Warm Southern Breeze

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11 States’ Attorneys General Ask DOJ To Investigate Meat Packers’ Price Fixing

Posted by Warm Southern Breeze on Thursday, May 7, 2020

Everything old is new again.

1919 characterization of BIG BUSINESS interests

Earlier, I had written about the obvious, which was that the concentration of meat processing facilities and a corresponding reduction in their numbers, does not portend well for the American consumer, neither for the competitive market, nor for farmers – and ONLY for Wall$treet-traded international conglomerate BIG BUSINESS.


The Attorneys General of Arizona, Colorado, Idaho, Iowa, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, and Wyoming have jointly signed a letter requesting United States Attorney General William Barr to investigate concerns of Price Fixing by the nation’s largest meat packers.

The AGs’ request comes after a March 19, 2020 letter sent from Senators M. Michael Rounds (SD-R), Kevin Cramer (ND-R), Steve Daines (MT-R), and John Hoven (ND-R) to AG Barr urging the “Department of Justice investigate continued allegations of (meat-packer) price fixing within the cattle market and to examine the current structure of the beef meatpacking industry for compliance with U.S. Antitrust law.” Reuters had earlier reported the Senators’ request 30 March.

Drovers, the nation’s oldest livestock publication, and beef industry specific news reporting agency, earlier reported 31 March 2020 that “Cattlemen have complained that surging meat prices due to the COVID-19 crisis hoarding did not translate into higher cattle prices. During the crisis, CME futures prices plunged lower along with the stock market, but wholesale beef prices rose 22% to a peak near $257 per cwt.”

The day prior, 30 March, Drovers reported an increase in beef and poultry production, by writing that “U.S. meat and poultry production increased an estimated 10% during the week ending March 28, according to the Livestock Marketing Information Center (LMIC). Over the past four weeks, combined production of beef, pork, chicken and turkey was up 8.5% compared to the previous year.”

Numerous meat processing facilities nationwide have closed, after many of their employees became sick after infection with COVID-19 novel coronavirus. In response, Tyson Foods CEO John Tyson purchased a full-page advertisement in the Sunday edition New York Times which contained a letter he had written claiming that “The food supply chain is breaking.” Tyson is the nation’s 2nd largest food producer.

The ostensible cause of such plant closures he blamed upon others, not upon his company’s practices, and stated that “there will be limited supply of our products available in grocery stores until we are able to reopen our facilities that are currently closed.”

And on April 12, the American CEO of the Chinese-owned Smithfield Foods had earlier written that “Smithfield Foods, Inc. announced today that its Sioux Falls, SD facility will remain closed until further notice. The plant is one of the largest pork processing facilities in the U.S., representing four to five percent of U.S. pork production.”

On April 28, the Editorial Board of Newsday, a daily newspaper serving the greater New York City, and surrounding areas, wrote in part that,

“The federal government, late to react to the food crisis, must work with meat processing plants to get more protective equipment for workers, clean shared equipment, and reconfigure workstations so that physical barriers create at least six feet of space between them. Farming operations should be more nimble when markets change. Local food banks, which banded together after superstorm Sandy to improve their response to disasters, must do the same for pandemics.

“We can do this. We have enough food. We need to be smarter and better prepared so it’s not wasted and gets to those who need it.”

Soon thereafter, on April 30, Forbes magazine writer Jim Vinoski also took exception to the claims made by the executives, and wrote in concluding part that,

“Dave McLennan, CEO of Cargill, struck a much better note than Tyson did. He’s another guy we should listen to. Cargill is the largest privately-held company in the U.S. based on revenue, producing and distributing agricultural products such as sugar, refined oil, chocolate and turkey, and providing risk management, commodities trading and transportation services. They have sales of $115 billion annually, with $8.9 billion of that in food, and they employ 160,000 people. Appearing on “Leadership Live With David Rubenstein,” he said, “I think I would characterize it as the food supply chain is under strain. But there’s a lot of supply chains that are under strain due to what’s happening… I think basically, the ability of us to produce food is still there… The food industry and the food supply chain is resilient. I think the people that work in it every day are resilient. So I think it’s under strain, but I don’t think it’s broken.””

Even the President has jumped into the fray to investigate the highly-concentrated meat processing industry, and said he has asked the DOJ to investigate if the big industry’s players may have acted wrongly, or broken any laws – particularly the Sherman Antitrust law.

On Tuesday, April 28, citing the Defense Production Act, the President issued an Executive Order for meat processing facilities to remain open. Critics pointed out the obvious, which was that if employees could not come to work because of their own, or others’ sickness or disease, that the executives could not begin to operate those facilities.

