|
|
 
|
OCM opposes Wal-Mart acquisition of Puerto Rico supermarket chain
(Monday, Dec. 23, 2002 -- CropChoice news) -- The following is a Dec. 20 press release from the Organization for Competitive Markets.
Contact: Michael C. Stumo: 860.379.6199
The Organization for Competitive Markets submitted comments to the Federal
Trade Commission (FTC) today opposing the proposed acquisition of a Puerto
Rico supermarket chain by Wal-Mart. (See full text below). Wal-Mart is the
nation’s largest food retailer and is known for driving down input prices.
Wal-Mart has agreed to acquire Supermercados Amigo, Inc. (Amigo), a major
retail food chain in Puerto Rico. OCM, joined by Puerto Rico Farm Bureau,
objected to the acquisition on the grounds that the deal will harm the
markets for Puerto Rican farmers.
Wal-Mart has grown in the U.S. primarily through internal growth, rather
than through acquisitions. However, in Europe and Japan, Wal-Mart has
sought to establish major market positions through acquiring large chains
based in those countries. The Amigo deal is the first acquisition by
Wal-Mart in the U.S. Thus, it must clear antitrust review by the FTC prior
to becoming final.
“The Federal Trade Commission’s November 21, 2002 acceptance of a Proposed
Consent Order permitting Wal-Mart to proceed with its acquisition of Amigo
in Puerto Rico with only a modest divestiture of four Amigo locations is
alarming in both its failure to address the certain anticompetitive effects
on Puerto Rican agricultural and food distribution markets and because of
the apparent deficiency in the supposed curative divestiture of a few
locations to an unproven, untested operator, Supermercados Maximo, Inc.”
wrote Michael Stumo, OCM general counsel. “The divestiture of four stores
will do nothing to alleviate Wal-Mart’s monopsony power in Puerto Rico.”
“The Puerto Rico Farm Bureau estimates that prior to the acquisition, Amigo
annually purchased as much as $30 million in local agricultural products
(including eggs, milk, cheese, meat, poultry, fruits and vegetables) and
specifically has been the leading purchaser of locally grown fruits and
vegetables,” continued Stumo. “Wal-Mart traditionally has not purchased
large volumes of Puerto Rican agricultural products. In sum, the
acquisition of Amigo by Wal-Mart can only be viewed as decreasing
competition in relation to input suppliers, i.e., the farmers of Puerto
Rico.”
The Organization for Competitive Markets is a multidisciplinary, nonprofit
group of farmers, ranchers, academics, attorneys, and policy makers
dedicated to reclaiming the agricultural marketplace for independent
farmers, ranchers and rural communities.
Full text of OCM letter to Federal Trade Commission follows
December 20, 2002
Mr. Donald S. Clark
Re: In the Matter of Wal-Mart Stores, Inc., and Supermercados Amigo, Inc.
File No. 021 0090, Docket No. C-4066
Dear Mr. Clark:
This is a public comment by the Organization for Competitive Markets and the
Puerto Rico Farm Bureau regarding In the Matter of Wal-Mart Stores, Inc.,
and Supermercados Amigo, Inc., File No. 021 0090, Docket No. C-4066. For
the following reasons, we oppose the proposed acquisition.
The Organization for Competitive Markets (“OCM”) is a multidisciplinary
nonprofit group made up of farmers, ranchers, academics, attorneys,
political leaders and business people. The mission of the OCM is to
re-establish fair and truly competitive markets for agricultural products;
and to protect those markets from any abuse of power.
The Puerto Rico Farm Bureau is a non-profit group, affiliated with the
American Farm Bureau Federation. Its purpose it to promote and represent
Puerto Rican farmers and other agricultural interests.
The Acquisition will Increase Wal-Mart’s Monopsony Power in Puerto Rico with
No Counter-veiling Efficiency Gains.
The Federal Trade Commission’s November 21, 2002 acceptance of a Proposed
Consent Order (“Consent Order”) permitting Wal-Mart Stores, Inc.
(“Wal-Mart”) to proceed with its acquisition of Supermercados Amigo, Inc.
(“Amigo”) in Puerto Rice with only a modest divestiture of four (4) Amigo
locations is alarming in both its failure to address the certain
anticompetitive effects on Puerto Rican agricultural and food distribution
markets and because of the apparent deficiency in the supposed curative
divestiture of a few locations to an unproven, untested operator,
Supermercados Maximo, Inc. (“Maximo”) that will do nothing to alleviate
Wal-Mart’s monopsony power in Puerto Rico. The vacuum left after Wal-Mart
completes its digestion of the Amigo chain will lead to irreparable harm to
the agricultural and food distribution markets in Puerto Rico including
reduced output and increased prices.
