Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Grocery chain alleges conspiracy by producers, distributors to fix egg prices, (Sep 5, 2014)

By Linda O’Brien, J.D., LL.M.

Food processor and distributor, Michael Foods, engaged in a conspiracy with egg producers, marketers, sellers, and their trade organizations to fix the prices of shell eggs and egg products by substantially reducing the supply of eggs in the United States, according to a complaint filed in the federal district court of Philadelphia (Marsh Supermarkets, LLC v. United Egg Producers, Inc., September 4, 2014).

United Egg Producers (UEP) is the largest egg trade organization in the United States and is composed of regional cooperatives and individual member farms. United Egg Association (UEA) and United States Egg Marketers (USEM) are divisions of UEP and provide services to the egg industry. Marsh Supermarkets is a retail grocery chain with supermarkets in Indiana and Ohio. Marsh purchased shell eggs and egg products from Michael Foods, a large food processor and distributor.

The complaint alleges that, in 1999, UEP invited its members to agree to reduce the supply of eggs. Its poultry economist determined that the defendants could coordinate a reduction in supply by implementing (1) an industry-wide policy; (2) removing birds from the flock; (3) a two-to-three percent reduction in chick purchases; and (4) an increased minimum floor space allowance. UEP members voted on the proposals and agreed to a reduction in flock inventory and the development of a chick reduction program.

In 2000, the defendants implemented a program known as the “UEP Certified Program,” under which producers would gradually reduce the number of hens per cage. Under the guise of “animal husbandry,” the UEP Certified Program was created as a pretext for the coordinated price fixing scheme, Marsh charged. Subsequently, the defendants agreed to devote 100 percent of their production to the UEP Certified Program and not “backfill” to make up for the hens lost as a result of the increased cage space requirements, the complaint alleges.

According to the complaint, the defendants conducted the conspiracy in private, communicating in closed door meetings, or by letters or emails among their co-conspirators. In these communications, the defendants were candid in their expectations that the animal husbandry program would have the effect of raising egg prices. They agreed to conceal the anticompetitive conduct by representing to egg buyers that the UEP Certified Program was motivated by animal welfare concerns. The defendants also engaged in a multi-year, multi-million public relations campaign designed to deceive the public and egg buyers.

The FTC investigated the UEP’s use of the certification program as being potentially misleading. In 2005, the UEP settled claims from 16 state attorneys general that the program offered human care were misleading.

The complaint states that the egg industry consists largely of fully vertically-integrated companies that control every stage of the production and sale of their products. The single greatest influence on the price of eggs is supply. Even small reductions in production can cause egg prices to rise sharply. Also, eggs are largely a homogeneous commodity and the demand for eggs is relatively inelastic as there are no viable substitutes for eggs and eggs have characteristics that are unmatched by other products.

The plaintiff asserts claims for restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:14-cv-05074-GP.

Attorneys: Bernard D. Marcus, Moira Cain-Mannix, and Brian C. Hill (Marcus & Shapira LLP) for Marsh Supermarkets, LLC.

Companies: Marsh Supermarkets, LLC; United Egg Producers, Inc.; United Egg Association; United States Egg Marketers, Inc.; Hillandale Farms of Pa., Inc.; Ohio Fresh Eggs, LLC; Michael Foods, Inc. Rose Acre Farms, Inc.; National Food Corporation; Cal-Maine Foods, Inc.; Daybreak Foods, Inc.; Midwest Poultry Services, L.P.; NuCal Foods, Inc.; R.W. Sauder, Inc.

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