A year earlier, following a fire at a Tyson-owned Holcomb, Kansas beef processing facility, Secretary of Agriculture Sonny Perdue had directed the USDA’s Packers and Stockyards Division to launch an “investigation into recent beef pricing margins to determine if there is any evidence of price manipulation, collusion, restrictions of competition or other unfair practices.” His request was supported by the Iowa Cattlemen’s Association, and the National Cattlemen’s Beef Association.

In a 3-page letter dated 5 May 2020, the states’ Attorneys General wrote that,

“The U.S. beef processing market is highly concentrated, with the four largest beef processors controlling 80 percent of U.S. beef processing. In this highly concentrated industry, meat packers have achieved sizeable profit margins. Cattle ranchers, however, who for generations have supplied our nation’s beef, are squeezed and often struggle to survive. Consumers, moreover, do not realize the benefits from a competitive market. In short, with such high concentration and the threat of increasing consolidation, we have concerns that beef processors are well positioned to coordinate their behavior and create a bottleneck in the cattle industry—to the detriment of ranchers and consumers alike.”

Referencing the Justice Department’s document “PRICE FIXING, BID RIGGING, AND MARKET ALLOCATION SCHEMES: WHAT THEY ARE AND WHAT TO LOOK FOR: An Antitrust Primer,” the AGs wrote further that, “In oligopolistic industries, by contrast, firms can engage in tacit — or even express— collusion, providing artificially low prices to suppliers (e.g., farmers and ranchers) and inflating prices to consumers.”

AgWeek, an industry magazine about agricultural markets, also reported May 5 that, “This is not the first time the cattle industry has raised concerns about market manipulation by meat packers. An Aug. 9, 2019, fire at the Tyson plant in Holcomb, Kan., which also tanked cattle prices while sending beef prices higher, led to the U.S. Department of Agriculture starting an investigation, which has been expanded to include investigation of the market conditions during the pandemic. Secretary of Agriculture Sonny Perdue, during an April call with reporters, said that while he could not update progress on the investigation, he remained concerned about the situation and was considering starting a task force on the matter.”

The DOJ document further stated that, “Proving such a crime does not require us to show that the conspirators entered into a formal written or express agreement. Price fixing, bid rigging, and other collusive agreements can be established either by direct evidence, such as the testimony of a participant, or by circumstantial evidence, such as suspicious bid patterns, travel and expense reports, telephone records, and business diary entries.”

The AG’s concerns are, “Given the concentrated market structure of the beef industry, it may be particularly susceptible to market manipulation, particularly during times of food insecurity, such as the current COVID-19 crisis. During an economic downturn, such as that caused by the current pandemic, firms’ ability to harm American consumers through market manipulation and coordinated behavior exacts a greater toll, providing an additional reason for conducting a careful inquiry into this industry.”

The referenced DOJ document they cited called a “Primer” – which “provides only internal Department of Justice guidance” – identifies certain risks for collusion:

Conditions Favorable To Collusion

While collusion can occur in almost any industry, it is more likely to occur in some industries than in others. An indicator of collusion may be more meaningful when industry conditions are already favorable to collusion.

• Collusion is more likely to occur if there are few sellers. The fewer the number of sellers, the easier it is for them to get together and agree on prices, bids, customers, or territories. Collusion may also occur when the number of firms is fairly large, but there is a small group of major sellers and the rest are “fringe” sellers who control only a small fraction of the market.

• The probability of collusion increases if other products cannot easily be substituted for the product in question or if there are restrictive specifications for the product being procured.

• The more standardized a product is, the easier it is for competing firms to reach agreement on a common price structure. It is much harder to agree on other forms of competition, such as design, features, quality, or service.

• Repetitive purchases may increase the chance of collusion, as the vendors may become familiar with other bidders and future contracts provide the opportunity for competitors to share the work.

• Collusion is more likely if the competitors know each other well through social connections, trade associations, legitimate business contacts, or shifting employment from one company to another.

• Bidders who congregate in the same building or town to submit their bids have an easy opportunity for last-minute communications.

Via: Iowa, Minnesota Attorneys General join others calling for investigation into suspected price fixing by meat packers

See also: https://thehill.com/regulation/business/496256-11-state-ags-ask-doj-to-probe-anticompetitive-practices-in-meat-packing

See also: https://www.agweek.com/business/agriculture/6478114-Attorneys-general-urge-federal-investigation-into-meatpackers

See also: https://www.bloomberg.com/news/articles/2020-04-08/usda-will-investigate-meat-packer-margins-after-beef-price-surge

 

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