Poultry growers recently filed a federal lawsuit against Tyson Foods, Perdue Farms, and other poultry integrators under the Sherman Antitrust Act and the Packers and Stockyards Act ("PSA"). The Growers alleged the integrators have shared data about the individual Growers without aggregating or anonymizing the information. According to the complaint, the integrators have an agreement based on this shared data not to compete for Growers' services. Todd Janzen wrote an article focusing on the ag data implications of the case. This article looks at the anti-trust aspects of the lawsuit. According to the lawsuit, the purpose and effect of the arrangement between the integrators is to fix, maintain, and/or stabilize Grower compensation below competitive levels.
Growers provide data to Agri-Stats (an ag data company based in Fort Wayne, Indiana), including compensation, breed, genetics, equipment, broiler weight, feed, medicine, transportation costs, mortality rates, average weight, monthly operating profit, and geographic location of each complex. According to the complaint, the integrators share this detailed Grower information with each other broken down by farm, flock, and plant. The result is each integrator knows the base compensation paid to each Grower by every other integrator for each specific location. The integrators therefore can monitor each other's compensation to Growers to ensure no integrator is paying more than its competitors. This information is not shared with the Growers (who are typically subject to strict confidentiality clauses). The complaint also alleges the integrators have agreed not to poach or recruit Growers from each other.
The complaint contends there are numerous "plus factors" in the broiler industry which make it more susceptible to anti-competitive anti-trust operations. These alleged factors include:
- high entry barriers for integrators (high costs to build processing plants and to distribute large numbers of broiler chickens);
- high exit barriers for Growers (substantial debt incurred to build barns and equipment to meet integrators' contractual requirements);
- steady market supply for broilers;
- no substitutes for broilers or the broiler system (little to no opportunity for Growers to sell broilers elsewhere);
- industry consolidation/vertical integration; and
- numerous opportunities for the integrators to collude (industry meetings, conferences, and visits to each other's complexes).
Historical changes in the broiler industry are reviewed in the complaint, including the move toward vertical integration over the last 30-40 years. The complaint claims vertical integration has led to well-known competition issues in the broiler industry, as noted in several recent USDA reports. The Growers allege the integrators have monopoly power in the relevant market (the United States) and have created anticompetitive effects in the market, keeping Growers mired in debt subject to the integrators' heavy demands with no possibility of earning competitive compensation.
The plaintiffs (the Growers) filed the lawsuit as a class action on behalf of themselves and all others similarly situated who have been paid for providing broiler grow out services by the integrators since 2013. The Growers' complaint include two counts:
- violation of the federal Sherman Act (antitrust actions designed to suppress compensation below competitive levels); and
- violation of the federal PSA (exchanging Grower data with the intent and effect of suppressing Grower compensation).
This class action lawsuit is the first I know of to directly challenge the poultry vertical integration system to this extent. The case will test the Sherman Antitrust Act's application to the agricultural industry and relies on the PSA. As I've written before, in late 2016 the USDA promulgated new GIPSA regulations under the PSA directly applicable to competition in the poultry industry and the tournament paying system. However, the new Trump administration stayed implementation of these regulations for now. It will be interesting to watch this class action lawsuit play out in light of the GIPSA rules currently in limbo. Will other Growers join the suit? Do they have valid claims? What will the integrators' defense look like? Stay tuned...