Georgia dock requirement comes amid price scrutiny

Krissa Welshans and Sarah Muirhead 1, Editors

December 1, 2016

7 Min Read
Georgia dock requirement comes amid price scrutiny

THE chicken price at many grocery stores is based on a single weekly estimate known as the "Georgia dock," but a leaked memo from the Georgia Department of Agriculture (GDA) suggesting that the weekly estimate may not be accurate is adding to growing concerns of the data's validity and prompting GDA to implement at least one change while the issue is being investigated.

The Georgia dock is calculated by GDA and is based on reports from eight anonymous chicken companies within the state.

Julie McPeake, a spokeswoman for GDA, confirmed to the Wall Street Journal (WSJ) on Nov. 22 that the agency will start requiring the reporting companies to submit a signed affidavit and attestation. The attestation will be required for each individual employee submitting information to Georgia's "Poultry Market News" (PMN), and the affidavit will be required of each company.

"This effort is being done to solidify the 'Poultry Market News' reports while ensuring that proprietary information is protected," she said.

According to WSJ, this marks the first time in more than four decades that there has been a major change to the Georgia dock.

McPeake confirmed that both the U.S. Department of Agriculture and the Florida attorney general's office have been pressing GDA for information about how it compiles the index.

Public records show that Pilgrim's Pride and Tyson control about half of the 18 plants contributing to the index. These processors are asked about the amount of chicken parts they've sold and at what price, but the numbers do not undergo independent verification. The price is then often used to determine contracts between chicken producers and supermarkets. As such, the numbers can result in higher or lower prices for consumers.

USDA discontinued publishing the weekly estimate for the Georgia dock price a couple of months ago "when data from the source report could not be independently verified," a USDA spokesperson told the Washington Post.

"It's kind of a black box. Folks really don't know, including the Georgia Department of Agriculture, exactly how it's put together," FarmEcon LLC president Tom Elam said of the Georgia dock price.

Over the last 18-24 months, Elam said Georgia dock whole-bird prices in particular, which used to follow the USDA figures fairly closely, have suddenly diverged on the high side of the USDA price.

In 2014, Elam said the average difference between the two prices was 1.74 cents/lb., with the extremes around 13 cents on the low side and 10 cents on the high side. It kind of flounders up and down versus the USDA quote, he added.

However, Elam noted that, "starting in 2015 and continuing through 2016, the Georgia dock price (difference) has been as high as 30-40 cents/lb., and the USDA price has seldom been below it, if ever. So, people are asking questions. I don't have a good answer for that."

The leaked memo written by Arty Schronce at GDA shed some light on internal concerns about the accuracy of the Georgia dock report. Schronce, who produces the PMN report that contains whole-bird chicken prices, called the PMN a "flawed product that is a liability to the Georgia Department of Agriculture" and said it is time to re-evaluate and examine the product, with the possibility of even eliminating it.

Schronce cited staff shortages and decreased knowledge and experience not only within the GDA office but also within the chicken production companies as main concerns. He called his own training for reporting the news "inadequate, inconsistent and sometimes in error."

From the chicken producers, Schronce said he often received "lackadaisical and rude" responses to his requests, including their suggestions to keep the prices the same or not returning his phone calls.

"In spite of these changes, people still look at the PMN as if it is the same as it was 20 years ago. Clearly, it is not," he said.

Schronce went so far as to say that he questions the validity of some of the information provided.

"Some companies appear to be riding on the coattails of other companies. That is to say that the companies that are providing accurate and valid information are keeping the PMN figures reasonable and explainable," he said. However, "as an example, I do not think I am getting actual weighted average prices from some companies."

The WSJ published a story this past spring raising concerns about possible Georgia dock discrepancies. After the story ran, one of the major reporting companies stopped participating in the PMN and would not provide a reason. Schronce said that company doesn't bear any responsibility now and is "not in danger of having company figures and strategy made public." However, he said he wouldn't be surprised if the company is still utilizing the PMN.

Schronce suggested possible solutions, including shutting down the PMN, transferring the responsibility to the Georgia Poultry Federation so economists and an independent auditor could report the numbers or discontinuing the PMN except for the whole-bird dock price, which could also be handled by the Georgia Poultry Federation.

Two different class action lawsuits have been filed against the major poultry companies claiming that they have conspired to fix and raise prices of broiler chickens over the past eight years.


Company responses

A spokesperson for Tyson Foods told Feedstuffs that the prices reported by the Georgia dock are determined by the state of Georgia, not by Tyson.

"When the Georgia Department of Agriculture asks us for pricing data, we provide accurate information based on actual and recent transactions. We do not see the prices reported by our competitors to the Georgia Department of Agriculture," the spokesperson said.

The spokesperson added that Tyson negotiates many different sales contracts with customers but said only a small portion of its chicken products are sold under contracts with ties to the Georgia dock.

Tom Hayes, president of Tyson, addressed the topic during the company's quarterly results conference call Nov. 21 after questions arose about Tyson's part in the dock price, since it is one of the largest companies to contribute prices to the index.

Hayes said approximately 3.5-4.0% of its total chicken sales are negotiated off the Georgia dock. However, he added that customers can negotiate using whatever index they choose.

He emphasized that Tyson uses "a lot of different pricing mechanisms, and we are diversified; we don't feel like it has significant impact to us, but the Georgia dock has had very little influence on our price and strategy."

Hayes said Tyson has found that the Georgia dock price index is not a good proxy for cost. He added that the company has some very sophisticated buyers who tend to look more at grain inputs than at the Georgia dock. "Certainly, it's got a lot of history, and it's something that's been around for a while, but we find increasingly that our customers are looking to have discussions about where do they think grain is," he said.

When asked, Dennis Leatherby, Tyson executive vice president and chief financial officer, said the company would feel no impact if the Georgia dock "went away."

A Pilgrim's Pride spokesperson said less than 5% of the company's current sales are tied to the Georgia dock pricing index.

"We offer our customers a number of different price discovery mechanisms, including contracts based on cost of production and grain indexes," the spokesperson told Feedstuffs. "Importantly, Pilgrim's diversified business activities in retail, foodservice, prepared foods and export markets, as well as differentiated product offerings — including antibiotic-free, (vegetarian diet-fed) and organic products less dependent on commodity pricing — dilutes the importance of any one pricing index on our business, including the Georgia dock."

Elam said he doesn't think the Georgia dock is a significant part of the industry's pricing anymore. He said many companies are going to cost plus contracts, where they have a formula based on feed costs and maybe some energy costs. This gives the producers a set margin of so many cents per pound over the feed cost.

"This may be a lot of smoke, maybe a little fire there, but it's a really small fire," Elam said. Because the Georgia dock price report is a product of the government and not a private company, however, it becomes a public policy issue, he said.

Volume:88 Issue:12

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