US Foods, Sysco sue poultry processors
Jan. 31, 2018
by Erica Shaffer
The leading foodservice distributors allege Tyson, Pilgrim's and other companies of price fixing.
KANSAS CITY, Mo. – US Foods and Sysco Corp., two of the largest foodservice distributors in the United States, filed antitrust lawsuits against Tyson Foods, Pilgrim’s Pride, Sanderson Farms, Foster Farms and other companies.
The lawsuit is the latest complaint of fixing prices for broiler chickens made against major poultry processors. Springdale, Arkansas-based Tyson Foods denied any wrongdoing.
“Follow-on complaints like these are common in antitrust litigation,” Tyson said in a statement. “Such complaints do not change our position that the claims are unfounded. We will continue to vigorously defend our company.”
The foodservice distributors accused the poultry companies of manipulating supplies of broiler chickens. In its lawsuit, US Foods alleged the companies illegally agreed to decrease supplies of chicken through “…unprecedented cuts at the top of the supply chain in the form of jointly and collusively reducing “breeder flocks” that produce chickens ultimately slaughtered for meat consumption.” The processors not only eliminated the typical “boom and bust” cycles in the chicken industry by curtailing production, they also “…propped up chicken prices during periods of rapidly falling input costs by, among other means, coordinating supply restrictions and manipulating one or more broiler price indices.”
Sysco and US Foods also accused the processors of artificially manipulating and inflating the Georgia Dock by using competitor information provided by Agri Stats, a unit of Eli Lilly and Co. that collects proprietary information about processors. The Georgia Dock was a leading weekly wholesale chicken price index compiled from a survey of poultry processors operating in the state.
The US Foods lawsuit names Pilgrim’s Pride, Tyson, Fieldale Farms, Perdue, Sanderson Farms, Koch Foods, Claxton Poultry, Harrison Poultry, Mar-Jac and Wayne Farms as participants in the self-reporting and alleges senior executives from eight of the 10 companies were members of a Georgia Dock Advisory Board “…which played a role in the compilation and manipulation of the Georgia Dock benchmark price.”
The Georgia Dept. of Agriculture indefinitely suspended the Georgia Dock in 2016 and launched a new index in 2017.
US Foods argues in the company’s lawsuit that the conspiracy was helped by numerous characteristics of the broiler meat market that make it vulnerable to collusion, including a highly-concentrated market dominated by vertically-integrated poultry producers; numerous opportunities for producers to conspire through “regularly scheduled trade association meetings”; and access to competitor data through Agri Stats, among other factors.
“Indeed, the chicken industry has the hallmarks of an industry susceptible to collusion, including high consolidation, predictable demand in a commodity market, and routine, public display of prices to deter cheating,” court documents state.
Broiler chickens comprise most of all chicken meat sold in the United States. Court documents state the defendants in the lawsuit earn more than $30 billion in annual wholesale revenue and control approximately 90 percent of the wholesale chicken market.
US Foods, based in Rosemont, Illinois and Houston, Texas-based Sysco tried, and failed, to merge after S District Court for the District of Columbia granted a Federal Trade Commission request for a temporary injunction to block the merger.
Sysco announced in 2013 plans to acquire US Foods for approximately $8.2 billion. At the time the merger was announced, Sysco reported $44 billion in sales to restaurant, health care, educational, lodging and other customers, while US Foods reported $22 billion in annual sales.