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One-on-one with Smithfield Foods' Joseph Luter

Joseph Luter, CEO and chairman of the board for Smithfield Foods, this week spoke exclusively with Agriculture Online Livestock Editor Betsy Freese about the pending merger with Premium Standard Farms.

B.F.: Will you have an antitrust problem with this acquisition?
J.L.: We should not have a problem and here is why. If we are allowed to complete the acquisition we will be raising less than 20% of the hogs in the country and we will own 28% of the kill capacity. In the Midwest, Tyson will still kill many more hogs than us. I think we could go to 35% and not be anti-competitive.

B.F.: How does that concentration compare to other industries?
J.L.: The concentration in the chicken and beef packing industries is much greater. Yes, we will have dominance on the East Coast, but we are not as dominant as Hormel on the West Coast; there is only one plant on the entire West Coast. This is a national market. If they treat us like other industries and look at it strictly by numbers and facts we should not have antitrust problems.

B.F.: How long could the approval process take?
J.L.: Approval could come in 30 days, or take months. We expect the Justice Department will look at it very closely. We had to submit 3.5 million pages of documents on the Farmland acquisition before it was approved.

B.F.: How do you respond to criticism of vertical integration in the pork industry?
J.L.: Vertical integration is good. The proof is in the pudding. Since we became a big hog production company in 1999, the hog production industry has had seven years of extremely good times, the best run in the history of raising hogs. Vertical integration has given us a more consistent, lean product. The quality of the product is now more acceptable to the export market. We have clout with the big retailers. The only way to do this is through vertical integration.

B.F.: Why do you want to acquire Premium Standard Farms?
J.L.: We have a history of buying troubled companies in the Midwest. Everyone looked at Morrell and nobody wanted to step in. We invested money in Morrell and saved the company. We bought Farmland when it was in bankruptcy. We know how to make improvements in efficiency. Smithfield is all about buying companies and saving them.

B.F.: Could this acquisition lower hog prices?
J.L.: No. We like high hog prices for one simple reason -- we raise most of the hogs in the country. Smithfield buys more open market hogs than any packer in the U.S. even though we are 50% vertically integrated. We are concerned about the need to have enough hogs sold on the open market because we want a true market. Smithfield has taken the lead on strengthening the open market. We aggressively kill hogs and run our plants wide open. We are totally committed to buying a big percentage of hogs on the open market.

B.F.: What do you think of the new Triumph Foods company?
J.L.: Triumph is a new, strong competitor. I think they will succeed. Smart people are involved. I don't think their marketing plan with Seaboard will succeed, but I see Triumph getting stronger.

B.F.: Do you have any more acquisitions in the works?
J.L.: This is about it. I don't think there will be any other major acquisitions in the U.S. for us. I think we may be getting close to the Justice Department's breaking point.

B.F.: Iowa Senators Chuck Grassley and Tom Harkin are speaking out against the deal. What is your response?
J.L.: I have learned over the years that the Midwest has the most honest and hardworking people in the country. But they have more tunnel vision than people on the West or East Coast. They don't accept change as much. I can make a strong case that we are the best friend the Iowa hog farmer has. I'm convinced the hog farmer in Iowa makes more money today because of the big vertically integrated companies. We’ve helped to modernize the industry in the Midwest.

B.F.: Anything else you would like to add?
J.L.: If this deal goes through, ContiGroup will become the largest shareholder in Smithfield. They own 38.8% of Premium Standard Farms. We are already partners in beef. If we get approval to buy Premium Standard Farms we will build a new beef plant in Oklahoma.

Joseph Luter, CEO and chairman of the board for Smithfield Foods, this week spoke exclusively with Agriculture Online Livestock Editor Betsy Freese about the pending merger with Premium Standard Farms.

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