“WE SHOULD NOT HELP THEM ONE MICRON,” and other dispatches from a vast chicken conspiracy
Poultry company executives are indicted on antitrust charges after years of federal investigations into price-fixing on America’s most ubiquitous protein.
A federal grand jury on Tuesday indicted the chief executive of Pilgrim’s Pride Corporation, Jayson Penn, and three other current and former poultry industry executives on antitrust charges for their role in a conspiracy to fix prices for broiler chickens.
The grand jury charged that executives from Pilgrim’s Pride, Claxton Poultry, and other unnamed co-conspirators worked together to “suppress and eliminate competition” by communicating with one another behind the scenes as they negotiated with grocery stores and restaurant chains between 2012 and at least early 2017.
“Executives who cheat American consumers, restauranteurs, and grocers, and compromise the integrity of our food supply, will be held responsible for their actions,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division in a press release.
Phone records, text messages, and emails show representatives from different companies conferring extensively with each other as they set product prices
This is the latest in a long line of price-fixing-related accusations and lawsuits in the food industry over the last couple of years. The former CEO of Bumble Bee Tuna was found guilty of fixing prices on canned tuna in December of 2019. The same month, several milk co-ops agreed to pay a $220 million settlement in a lawsuit alleging that producers had pre-emptively retired dairy cattle, though the settlement included no admission of wrongdoing. Beef processors are currently under investigation as well, as profit margins have evidently soared during the Covid-19 pandemic.
Investigations into price-fixing have plagued poultry producers for a number of years. In 2016, controversy erupted over allegations that producers had been manipulating a price index called the Georgia Dock that was often used to set wholesale prices. Pilgrim’s Pride was implicated at the time.
Now, in 2020, the charges outlined in this indictment allege a conspiracy which, if the Georgia Dock allegations were true, would amount to price fixing on top of price fixing at Pilgrim’s Pride.
Quick primer on poultry pricing: Much of the time, suppliers negotiate chicken prices with grocery stores and fast-food chains a year in advance. Since the cost of producing chicken fluctuates over the course of the year as the price of feed and other inputs goes up and down, they agree on formulas pegged to a relative price, often an industry-wide index. A buyer and seller might agree that the price of chicken thighs will stay 30 cents per pound below an agreed-upon index, like the Georgia Dock or the Urner-Barry index, for the whole year. Then, as the index rises and falls, so does the price of chicken—but the agreed-upon discount (or premium) stays the same.
In a series of emails about a fellow supplier who had come up short in production, executives discussed whether or not they should offer product to the customer in order to avoid a grocery store shortage.
The allegations in 2016 centered around that first index, the moving target on which price equations are based. At the time, a leaked memo cast doubt on the legitimacy of the Georgia Dock, an index which was run by one Arty Schronce, a gardening columnist at the Georgia Department of Agriculture. It turned out that the Georgia Dock was based on phone calls Schronce had made to the big chicken companies, and he had begun to suspect they were lying to him. (It was later revealed that the memo was unearthed by a bunch of Wall Street guys who had shorted poultry industry stocks and then gotten frustrated when their bets didn’t pay off. They hired a lawyer to investigate, who found the memo and leaked it to the press the next day. You really can’t make this stuff up.)
The new indictment alleges that the poultry industry was also colluding to fix prices on the other side of those index-based formulas—the side where they negotiate discounts with customers.
Got all that? Good.
According to the indictment, on multiple occasions between the fall of 2012 and early 2017, poultry industry executives back-channeled with one another as they negotiated with customers to ensure that they were offering similar prices. Phone records, text messages, and emails show representatives from different companies conferring extensively with each other as they set product prices, at one point even joking about charging a customer a “special A-Hole Premium.”
“We are enabling the town drunk by giving him beer for Thanksgiving instead of walking him into an AA meeting.”
The executives also allegedly colluded to “protect the purpose and the effectiveness of the conspiracy.” In a series of emails about a fellow supplier who had come up short in production, executives discussed whether or not they should offer product to the customer in order to avoid a grocery store shortage. “We are enabling the town drunk by giving him beer for Thanksgiving instead of walking him into an AA meeting,” chief executive of Pilgrim’s Pride, Jayson Penn wrote, adding, later, “They need to pay so they start acting appropriately. How do they pay? Their customers need to feel the pain.”
A colleague responded, “WE SHOULD NOT HELP THEM ONE MICRON.”
If convicted, the executives could face up to 10 years in prison, though Politico notes no individual convicted of price-fixing has ever been sentenced to more than six. None of the defendants have announced how they will plead.