Price-Fixing in the News: Chicken Producers

nathanlphipps

Nathan L. Phipps
Consultant, Wiglaf Pricing

Published June 17, 2020

Things in the chicken industry have been a bit tumultuous recently. This is an active story, so new details may emerge after this article is published.

The Wall Street Journal reported on June 16th that the CEO of Pilgrim’s Pride, Jayson Penn, has started a leave of absence after the U.S. Justice Department indicted him in early June for a conspiracy to fix chicken prices. Mr. Penn has pleaded not guilty, and his trial is scheduled to begin in August.

In addition to Mr. Penn, the Justice Department indicted three other poultry industry executives in what the government claims is a long-running effort to fix prices and rig bidding in negotiations with restaurant chains. Justice Department lawyers allege that executives at Pilgrim’s, Claxton Poultry Farms, and other chicken companies shared pricing information via phone calls and text messages during negotiations with restaurant chicken buyers. All of the defendants have pleaded not guilty.

Tyson Foods, the biggest U.S. meat processor by sales, announced last week that it is cooperating under a Justice Department leniency program. The program will allow Tyson to avoid prosecution provided that it aids in the continuing probe of other poultry suppliers. Additionally, it can secure limits on monetary damages from the same conduct that it could have to pay in private civil litigation. (Tyson did not appear by name in the indictment, but the Wall Street Journal reports that people familiar with the charges say Tyson is identified as “Supplier-3” in court papers.)

The Justice Department indicted Pilgrim's Pride CEO and three other poultry industry executives in what the government claims is a long-running effort to fix price.

It appears as though the alleged price-fixing behavior in question dates back to 2014 and 2015. In one incident from March 2015, the indictment details a request from a purchasing cooperative for a discount on chicken. An employee from the company identified as Tyson then spoke to employees at Pilgrim’s, Claxton, and another chicken company the following day. Some of the discussions only lasted 30 seconds.

Tyson agreed to offer the discount one day later. The Justice Department alleges that the Tyson employee then communicated with employees of Claxton and another, unnamed chicken company.

The COVID-19 environment has caused some supply chain issues for meat producers, leading to higher prices and sometimes empty shelves. This has caused greater federal scrutiny of the meat industry. It has also led to some civil lawsuits from supermarket chains, restaurants, and consumers. In response to pressure from livestock producers and some state attorneys general, the U.S. Department of Agriculture has opened an investigation into meatpackers’ cattle-purchasing practices, and the Justice Department has issued civil subpoenas to producers of beef and pork.

More details are sure to emerge as this case proceeds through the courts. I do not have any legal training for my opinion to hold much weight. But demonstrating price fixing requires demonstrating that there was an agreement about price, whether explicit or implied. It seems to me like having 3 or 4 major chicken producers agreeing on discount levels for their product could fit the bill.

It also appears as though Tyson will benefit from the central role that the Justice Department’s leniency program takes in investigations. Price-fixing investigations frequently involve a company seeking leniency. The Justice Department has described its leniency program as “its most important investigative tool for detecting price-fixing cartels.” Tyson claims that it reported the internal conduct it uncovered right away.

Although it appears as though the behavior covered by the indictment is from several years in the past, the background of COVID-19 is not a good time for charges of price-fixing to emerge. Consumers are paying more attention to which products are available on store shelves and which are not. Likewise, consumers are paying attention to how firms are adjusting their prices (or how they are keeping prices steady). If allegations of price-fixing are substantiated, it could create a dark cloud over purchasing behavior for the perpetrators. As far as whether this will be a short-term or a long-term impact, only time will truly tell.

References:

Bunge, J. (2020, June 15). Pilgrim’s Pride CEO Begins Leave to Focus on Price-Fixing Charges. Retrieved June 17, 2020, from https://www.wsj.com/articles/pilgrims-pride-ceo-begins-leave-to-focus-on-price-fixing-charges-11592229346

Kendall, B., & Bunge, J. (2020, June 10). Tyson Foods Cooperating in U.S. Probe of Chicken Price-Fixing. Retrieved June 17, 2020, from https://www.wsj.com/articles/tyson-foods-cooperating-in-u-s-probe-of-chicken-price-fixing-11591819260

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.