Two separate lawsuits against beef packers have been filed in the past week for alleged price fixing. Below, we dig into the allegations and how a few of the defendants are responding. Price fixing in the food industry has become more and more prevalent over the past several years- notably in the chicken, pork and tuna industries. What’s causing this “darker trend?”
Hagens Berman Files Class Action Law Suit Against Beef Packers
Greg Henderson of Drovers reports that a class action law suit was filed by a consumer-rights class-action law firm against four of America’s largest beef packers- Tyson, Cargill, National Beef and JBS. The law firm of Hagens Berman Sobol Shapiro LLP alleges that the beef packers were part of a price-fixing scheme that dates back to January of 2015. The suit was filed in the U.S. District Court for the District of Minnesota, and claims that all consumers who bought fresh or frozen beef products are eligible for reimbursement.
Hagens Berman attorneys claim the beef packers,
“Have been bilking consumers since 2015 by artificially limiting the amount of beef they purchase, process and sell to retail operations.”
Managing partner Steve Berman said,
“Families nationwide have been overpaying for years for beef products they buy routinely, unknowingly paying inflated prices fixed by a scheme to limit beef supplies.”
“The result: this $100 billion industry reaped billions of dollars in extra profits while consumers paid far more for beef than they should have. We intend to put an end to it.”
The beef packers allegedly conspired to obtain maximum profits from manipulating distribution channels. They not only took gains from the ranchers raising the cattle, but also artificially inflated the price of beef for consumers. Their scheme “suppressed the throughput of beef artificially depressing both the amount of cattle they purchased and the amount of processed beef they sold to retail operations.”
It’s alleged that the meat packers colluded on their purchases of cattle from ranchers by restricting their cattle purchases and bid rigging in an effort to lower prices. This practice created an artificial shortage of beef, which in turn, elevated prices paid by consumers.
It’s a matter of common sense that the prices of cattle and beef should move together because beef is simply processed cattle,” said Berman. “But these leading meatpacking manufacturers manipulated the market so this natural economic relationship broke down.”
Express Markets’ Role
It appears that the meat packers obtained assistance from an industry forecasting service called Agri Stats. Information was shared by one of their subsidiaries, Express Markets, which provided them with “supply and demand side analysis and forecasting of cattle numbers and beef supplies as well as domestic and international trade impacts.” Prior to the involvement of Express Markets in the beef industry, margins were significantly lower than the margins for chicken and pork. But by 2018, Tyson and JBS reported higher beef margins than chicken or pork.
R-CALF Files Class Action Lawsuit Against Beef Packers
A similar class action lawsuit was also filed in the US District Court of Illinois last week. Todd Neely of DTN says it’s another beef packer conspiracy to fix cattle prices. The Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA) filed the lawsuit on behalf of four cattle-feeding ranchers in four states.
Defendants in the lawsuit are Tyson Foods, Inc., Tyson Fresh Meats, Inc., JBS S.A., JBS USA Food Company, Swift Beef Company, JBS Packerland, Inc., Cargill, Inc., Cargill Meat Solutions Corp., Marfrig Global Foods S.A., and National Beef Packing Company, LLC. Ten unidentified cattle futures and options traders who trade on the Chicago Mercantile Exchange were also listed. Together, the above named beef packers process 80% of fed cattle in the US.
There are multiple allegations. The beef packers are accused of lowering slaughter volumes to reduce demand for fed cattle while reducing their purchases and slaughter of cash cattle during those same periods. They also may have coordinated their procurement practices for cash cattle, and even imported foreign cattle at a loss in order to reduce domestic demand while simultaneously closing plants. They’re accused of price-fixing, unjustly enriching their businesses, and of violating the Commodity Exchange Act.
This lawsuit aims to collect damages for two classes- the producers who sold fed cattle to one of these companies since 2015, and traders who transacted live cattle futures or options. R-CALF is seeking punitive damages and restitution by jury trial.
The coordination of the beef packers apparently began back in 2015, when they began lowering slaughter volumes and reducing their purchases of fed cattle. This caused a collapse in fed cattle prices in 2015. The allegations also said the following:
“Packing defendants then continued to suppress the price of fed cattle through coordinated procurement practices and periodic slaughter restraint. Packing defendants’ conspiracy — which is confirmed by witness accounts, trade records, and economic evidence — impacted both the physical fed-cattle market and the market for live-cattle futures and options traded on the CME.”
These practices by the beef packers may have depressed prices by an average of 7.9% since January 2015.
