The Big 4 Business Practices Face a Flurry of Law Suits
When the folks at R-CALF saw the recent headlines about "BIG BEEF PACKERS HIT WITH FEDERAL SUBPOENA," they said, "It's about time! Over a year ago, they filed a lawsuit claiming a conspiracy to fix prices. It took a pandemic creating a curiously large discrepancy between the price paid for live cattle and the retail price asked for beef to kick start the judicial process.
Giving some importance to the action, President Trump asked the Justice Department to look into allegations that the Big 4 meatpackers broke antitrust law because the prices paid to farmers and ranchers delined even as supermarket meat prices rose.
"I've asked the Justice Department to look into it. I've asked them to take a very serious look into it because it shouldn't be happening that way and we want to protect our farmers," Trump said at an early May White House meeting attended by Ag Secretary Sonny Perdue and Iowa Governor Kim Reynolds.
The Justice Department is now looking at a suspiciously large and growing 'point spread' in the cattle business. Driven by COVID-19 panic buying, meat sales have been rising since March, but producer profits have been falling. Wholesale prices for processed beef jumped almost 20% while the price paid to ranchers dropped 11% since January, according to Fern's Ag Insider.
Feedstuffs editor Jacqui Fatka reported, "The existence of a conspiracy among the defendants was confirmed by at least one account by a confidential witness ('witness 1')," the court document noted. "Witness 1, who was previously employed by one of the defendants, has confirmed that each of the defendants expressly agreed to reduce its cattle purchase and slaughter volumes with the purpose and effect of increasing their margins. Transactional data and slaughter volume records reported by defendants, information published by the U.S. Department of Agriculture and defendants' public calls for industrywide slaughter and capacity reductions corroborate witness 1's account."
Last week, a federal judge in Minnesota decided to consider whether or not to toss out the several civil antitrust suits against Tyson Foods, Cargill, JBS and National Beef filed by cattle ranchers that accused them of working together to lower the prices of live cattle. Adding extra heft to the R-CALF complaint were similar suits filed by Kraft Heinz, Kroger, Walmart, Sysco and U.S. Foods.
A few weeks later, another hard left hook was delivered by a suit filed on behalf of the trustee for bankrupt Chicago grocer Central Grocers Inc., Strack and Van Til Super Market, and SVT. It asks treble damages and injunctive relief and wants a jury trial.
The Central Grocers suit was filed in Minneapolis federal court and the usual suspects were named: Tyson Foods, JBS USA, Cargill and National Beef. It was another legal action making the same claim: Domination of the American beef market by the Big 4 to limit cattle supplies created significant and artificially higher prices for consumers this spring and suggests price-fixing stretched back to 2015.
Politico's MORNING AGRICULTURE reported, "The Justice Department is seeking information from the companies as part of a civil antitrust investigation, separate from the U.S. Department of Agriculture's probe into potential price-fixing in the industry. None of the meatpackers responded to requests for comment, but National Beef told Bloomberg the DOJ's subpoena was "narrow in scope, which leads us to believe that the DOJ does not necessarily believe there is an antitrust issue."
Politico reported the Big 4 asked the district judge in Minnesota to toss out the cases, which they claim are based on "speculation and gossip."
Avoiding the real issue, Nicole Saharsky, a lawyer for Cargill, told POLITICO, "There are a lot of things the plaintiffs try to say are nefarious but just aren't. A government request for information as reported by the media does not make this complaint more plausible."
Nor does it make the complaint any less plausible.
More bad news for the meat and poultry biggies came last week when federal prosecutors indicted Pilgrim's Price CEO Jayson Penn for fixing prices on broiler chickens. He pleaded not guilty and will fight the charges with all the money and political might JBS wishes to spare. Pilgrims' Pride, a subsidiary of JBS, is the second-largest supplier of broilers, just behind alleged beef pricing co-conspirator Tyson Foods. Also indicted were Mikell Fries, president of Claxton Poultry Farms, and Scott Brady, a vice president. Both men entered not guilty pleas.
So how does price-fixing work? The smoking gun is evidence of collusion, actual discussions between companies aimed at 'fixing' a price for products they produce. If you've attended any kind of trade association event, you've heard the inevitable opening 'housekeeping' statement warning participants not to talk about such things. A gray area, though, is a sufficiently dominant position that allows a company to establish a market price without prior discussion.
If a company is big enough and likely the low-cost producer, it can set the price by simply stating what it thinks is 'correct.' Other companies will usually be forced to follow, happily so if the profit margin is high enough.
Bottom Line I: After decades of 'woofing' from both sides and the occasional inconclusive court case, it is time for the courts to weigh the evidence carefully and make a decision.
Bottom Line II: Trade associations should consider getting in front of these issues instead of defending them until they are no longer viable. A wise man once told me their proper role is to take the industry they serve by the hand and lead it up the mountain. Standing at the bottom awaiting the inevitable avalanche serves no one well.