The OCM urges the Commission to reevaluate its decision to allow this
transaction to proceed altogether, or alternatively, asks that the
Commission reopen its investigation to address the competitive issues
affecting Puerto Rican farmers, other agricultural producers and the food
distribution industry in Puerto Rico.
It is unclear from the Analysis of the Complaint and Proposed Decision and
Order to Aid Public Comment in the Matter of Wal-Mart Stores, Inc and
Supermercados Amigos, Inc.(“Analysis to Aid Public Comment”) whether or not
the Commission even investigated and deliberated over these concerns in
reaching its approval of the Consent Order. As noted in Section 0.2 of the
1992 Horizontal Guidelines, “[t]he exercise of market power by buyers
(‘monopsony power’) has adverse effects comparable to those associated with
the exercise of market power by sellers. In order to assess potential
monopsony concerns, the Agency will apply an analytical framework analogous
to the framework of these Guidelines.”
Both the Commission and the U.S. Department of Justice have recently
analyzed monopsony issues in other transactions. See Analysis of the
Proposed Consent Order and Draft Complaint to Aid Public Comment In the
Matter of BP Amoco p.l.c., and Atlantic Richfield Company, File No. 991
0192, Docket No. C-3938 at Section V.B. (“Firms . . . will simply be unable
to fill the void created by the loss of ARCO as an independent bidder for
exploration and development acreage”), and U.S. v. Cargill, Inc. and
Continental Grain Co. Competitive Impact Statement, No. 1:99CV01875 (D.D.C.
July 23, 1999) at 7-10 (requiring divestiture of grain elevators in several
local markets to preserve existing competition for grain purchasing services
and to “ensures that farmers and other suppliers in the affected markets
will continue to have effective alternatives to Cargill when selling their
crops” where “transportation costs would preclude them from selling to other
grain traders or purchasers in sufficient quantities to prevent an
anticompetitive price decrease”).
An important issue left untouched by the Analysis to Aid Public Comment is
the significance of Puerto Rico’s island geography and economy. The
geographical barriers of the island of Puerto Rico create a unique situation
that magnify the anticompetitive effects of Wal-Mart’s acquisition of Amigo
and raise significant monopsony issues.
Wal-Mart’s acquisition of Amigo greatly increases its buying power on the
island of Puerto Rico and more importantly, eliminates one of the few
competitive buyers (Amigo) with sufficient scale to challenge Wal-Mart in
the Puerto Rican marketplace. Unchecked, Wal-Mart will have the ability to
squeeze lower and lower prices from local farmers, eventually leading to a
reduction in their output or complete exit from agricultural production and
increased prices to consumers. The Puerto Rico Farm Bureau estimates that
prior to the acquisition, Amigo annually purchased as much as $30 million in
local agricultural products (including eggs, milk, cheese, meat, poultry,
fruits and vegetables) and specifically has been the leading purchaser of
locally grown fruits and vegetables. Wal-Mart traditionally has not
purchased large volumes of Puerto Rican agricultural products.
The addition of Amigo’s 2001 annual sales of approximately $542 million and
36 supermarkets to the Wal-Mart juggernaut is a mere blip on the screen to
Wal-Mart’s balance sheet, given Wal-Mart’s approximately 4,200 stores in the
United States, Europe, Latin America, and Asia and sales of over $191
billion in 2001. On the other hand, the transaction does not have the same
effect on Puerto Rican farmers and businesses left to compete with Wal-Mart
on what is now an unbalanced playing field.
First, prior to Wal-Mart’s acquisition, local farmers and agricultural
producers already faced limited channels of distribution and potential
purchasers of their products due to the island geography. The result of
Wal-Mart’s acquisition is to further concentrate the buying power of
Wal-Mart to the detriment of local farmers and agricultural producers.
Wal-Mart’s buying power could lead it to exploit the small and comparatively
disorganized farmers and agricultural producers, thereby leading to a
decrease in output. See generally, Jon Lauck, Toward An Agrarian Antitrust:
A New Direction For Agricultural Law, 75 N.D. L. Rev. 449, 474 (1999)
(discussing power buyer considerations in the agricultural arena).
Second, the increased buying power of Wal-Mart in Puerto Rico will have a
ripple effect on the food distribution and retail industries in Puerto Rico.