Tyson has denied the allegations.
“We’re disappointed this baseless case was filed,” the company said. “As with similar lawsuits concerning chicken and pork, there’s simply no merit to the allegations that Tyson colluded with competitors. This complaint is nothing more than another transparent and opportunistic attempt by attorneys to make money for themselves at the expense of consumers. Tyson operates with integrity every day. We welcome competition, which makes us a better company, enhances the quality of our products and provides more choices at greater value to our customers.”
“We depend on thousands of independent cattle, pig and chicken farmers and ranchers as a vital part of our supply chain. Contrary to the assertions in this lawsuit, Tyson wants its suppliers to succeed. Tyson will vigorously defend itself and its proud heritage of supporting America’s farmers and ranchers.”
Cargill has also pushed back.
“For many years, Cargill has served as a trusted partner to American cattle ranchers, committed to supporting their family farms and livelihoods. We believe the claims lack merit, and we are confident in our efforts to maintain market integrity and conduct ethical business.”
A Closer Look
An example of how Tyson manipulated the live cattle futures and options markets back in 2015 was described. Tyson announced that they were closing their Dennison, Iowa beef plant. This caused price declines in cash and futures markets.
“In particular, the spot or front-month August contract fell $0.004 per pound ($160 per live cattle future) and the October 2015 contract fell $0.01 per pound ($400 per live cattle future). According to one market participant, ‘some feedlots may have surrendered after seeing futures fall earlier in the session, partly on word that Tyson closed a beef plant.'”
Even though the fed cattle prices had collapsed, the packing companies and their wholesale customers continued to benefit from record beef prices.
“The same data demonstrate that packing defendants drastically reduced their purchases of cash cattle during these periods of slaughter restraint. Packing defendants did so in an attempt to ‘back-up’ (that is, create a glut in) the number of slaughter-ready cash cattle and encourage producers to accept lower prices for their highly perishable product. Doing so not only dropped cash cattle prices, but also the prices paid under packing defendants’ formula and forward contracts.
Once they broke the cash cattle trade and created a supply glut, they would ramp up their purchases and reap profits off of the producers.
We’ve Seen This Before
So we’ve got two separate class action lawsuits against “the Big 4” filed in the span of about a week. Larry Lee of Brownfield Ag News reported yesterday that this isn’t the first time the Agri Stats has been involved in this kind of legal action. A similar suit was filed last summer for conspiring to raise pork prices.
Hagens Berman is also covering familiar ground. They’ve taken the lead in similar cases in the protein industry. The firm is currently interim lead counsel on behalf of consumers in cases in the pork and poultry industries against many of the same defendants. They’ve also recovered $52 million for consumers due to anti-competitive actions in the dairy industry.
“A Darker Trend”
We’ve seen more and more price fixing in the food industry in the past several years. It’s become “a darker trend” in the food industry. The National Law Review explains the United States antitrust law, and highlighted a few recent cases in their article, Price Fixing in the Food Industry.
Price fixing is defined as an agreement among competitors that raises, lowers, or stabilizes prices or competitive terms. The U.S. antitrust laws require that each company establish prices on its own without agreeing with a competitor on a price to charge consumers. The driving force behind our antitrust laws is simple: when competitors agree to restrict competition and inhibit a free market, it results in higher prices. And an agreement to restrict production, sales, or output of a product or service is just as illegal as direct price fixing because reducing the supply of a product or service drives up its price.
In January of 2018 poultry distributors filed civil law suits against seventeen of the country’s largest wholesale chicken producers including Tyson, Pilgrim’s Pride, and Perdue for price fixing. It’s alleged that the producers even destroyed breeder hens and killed newly-hatched chicks in order to reduce the supply chain.
In May of 2018, the CEO of Bumble Bee Foods became the fourth tuna industry executive to be criminally charged for price fixing. Bumble Bee pleaded guilty and paid a $25 million fine. Last October, StarKist tuna also agreed to plead guilty on similar charges and would be paying a $100 million in fines. At this time, more than 70 civil lawsuits have been filed against Bumble Bee, Starkist, and Chicken of the Sea as a result of their price fixing efforts.
In July of 2018, pork producers were accused of colluding to limit pork production in order to raise prices.
Several of the lawsuits are still pending, and it’s possible that many of them may be dismissed- as price fixing in general can be difficult to prove. Eventually, all of these court cases will probably erode the consumer confidence and trust in the meat packers- and that could cause a whole new set of problems.