Thursday, April 18, 2024

Nc trend: Food fight, a courtroom battle between major protein producers and retailers

In the foothills behind the gates of a gray, steaming plant in Wilkesboro, hundreds of Tyson Foods employees slaughter and package chickens around the clock. Cattycornered across the state, Rose Hill-based House of Raeford daily sends tons of turkeys and broilers to tables. Here, tourists visit the world’s largest skillet, able to sizzle 360 fryers at one time. 

In Mount Olive, Butterball’s plant with more than 3,000 workers is as large as a shopping mall. It is eclipsed by Smithfield Foods’ 4,500-worker plant in Tar Heel in Bladen County. They are the biggest of their respective fields, anywhere.

Those are prime examples of North Carolina’s meatpacking industry, says Robert Ford, executive director of the N.C. Poultry Foundation, which represents more than 5,000 turkey and chicken producers. Poultry pumps $40 billion a year into the state, and pork adds $10 billion. 

“When it comes to meat, we’re one of the biggest producers in the United States,” adds N.C. State Agricultural & Technical University economist Kathleen Liang in Greensboro.

By year end, that industry is expected to be locked in a historic courtroom battle in Chicago, following a decade of mostly under-the-radar legal wrangling. Soon to explode into public view are accusations that the industry’s major players manipulated prices and violated the Sherman Antitrust Act. Critics and court documents portray the companies that feed America as a secrecy-driven cartel.

The plaintiffs alleging they were harmed by the meatpackers include retailing giants Kroger, Walmart and Aldi; food distributor kingpin Sysco; and restaurant groups such as Chick-fil-A and Sonic. Giant meat processors have engaged in antitrust violations for years, they claim, colluding to drive up consumer prices and their profits by various measures, including agreeing to limit how much meat they sent to market.  

The defendants deny the accusations. “[Plaintiffs] claim over a 13-year or longer period, the companies got together and restricted volume so prices would increase,” says Henry Jones, an attorney at Raleigh’s Jordan Price law firm who represents House of Raeford and the N.C. poultry group. “We’re talking about 18 to 20 different parties that are all in competition with each other. That’s pretty ridiculous, but that’s the industry side of it.” Adds Ford, “It’s above my pay grade, but it looks like they’re beating a dead horse.”

Officials of several other companies named in the lawsuits declined to comment publicly ahead of trials scheduled for this fall in federal court in Illinois. House of Raeford’s case, now in its seventh year, may be heard as early as September, Jones says.

Virtually all of the state’s major meat producers are either named in the lawsuits, or have been cited in similar legal filings in recent years. That includes Cargill subsidiary Sanderson Farms, which has processing plants capable of processing 2.6 million chickens a week in St. Paul and Kinston; Mountaire Farms, which employs an estimated 1,800 in Siler City; Butterball, which is headquartered in Garner and 51% owned by Kansas-based Seaboard; and privately owned House of Raeford.

The Chicago-based jurist who’s hearing the cases has denied repeated efforts by turkey, chicken and pork processors to dismiss the lawsuits. U.S. Judge Virginia Kendall of the Northern  Illinois District cites evidence of an alleged conspiracy beginning in 2009 in which Butterball and other companies secretly agreed to hold down production. “Prior to that,” she wrote, “turkey prices closely tracked the cost of feed, the primary input cost in turkey production.”

Kendall also cites research showing pork prices increased by 50% between 2008 and 2016, then leveled off at 25% higher than before.

Ag industry observers say stakes are high, befitting the massive size of companies on both sides of the dispute. Last October, Tyson Foods paid the state of Washington $10.5 million to settle a lawsuit accusing the largest U.S. chicken producer of fixing prices and rigging contracts with competitors. Over the past decade, it has paid more than $200 million in settlements. 

Tyson, which has plants in Union and Wilkes counties, denies wrongdoing, while declining to comment. Officials of Butterball and Sanderson Farms also wouldn’t discuss the litigation.

“My client hasn’t settled,” adds Jones, referring  to House of Raeford. “But particularly public companies that have to answer to shareholders are a different dynamic. They may figure the cost of settling is less than going to trial, appeals and so on.”

Much of the controversy centers on producers’ ties to the Fort Wayne, Indiana-based Agri Stats research company, which has a key role in the world of commodity pricing. Formed in 1985 and employing about 100 people, Agri Stats compiles data to provide commodity processors with market information, such as the price of animal feed, wages, wholesale prices and wage rates. It’s called benchmarking.

More than 90% of the meat-protein industry subscribes to Agri Stats monthly reports, which are largely based on data collected from industry players. Before the antitrust issues arose, the Sanderson Farms president said that his company checked its Agri Stats report “every workweek, on Monday morning,” to set the week’s production.

Agri Stats gathers information known only by codes, then disseminates the data to other subscribers. The controversy circles on allegations that the information can be dissected to enable companies to understand what rivals are doing, then act accordingly. N.C. State’s Liang says the information is critical for the big processors. It’s why Agri Stats has been mentioned in more than 90 lawsuits over the issue. 

“It’s all anonymous,” says the lawyer for a N.C. meat company  client. “Anybody who’s a subscriber has an oath of private confidentiality and cannot disclose the code. That cannot be de-anonymized. You can’t see what the other plants are doing.”

Some disgruntled former Agri Stats employees disagree, noting that astute subscribers can easily decipher the codes. In some cases, they have visited competitors’ plants, the company’s critics say. 

Once the major processors gained a clearer understanding of market conditions, plaintiffs allege that the companies worked together to manipulate industry price indices. In some cases, the producers used texts and phone calls to coordinate bids for major buyers such as the fast-food chains that sell millions of chicken sandwiches.  

Agri Stats declined requests for an interview. It has denied wrongdoing  and defended its operations in court. Others note that companies can collect similar information from state and federal agriculture departments through public, daily reports. On a recent weekday, the North Carolina report noted, the “estimated [hog] slaughter for Tuesday” is 3.62 million head compared with 3.55 million a week earlier. It included the average weights of hogs, and other information.

N.C. Agriculture Commissioner Steve Troxler won’t comment directly on the litigation. But he is wary of any result that would hurt the ag industry. “At a time when food insecurity is a growing global issue and when the United Nations anticipates the need to increase food production by 75% by 2050 just to meet demand, we would be concerned with anything that damages our farmers’ ability to produce food.”

Troxler says increasing criticism of “Big Ag”  — namely, the increasingly consolidated food production industry — overlooks the critical role of hundreds of individual farmers in the state raising hogs, chickens and turkeys under contracts with those companies. COVID-19 illustrated the importance of those farmers with many products in short supply,  “but that seems to have been quickly forgotten.”

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