Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Poultry producers charged with price-fixing conspiracy, (Sep 6, 2016)

By Edward L. Puzzo, J.D.

Poultry producers controlling the majority of the market for chicken engaged in a conspiracy to control and reduce the supply of chicken and thereby raise prices paid by purchasers, according to a complaint filed in the federal district court in Chicago (Maplevale Farms, Inc. v. Koch Foods, Inc., September 2, 2016).

Food-service distributor Maplevale Farms brought an action against various poultry producers on behalf of a putative class of direct purchasers of "Broilers" since January 1, 2008. Broilers, representing 90 percent of the chicken meat produced in the United States, are chickens raised for meat consumption slaughtered before the age of 13 weeks. The complaint alleges that a small number of large producers control the supply of Broilers, a commodity with a price-inelastic market. By coordinating a decrease in the supply in the market for Broilers through a conspiracy in violation of the Sherman Act, it is alleged, the producers caused purchasers to pay artificially inflated prices for Broilers.

As a consequence of the inelasticity of supply and demand in the Broiler industry and the availability of the spot market price indices, the complaint alleges, public price increase announcements by defendants were unnecessary to fix prices, because defendants knew and intended that a decrease in supply pursuant to their agreement would increase Broiler spot market prices, and therefore that all Broiler prices would increase. Since January 1, 2008, it is alleged, Broiler prices have risen approximately 50 percent primarily as the result of the conspiracy.

Agri Stats. The complaint notes that in the 1970s, the Department of Justice and civil antitrust plaintiffs stopped the industry practice of holding weekly conferences to discuss Broiler production levels and prices. Instead, the complaint alleges, producers now use non-public production data from Agri Stats, a private company that issues Broiler industry data more detailed than the aggregate data provided by the U.S Dept. of Agriculture (USDA), for the same purpose. Agri Stats secretly facilitates the exchange of information between producers by creating reports only available to the producers. The complaint alleges that in a competitive market, such proprietary, competitively sensitive information would be a closely guarded secret. It further states that there is no plausible, non-conspiratorial justification for the defendants to use Agri Stats to secretly share highly confidential and proprietary information about their pricing, capacity, production, and costs at the level of detail at which they do.

If a single Broiler company reduced Broiler capacity, the complaint claims, there would no guarantee that competitors would do the same, and therefore the company acting alone would simply cede market share to its competitors. However, if an individual producer is reasonably sure that its competitors will similarly reduce capacity and production, Broiler purchasers will be faced with resulting higher prices, which they will have no choice but to pay. The Agri Stats scheme, it is alleged, provides producers with the assurance that their competitors will adhere to the "capacity discipline."

Collusion. In addition to the role of Agri Stats, the complaint identifies various actions taken by individual producers starting in 2008 to advance an industry-wide reduction of capacity and supply and cause prices to rise. It also states there were numerous opportunities for collusion on capacity and supply, including trade association meetings, information from a producers' association promoting U.S. trade abroad which is exempt from certain Sherman Act antitrust provisions, investor conferences, plant tours of competitors, and discussions pursuant to potential mergers, acquisitions, and financing.

The complaint charges that the various producers actively concealed the conspiracy among themselves, which has restrained price competition for Broilers, and fixed Broiler prices at artificially inflated levels, depriving purchasers of the benefits of open competition. The complaint notes that competition regulators in certain foreign countries have charged that collusion is rampant in the worldwide poultry market and their investigations have shown how a price-fixing conspiracy is plausible even in the modern, industrialized reality of Broiler production.

Relief sought. The prayer for relief seeks (1) a determination that the Broiler producers' conduct be deemed an unreasonable restraint of trade, as well as a per se violation of Section 1 of the Sherman Act, (2) an injunction against the defendants continuing these practices, (3) treble damages, (4) costs and (5) attorney fees.

The case is No. 1:16-cv-08637.

Attorneys: Steven Hart and Brian Eldridge (Hart McLaughlin & Eldridge), W. Joseph Bruckner and Heidi M. Silton (Lockridge Grindal Nauen PLLP), Bruce L. Simon and Aaron M. Sheanin (Pearson Simon & Warshaw, LLP), Linda P. Nussbaum (Nussbaum Law Group, PC), and Arthur N. Bailey and Marco Cercone (Rupp Baase Pfalzgraf Cunningham, LLC) for Maplevale Farms.

Companies: Koch Foods, Inc.; Tyson Foods, Inc.; Pilgrim’s Pride Corporation; Perdue Farms, Inc.; Sanderson Farms, Inc.; Wayne Farms, LLC; Mountaire Farms, Inc.; Peco Foods, Inc.; Foster Farms, LLC; House of Raeford Farms, Inc.; Simmons Foods, Inc.; Fieldale Farms Corporation; George’s Farms, Inc., and O.K. Foods, Inc.

News: Antitrust IllinoisNews