sow operations in Iowa, Illinois, Colorado, and Oklahoma. It also sells fertilizer. As a semi-vertically integrated business, TriOak provides feeder hogs and feed to a network of contract growers to raise to market weight.

TriOak does not own a meatpacking plant so it has an exclusive relationship with JBS to process all its hogs. Just four meatpackers, including JBS, control more than two-thirds of all pork processing capacity, creating a bottleneck to access markets. For instance, TriOak sends its hogs to some of the largest plants in the country – JBS’s plants in Marshalltown, IA, Ottumwa, IA, and Beardstown, IL, which together process 12% of the nation’s pork.

JBS’s forward contracts, like the one it has with TriOak, allow the dominant packer to maintain a captive supply of animals and avoid bidding against other packers to secure hogs in cash markets. This gives farmers fewer avenues to market their animals and diminishes competitive price discovery. Since packers want a reliable supply of hogs to keep plants running at max capacity, they generally contract with fewer larger producers like TriOak. Over time, this has consolidated hog production onto large confined animal feeding operations, collapsed hog prices, and driven smaller independent hog producers out of business.

So few pork producers and packers now control the hog supply chain that they’ve been accused of conspiring to restrict hog production to lower supply and increase prices. Over the past two years, Smithfield has paid around $200 million to settle pork price-fixing lawsuits and JBS has paid over $57 million.

JBS’s acquisition of TriOak will give it even more control over the hog supply chain through direct ownership. Direct packer ownership of hogs is on the rise. In 2011 packers owned a little more than 30% of all slaughtered hogs; today they own 42%. Just last month JBS’s competitor Seaboard bought $58 million worth of hog farms from the 7th largest pork producer, The Maschhoffs.

“Their use of captive supplies with corporate controlled marketing agreements isn’t a model of livestock production that’s good for farmers, consumers, or the environment, and the direct ownership of those animals and infrastructure will just make it worse,” Gibbons said. “They’ll be able to control livestock and meat markets even more.”

JBS did not disclose which assets it agreed to buy from TriOak nor how much it will pay for them. It is possible that the deal falls below the $101 million deal threshold that triggers mandatory reporting to antitrust enforcers. JBS did not respond to clarifying questions from Food & Power.

According to JBS’s press release, one of the main draws for investing in TriOak are its open pen sow facilities. In 2018, California approved Proposition 12 which banned caged animal products in the state, including pork products from pregnant sows kept in gestation crates. Some of TriOak’s facilities are compliant with Proposition 12, and in this deal, JBS could secure a tighter grip on a supply of gestation-crate-free pork for the California market.

The deal has drawn criticism from rural community organizers. Iowa Citizens for Community Improvement sent a letter to Senators Chuck Grassley and Joni Ernst urging that they investigate and oppose JBS’s acquisition. “This deal would increase the already high levels of consolidation in the pork industry which hurts family farmers, consumers and our rural communities. Simply put this is a bad deal for all Iowans,” said Barb Kalbach, a farmer and ICCI board member.

TriOak operates in Iowa, which raises more hogs than any other state. Large confined hog farms contribute to local air pollution and groundwater, freshwater, and drinking water pollution in Iowa.