Colorado-based Pilgrim’s Pride included in lawsuit alleging price fixing
February 2, 2018
Greeley, Colo.-based Pilgrim's Pride has been included in a federal lawsuit charging that 17 U.S. chicken companies colluded to fix prices and artificially boost profits for eight years, ending in 2016.
Distributors Sysco Corp. and U.S. Foods Holdings Corp. filed the 131-page lawsuit last week in U.S. District Court, charging the defendants "reached illegal agreements," through which they "successfully implemented supracompetitive chicken prices to Sysco and other purchasers throughout the United States."
The lawsuit accuses chicken producers of working together to reduce the supply of chickens and also coordinating efforts to set the retail price for them between 2008 and 2016.
The lawsuit is one of several pending against the chicken producers. The allegations date back at least to a 2016 lawsuit filed by New York-based Maplevale Farms.
In a statement issued Thursday, Feb. 1, Pilgrim's officials state: "Pilgrim's believes the case is completely without merit. We look forward to defending our interests through the appropriate legal process."
The defendants include Tyson Foods, Perdue Farms and Foster Farms. Tyson spokesman Gary Mickelson said Tyson plans to continue defending its actions. He said the Springdale, Ark.-based company believes the claims are unfounded.
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The lawsuit filed last week states that one defendant, Georgia-based Fieldale Farms, has already agreed to pay $2.25 million to settle the claims. The lawsuit states that the antitrust section of the Florida Attorney General's office is investigating the industry for anticompetitive practices.
Specific to Pilgrim's, the lawsuit alleges officials submitted false and artificially inflated price quotes to the Georgia Dock, a weekly benchmark price compiled by the Georgia Department of Agriculture. The Georgia Dock was a self-reported index from a group of 10 chicken producers, including Pilgrim's, the lawsuit states. Senior executives from these companies also served on a private advisory board for the Georgia Dock, "which played a role in the compilation and manipulation of the benchmark prices," the lawsuit alleges.
According to the lawsuit, prior to 2008, when the fix was in, the chicken industry was a boom and bust cycle, in which producers increased production in response to rising prices, which caused oversupply, and a subsequent drop in prices.
Faced with "cratering prices and anemic profits," the defendants "collectively began cutting their ability to ramp up production by materially reducing their breeder flocks, a significant shift," the lawsuit alleges. The manipulations "effectively eliminated their ability to meaningfully increase supply for years," the lawsuit states. Publicly, the practice was called "discipline," the lawsuit alleges.
Yet, the conduct effectively padded the companies' earnings so much that an online news agency estimated U.S. consumers had been overcharged for chicken by more than $3 billion per year as a result of the collusion, the lawsuit stated.
The lawsuit alleges that officials from Pilgrim's and Tyson — together commanding 40 percent of the market — worked together to boost prices in 2008, instigating broader cooperation among major producers, forming the foundation of the alleged eight-year scheme. By destroying flocks to increase prices, which resulted in a nearly 50 percent increase in wholesale chicken prices since 2008, the companies reached record profit levels, the lawsuit states. The manipulations also resulted in companies shuttering production plants, with thousands of employees losing their jobs. As evidence, the lawsuit takes snippets from several investor earnings calls, in which executives discuss their efforts to control flocks and balance the supply and demand.
"The industry is doing an admirable job in being disciplined," CEO Bill Lovette is quoted as saying in one Pilgrim's earnings call in May 2013, representing the practice of controlling flock size as an industry standard. A year later, reflecting on the company's record earnings, the lawsuit states, Lovette again credited the practice.
"I think that discipline really … is the one ingredient that has made for more stable earnings that we have seen," he said. ❖
— The Associated Press contributed to this report.