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What Pilgrim’s Guilty Plea Means for Poultry Price-Fixing Allegations

Last Wednesday the nation’s second-largest poultry processor, Pilgrim’s Pride, announced that it had reached a plea deal with the U.S. Justice Department (DOJ) for price-fixing charges. Their plea hearing in federal court in Colorado will be on November 2nd.

The DOJ has already indicted ten current and former poultry industry executives from Pilgrim’s, Tyson Foods, Claxton Farms, Koch Foods, and George’s for conspiring to fix prices and rig bids for chicken sold to restaurants and grocery stores. Additional unnamed individuals and corporations are implicated in the scheme.

Pilgrim’s will be the first poultry corporation to plead guilty in this federal probe. The corporation will pay a $110 million fine for restraining competition in purchasing contract negotiations with an unnamed customer. Notably, leading poultry processor Tyson Foods will avoid charges because it was the first corporation from the conspiracy to come forward and cooperate with federal prosecutors.

The government’s investigation into the $65 billion poultry industry was likely sparked by several private class-action lawsuits brought since 2016. These suits allege that a massive multi-pronged price-fixing conspiracy turned the low-margin poultry industry into a high-margin business in under a decade, raising prices for buyers and suppressing pay for farmers and workers.

Pilgrim’s plea deal and the DOJ’s indictments challenge only a narrow set of specific bid-rigging efforts, compared to the broader conspiracy alleged by private suits. The DOJ could still file additional charges, but even if they do not, consumers, farmers, and workers will have an opportunity to levy broader claims and seek damages through ongoing private suits.

In September 2016 an upstate New York wholesaler, Maplevale Farms, accused fourteen poultry processors of conspiring to “fix, raise, maintain, and stabilize” the price of chicken since at least 2008 in a class-action lawsuit. The case claims that poultry processors worked together to manipulate a leading poultry price index and reduced chicken production in 2008, 2009, 2011, and 2012 in order to raise prices.

Wholesale chicken prices increased by nearly 50% between 2008 and 2016 even as key input costs, primarily corn and soybeans, fell roughly 20%. Processors reaped record profits. From 2009 to 2016, Tyson’s operating margins grew from 1.6% to 11.9% and between 2012 and 2015 Pilgrim’s grew from 3.8% to 12.77%.

This vast alleged conspiracy hinges on a data-sharing service, AgriStats, that provided corporations with extensive detailed information on each other’s operations to identify possible defectors.

Maplevale’s allegations spurred several similar suits, including analogous price-fixing conspiracies among pork and turkey processors (both of these suits survived motions to dismiss this week). Poultry farmers and plant workers also filed class actions alleging poultry corporations coordinated through AgriStats to hold down their pay.

In June 2019, the Justice Department revealed they were also investigating poultry corporations for price-fixing and temporarily stayed the Maplevale case to prevent private investigations from interfering with their federal probe (the Maplevale case has since resumed).

A year later, the DOJ indicted four current and former poultry executives for criminal price-fixing, including then CEO of Pilgrim’s Pride. Earlier this month, they indicted six more. Only the government can seek criminal price-fixing penalties, which include fines and up to 10 years in prison for individuals.

Criminal antitrust cases are often more targeted than private suits. Unlike private law firms, the DOJ can collect information from defendants before it brings a case. Despite this important investigative advantage, the government tends to bring specific, easier-to-win criminal cases. But only private firms can seek damages for injured parties, and they want to prove broad harms for as many parties as possible.

The DOJ’s indictments include e-mails and texts from poultry executives coordinating annual bids for purchasing contracts with restaurant chains and grocery stores. In one text message, Claxton Poultry’s CEO Mikell Fries told a colleague that Claxton could afford to offer a lower price on a dark meat contract, but after a Pilgrim’s executive shared their proposed offer, he agreed to submit a higher bid.

While we do not know what criminal charges DOJ brought against Pilgrim’s Pride, they are likely aligned with these executive indictments. We do know that Pilgrim’s will only plead guilty to a “restraint of competition” in three contract negotiations with just one customer and that the corporation will pay a $110 million fine. That’s nearly one-fourth of Pilgrim’s 2019 net income and Pilgrim’s said it will write off the fine as “a miscellaneous expense” in its third-quarter financials. The Wall Street Journal reports Pilgrim’s received a smaller fine for cooperating with the investigation.

Even with this guilty plea and damning transcripts from poultry executives, the government’s charges do not directly prove the case for broader class actions. Pilgrim’s will claim they only conspired to rig these three bids, nothing more.

While $110 million is a steep fine for what Pilgrim’s will plead to, it is likely inconsequential compared to what they may have gained from an alleged industry-wide conspiracy. Private cases will be able to seek additional charges and damages, and former DOJ antitrust attorney, Peter Carstensen expects further settlements. “My guess is that … the defendants’ lawyers have been talking to their clients about what they can put up,” Carstensen says. “I think there’s enormous pressure to settle right now.”

It also remains to be seen if the government will seek civil remedies and injunctions that order corporations to change their behavior, such as forbidding certain information exchange. Several private class-action cases ask for injunctive relief in addition to damages.

And in the absence of civil remedies, Carstensen notes that the Department of Agriculture has the power to introduce new regulations for consolidated agricultural markets prone to white-collar crime. “The U.S Department of Agriculture under the Packers and Stockyards Act has authority to adopt rules regulating marketing practices in livestock and poultry,” says Carstensen. “USDA [could] adopt some new rules regulating information exchange in poultry.”

Find and share this story originally published on Food & Power.

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