While Wal-Mart may allege some limited economies of scale and efficiencies
in Puerto Rico from its acquisition of Amigo, it comes at great expense to
the Puerto Rican economy and its citizens, and specifically to the farmers
and distributors that now must face increasing costs and loss of bargaining
power. The geographic barriers of the island limit the alternatives
available to Puerto Rican farmers and food distributors.
Neither the Commission nor Wal-Mart have shown that efficiency gains in
Puerto Rico will result from the acquisition, that there are no alternative
ways to achieve efficiency gains, that the alleged efficiencies will passed
on to Puerto Rican consumers, or that the alleged efficiencies outweigh the
harm to competition. The ability of Wal-Mart to obtain lower prices from
Puerto Rico’s farmers and agricultural producers as a result of its
acquisition of Amigo is not evidence of efficiency, but of monopsony power.
Wal-Mart arguably is already the most efficient retailer in the world. The
Amigo chain will not add to these efficiencies in any significant way, but
the acquisition will greatly increase Wal-Mart’s buying power in Puerto
Rico. The strengthening of Wal-Mart’s buying power in Puerto Rico will
almost certainly rise to the level of monopsony (i.e., Wal-Mart’s ability to
depress the price paid for local products to a level that is below the
competitive price and thereby depress output), and the Commission is in the
best position analyze the monopsony issue and its anticompetitive effects in
Puerto Rico. Unfortunately, the Commission fails to address the monopsony
issue in the Analysis to Aid Public Comment, or provide any information to
allow the public to do anything other than raise questions that the
Commission itself should have answered.
For instance, the Analysis to Aid Public Comment includes Amigo’s 2001
annual sales (approximately $542 million), but does not provide the 2001
annual sales for Wal-Mart’s operations in Puerto Rico or more specifically,
for Wal-Mart’s eight (8) Sam’s Clubs and one (1) Supercenter included in the
Commission’s relevant product market. The use of Wal-Mart’s worldwide 2001
annual sales of over $191 billion serves no useful purpose other than to
raise the monopsony alarms discussed in this public comment. Wal-Mart’s
global sales serve no useful purpose to the competitive analysis of the
Puerto Rican island economy. Furthermore, there is no estimate of the
overall size of the Puerto Rican product market in terms of sales or volume,
save for an approximate number of supermarket locations (250).
Furthermore, the Analysis to Aid Public Comment provides no information
regarding Wal-Mart’s claimed efficiencies or evidence that any savings will
be passed through to consumers. In other words, will Wal-Mart’s buying
power in Puerto Rico lead it to squeeze lower prices from its suppliers,
including local farmers, and if so, will these cost be passed on to
consumers? Wal-Mart’s notoriety for its EDLP (“every day low price”)
strategy should not be a shield to Commission review of the monopsony issue.
In addition, there is little information regarding the Commission-approved
purchaser of the four divestiture locations. All that is known is that
Maximo is a newly-formed entity that includes as “its founders and
management two former long-time members of Amigo's board.” There is no
information to show that Maximo would be a viable competitor on either the
buy-side or the sell-side. There is no information to show that Maximo will
be a viable business. Again, rather than alleviating the competitive
concerns associated with the acquisition, this limited information only
serves to raise more questions and concerns. What are the estimated
annualize sales of the Maximo? Will Maximo have the ability to expand and
aggressively compete with Wal-Mart and Amigo? It seems unlikely that Maximo
will come close to restraining the huge gain in Wal-Mart’s purchasing power
in Puerto Rico from its acquisition of Amigo. The Consent Order is meant to
alleviate any competitive harm resulting from Wal-Mart’s acquisition of
Amigo, but the sale of a few stores to an unproven operator with little or
no buying power falls short of preserving competition, as it existed prior
to acquisition.
In sum, the acquisition of Amigo by Wal-Mart can only be viewed as
decreasing competition in relation to input suppliers, i.e., the farmers of
Puerto Rico. The alleged efficiency gains are unproven, unlikely to be
passed on to Puerto Rican consumers or farmers, able to be achieved through
means other than acquisition, and unlikely to outweigh the harm to
competition.
Conclusion
In order to adequately address the potential anticompetitive effects of this
transaction on the local farmers, agricultural producers and food
distribution industry in Puerto Rico, the OCM urges the Commission to
withdraw from the Agreement Containing Consent Order and the Proposed
Consent Order.
Sincerely,
Michael C. Stumo
Joined by: Puerto Rico Farm Bureau
| |
