Pilgrim’s Pride Agrees to Pay $110.5 Million in Chicken Price-Fixing Plea Deal

nathanlphipps

Nathan L. Phipps
Consultant, Wiglaf Pricing

Published October 15, 2020

Pilgrim’s Pride has agreed to a plea deal with the U.S. Department of Justice over allegations of chicken price-fixing, which will include paying a fine of $110.5 million. The guilty plea, which still must be approved in court, will be the first public admission of guilt for a price-fixing scheme that prosecutors say was active across most of the chicken industry between 2012 and early 2019.

Prosecutors allege that executives and sales managers from various chicken suppliers coordinated with each other and conspired to raise prices. This included comparing notes from negotiations with restaurant buyers and urging each other to raise prices.

The Justice Department initially filed charges in June against Pilgrim’s then chief executive Jayson Penn, a former Pilgrim’s sales manager, and two other executives of a rival chicken company. Last month, Pilgrim’s named Fabio Sandri, previously the chief financial officer, to succeed Mr. Penn, who has been on a leave of absence since mid-June, shortly after the charges were filed.

Then earlier this month, on October 7th, six current and former chicken-industry executives were indicted. Among the indicted was Bill Lovette, the previous chief executive of Pilgrim’s Pride, who retired in 2019. Additional individuals were indicted who work at or have worked at Perdue Farms, Tyson, Koch Foods, Pilgrim’s, Case Farms, and George’s. All defendants could face fines and jail time. All defendants have pleaded not guilty.

Pilgrim's Pride agrees to guilty plea in chicken-industry price fixing investigation

Photo by Brett Jordan on Unsplash

The Justice Department alleges that executives and employees of rival chicken companies frequently called, texted, or emailed each other during competitive bidding processes. Or they would engage in collusion through other means. In one case, a restaurant reached out to Pilgrim’s and Tyson to price frozen chicken. Later that day, a salesperson at Tyson spoke with a salesperson at Pilgrim’s for a few minutes. After that, the Pilgrim’s employee notified the restaurant that they would require an extra fee for freezing the chicken.

Prosecutors subpoenaed chicken companies in 2019 to gather information on their activities. Tyson Foods, the largest domestic chicken supplier by sales, discovered that some of its employees were involved in the alleged activity. Tyson revealed this information to the federal government under a corporate-leniency program and has been cooperating with the investigation.

According to court documents released in July, several supermarket and restaurant chains were potentially harmed by the price-fixing actions, including Walmart, Kroger, KFC, Popeyes Louisiana Kitchen, and Golden Corral. These documents add credence to long-running suspicions of anticompetitive behavior. In recent years, major supermarkets (including Walmart and Kroger) have sued chicken suppliers over alleged coordination of production and price-fixing. Chicken suppliers have generally maintained that higher prices were the result of grain prices, export sales, and other market forces.

So far, 10 people have been charged in the government’s chicken price-fixing investigation. The Justice Department has stated that the investigation is ongoing.

Pilgrim’s says that the plea deal holds that no further charges will be brought by the Justice Department. No probationary period or restitution is required under the plea deal.

The Wall Street Journal reports that Pilgrim’s has been working with the Justice Department since Mr. Penn was charged in June. The information that was provided allowed the government to expand their case, which resulted in a smaller fine for Pilgrim’s.

Pilgrim’s Pride is majority-owned by JBS, a Brazilian meat conglomerate. In 2019, Pilgrim’s had $11.4 billion in revenue with $456 million in profit.

This guilty plea is a continuation of the government’s efforts in recent years to provide antitrust scrutiny to food suppliers. In June, the former chief executive of Bumble Bee Foods was sentenced to 3 years for his role in a canned tuna price-fixing scheme. Bumble Bee pleaded guilty and was fined $25 million. StarKist also pleaded guilty and was fined $100 million.

The Justice Department and the U.S. Agriculture Department are also conducting antitrust investigations into cattle-purchasing in the beef industry, but the government has not alleged any wrongdoing at this time.

References

Bunge, Jacob, and Brent Kendall. “Six Chicken-Industry Officials Are Indicted in Price-Fixing Probe.” The Wall Street Journal. Dow Jones & Company, October 8, 2020. https://www.wsj.com/articles/six-chicken-industry-officials-are-indicted-in-price-fixing-probe-11602085637.

Bunge, Jacob, and Brent Kendall. “Pilgrim’s Pride Reaches Plea Deal With Justice Department on Chicken Price-Fixing Allegations.” The Wall Street Journal. Dow Jones & Company, October 14, 2020. https://www.wsj.com/articles/pilgrim-s-pride-reaches-plea-agreement-with-justice-department-on-chicken-price-fixing-allegations-11602649655.

About The Author

nathanlphipps
Nathan L. Phipps is a Consultant at Wiglaf Pricing. He is responsible for the training preparation and conjoint analysis that supports your company’s pricing project. Nathan will help craft recommendations to help your company manage pricing better. Before joining Wiglaf Pricing, Nathan worked as a pricing analyst at Intermatic Inc. (a manufacturer of energy control products) where he dealt with market pricing and the creation of price variance and minimum advertised price policies. His prior experience includes time in aerosol valve manufacturing and online education. Nathan holds an MBA with distinction in Marketing Strategy and Planning & Entrepreneurship from the Kellstadt Graduate School of Business at DePaul University and a BA in Biology & Philosophy from Greenville College. He is based in Chicago, Illinois.