Justice Dept. intervenes in major poultry price-fixing case

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Justice Dept. intervenes in major poultry price-fixing case

By  June 24, 2019

The Department of Justice intervened Friday in a landmark price-fixing suit against the country’s biggest poultry companies, possibly signaling that its own grand jury investigation into the chicken sector could result in criminal indictments.

The DOJ asked the U.S. District Court for the Northern District of Illinois to stop discovery in the class-action lawsuit brought by food distributor Maplevale Farm, saying in a motion that “a limited stay is needed to protect the grand jury’s investigation.” The stay, which applies to “all defendant employee and former employee depositions,” was granted on a temporary basis, pending a hearing Thursday on DOJ’s request for a six-month stay.

“This is significant,” said Peter C. Carstensen, a professor of law emeritus at the University of Wisconsin at Madison law school, who formerly served as an attorney in DOJ’s antitrust division. The intervention signals that the DOJ “thinks that there’s a real serious violation–one or more violations–here that require grand jury inquiry and the potential for criminal indictment.”

“The probability that there was not just an antitrust violation but a criminal violation is such that they now want to stay the discovery so that the grand jury gets first shot at these alleged felons,” he added.

The DOJ antitrust division declined to comment.

The landmark Maplevale lawsuit alleged that the biggest poultry companies–Koch Foods, Pilgrim’s Pride, Tyson Foods, Sanderson Farms, Perdue Farms, Mountaire and other poultry giants–coordinated prices between 2008 and 2016, resulting in a 50 percent price hike for broiler chicken. They took this action “despite input costs (primarily corn and soybeans) falling roughly 20 percent to 23 percent over the same time period,” according to the complaint. The defendants in the case control about 90 percent of the country’s poultry sector.

The lawsuit alleges the companies colluded on price hikes by relying on Agri Stats, asecretive information sharing service used by the poultry companies. It also alleges the companies manipulated a now-defunct poultry price index called the Georgia Dock to raise chicken prices.

Other companies, including Conagra, Sysco, and Walmart, have filed suits echoing the Maplevale allegations over the past two years, alleging that the companies colluded to fix chicken prices at artificially high levels. Farmers have also alleged in separate litigation that the top poultry companies used Agri Stats to coordinate and suppress farmer wages.

Poultry companies have denied the allegations in court documents and comments to the media.

Tyson Foods revealed in a May quarterly filing that plaintiffs in the Maplevale case had been subpoenaed in April as part of a DOJ grand jury investigation, but little has been known about the status of the probe. Carstensen says it appears the DOJ investigation is heating up, since it has been weeding through subpoenaed Tyson information for several weeks.

“Given what they already possessed, they’ve got to think there’s something pretty serious here and that they’re a fair way into conducting their investigation,” he said.

“We are aware of the Department of Justice’s request, which does not change our view that there is simply no merit to the allegations that Tyson Foods colluded with competitors,” said Tyson spokesman Gary Mickelson in a statement. “We remain committed to vigorously defending ourselves against these baseless allegations.”

In its investigation, the DOJ could bring charges against any of the defendants named in the Maplevale suit, and possibly “individuals who have particularly significant roles,” such as corporate executives, said Carstensen.

That might include Agri Stats. The Fort Wayne-based company, owned by pharmaceutical giant Eli Lilly, produces subscription-only reports on pricing and production information from 95 percent of poultry processors. The company’s founder told Bloomberg Businessweek in 2017 that the company “tracks and stores data on the health and profitability of 22 million chickens every day.” Agri Stats reports include granular information on the revenue of individual poultry processing plants, the output of those plants, and the price of the output per pound. The allegations of price-fixing and wage suppression in the poultry sector nearly all focus on Agri Stats as a key player.

The poultry industry is extremely consolidated, with just two companies, Tyson and Pilgrim’s Pride, controlling 40 percent of the market. The top 10 poultry companies control nearly 80 percent of the market. That economic concentration has given the companies extraordinary power over chicken pricing and also over poultry growers, who virtually all operate under contracts with strict terms about bird feed, housing, and care. Many farmers raising the nation’s 8.5 billion broiler chickens can barely stay afloat financially.

Updated 6/25/19 to add Tyson comment and corrects that plaintiffs were subpoenaed in April, not Tyson. 

Link to original article: https://thefern.org/ag_insider/justice-dept-intervenes-in-major-poultry-price-fixing-case/