The Price-Fixing Scandal Rocking Big Chicken

Multiple lawsuits allege that top poultry companies colluded to make broilers more expensive.

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The biggest poultry processors in the United States face widespread allegations that they colluded to raise prices over the course of 10 years in the $30 billion broiler chicken market. In just three weeks, two grocery retailers and the country’s two biggest food distribution companies filed lawsuits against Tyson Foods, Perdue Farms, Pilgrim’s Pride, Koch Foods, Sanderson Farms, and others.
Produced with FERN, non-profit reporting on food, agriculture, and environmental health.

The complaints all allege that since 2008, many top poultry companies have engaged in a price-fixing conspiracy, assisted by information-sharing software. Consequently, suppliers and retailers argue that they paid too much for chicken—a burden that has likely been felt by consumers, too.

The broiler chicken market comprises virtually all chicken consumed in the United States. Historically, broiler chicken was priced on a boom-and-bust cycle — when prices for chicken went up, so did supply; then prices would fall. Craig Watts, a former Perdue farmer, said in an interview that “prior to 2008, the chart [of broiler prices] was like an EKG.”

But then, as Watts puts it, “it’s been boom for the past 10 years or so.” Plaintiffs in these lawsuits allege that starting in 2008, prices for chicken suddenly stabilized and began to rise, even as the inputs those companies sold to farmers fell. They allege that this stabilization was a result of collusion among the companies, made possible in part by a piece of database software called Agri Stats.

Several poultry companies have denied the allegations or declined to comment.

Through Agri Stats, poultry companies can share information about production numbers, bird sizes, financial returns, and more. The database company gathers information from 95 percent of poultry processors and tracks 22 million birds a day. Companies can then use this information, according to farmers, retailers, and distributors, to set a higher price for their products. In a 2017 report on Agri Stats, Bloomberg found that between 2009 and 2016, Tyson’s operating margins grew from 1.6 percent to 11.9 percent. At Pilgrim’s Pride, between 2012 and 2015, operating margins grew from 3.8 percent to 12.77 percent.

The first lawsuit brought against the processors was a class action filed by a food wholesaler, Maplevale Farms, in September 2016. That suit alleged that from 2008 onward, Tyson and Pilgrim’s Pride coordinated their efforts to reduce their broiler stock and forced a “nearly 50 percent increase in Broiler wholesale prices since 2008, despite input costs (primarily corn and soybeans) falling roughly 20 percent to 23 percent over the same time period.” Maplevale claimed that consequently, it paid inflated prices for chicken over the course of several years.

Following that class action, other supply chain actors began to take their stand against the processors. Several farmers filed a class action lawsuit against Tyson, Pilgrim’s Pride, Perdue, Koch, Sanderson, and others in January 2017, alleging that the processors had acted as a cartel and used information from Agri Stats to keep farmers’ wages down. In April 2017, Chicken Kitchen, a restaurant franchiser, brought a similar lawsuit against Tyson Foods, alleging that the company had “conspired to fix, maintain, and stabilize the price of Broilers by limiting production with the intent of increasing Broiler prices in the United States.” On January 12, the Southern supermarket chains Winn-Dixie and Bi-Lo filed suit against Koch Foods, Tyson, Pilgrim’s Pride, and others alleging that the processors had restricted supply in order to keep prices high. US Foods and Sysco followed with their separate lawsuits on January 30.

Extreme consolidation in the poultry processing sector precipitated these and other allegations of anticompetitive conduct among the top companies. Tyson and Pilgrim’s Pride alone control 40 percent of the market. Sanderson Farms, Perdue, and Koch Foods control another 20 percent.

Farmers have fought for years to reform contract poultry farming. More than 95 percent of chicken production in the United States is done under contract. Contract poultry farmers are paid in an opaque “tournament system,” which pits farmer against farmer in a zero-sum pay structure. Many farmers allege that poultry companies use the tournament system to suppress farmers’ wages and restrict farmers’ abilities to move among processors.

Farmers succeeded in getting the Obama administration’s Department of Agriculture to take on rule making that would have addressed some of their concerns. But the resulting efforts—known as the “GIPSA rules” for the agency within the USDA that oversees competition issues in the livestock sector—were killed by the Trump administration last October.

Because these lawsuits are private litigation, they will likely not result in structural reform to the poultry sector, says Peter Carstensen, a law professor at the University of Wisconsin-Madison who researches competition and regulation in the meat sector. And, he says, the lawsuits probably won’t have “much effect” on the “very serious problem” of how processors “exploit the farmers who raise their chickens.”

But “the first step in reform in terms of their collective seller power is to significantly change the kind of information that Agri Stats can provide to chicken processors,” he says. And these lawsuits may set off a sea change in how seriously the public, and regulators, take allegations of ongoing collusion in the poultry processing sector.