By Brent Kendall and Jacob Bunge
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 4, 2020).
The chief executive of one of the country's biggest chicken
producers and three other industry executives were indicted
Wednesday on charges they conspired to fix prices on chicken sold
to restaurants and grocery stores, the Justice Department's first
charges in a continuing criminal antitrust probe.
Pilgrim's Pride Corp. CEO Jayson Penn and a former company vice
president, Roger Austin, were charged in the one-count indictment,
returned by a federal grand jury in Denver. Colorado-based
Pilgrim's, majority owned by Brazilian meat conglomerate JBS SA, is
the nation's second-largest chicken producer. Also charged were the
president of Georgia-based Claxton Poultry Farms, Mikell Fries, and
a vice president, Scott Brady.
The indictment, filled with alleged instances of cozy
discussions about pricing and text messages about holding the line
on bids to customers, charged the executives with colluding to fix
prices and rig bids from 2012 to 2017. The charges also referenced
other unnamed executives and chicken suppliers and suggested the
sharing of pricing information extended beyond the alleged
discussions between Pilgrim's and Claxton.
Neither Pilgrim's nor Messrs. Penn and Austin responded to
requests for comment. A Claxton spokesman declined to comment. The
companies have previously denied allegations of coordinating
prices.
The charges sent share prices across the $65 billion chicken
industry sharply lower. Pilgrim's dropped 12%, and shares of
chicken companies Tyson Foods Inc. and Sanderson Farms Inc. fell
3.8% and 6.2%, respectively.
The indictments come amid growing concern among farmers, grocery
stores and restaurants that declining competition among a smaller
number of big meatpackers is pushing up meat prices for consumers
while reducing farmers' and ranchers' income. Some of the country's
biggest grocery chains, including Walmart Inc., Kroger Co. and
Albertsons Cos., sued chicken companies last year, alleging
anticompetitive practices.
"Executives who cheat American consumers, restaurateurs and
grocers, and compromise the integrity of our food supply, will be
held responsible for their actions," U.S. Assistant Attorney
General Makan Delrahim, the Justice Department's antitrust chief,
said.
The Justice Department said its efforts in the probe are
continuing.
The indictment painted a picture of rival executives who kept
close contact and weren't shy about sharing -- and coordinating --
pricing strategies in bids to chicken buyers.
When a restaurant chain in late 2012 was soliciting bids for
dark meat for the coming year, Mr. Austin, then working for
Pilgrim's, called Claxton's Mr. Brady, himself a former Pilgrim's
employee, after both companies had submitted bids, according to the
indictment.
After the call, the Justice Department alleged, Mr. Brady told
Claxton's Mr. Fries that Mr. Austin had urged Claxton to raise its
prices.
"Tell him we are trying!" Mr. Fries said in a text message,
according to the complaint. Mr. Brady responded, "Will do."
Pilgrim's and Claxton that December both signed supply deals
with the buyer, at or near the prices that Messrs. Austin and Brady
had discussed, the Justice Department said.
While negotiating chicken prices with a purchasing cooperative
in August 2014, Pilgrim's Mr. Austin and Claxton's Mr. Brady again
talked about holding firm on prices, the indictment alleged, and
both companies signed deals with the customer.
In the fall of 2014, the indictment alleged, Mr. Penn texted
with a Pilgrim's colleague about ongoing price negotiations with a
nationwide fast-food chain. The Pilgrim's employee told Mr. Penn
that a competing chicken company's bid was higher than Pilgrim's,
and that the competitor wasn't negotiating further. "They are
listening to my direction," the Pilgrim's employee told Mr.
Penn.
"Who is they?" Mr. Penn texted back. "If they is illegal don't
tell me." The Pilgrim's employee clarified that he was referring to
Mr. Austin, who also was involved in the negotiations.
As negotiations with the fast-food chain progressed, the
complaint said, Mr. Penn told Pilgrim's then-CEO that the chain
should "pay market price plus the special A-Hole Premium."
Pilgrim's CEO at the time was Bill Lovette, who retired in March
2019.
In other alleged communications included in the indictment, Mr.
Penn in November 2014 likened a rival poultry company to "the town
drunk" for selling cheap chicken and running short of supply. "They
need to pay so they start acting appropriately," Mr. Penn allegedly
said after the rival sought to buy more chicken from Pilgrim's.
Collusion accusations have shadowed the poultry industry since
late 2016, when restaurant companies and other poultry buyers sued
major poultry producers, accusing them of illegally coordinating
operations to inflate prices.
The chicken companies, including Pilgrim's, Claxton, Tyson
Foods, Sanderson Farms and Perdue Farms Inc., have denied those
allegations and are fighting the civil lawsuits. They said that
supply and demand factors drove poultry prices higher over the
years, including rising domestic consumption and exports.
The Justice Department's probe into chicken pricing came to
light last year when government attorneys sought to intervene in
that continuing litigation, seeking evidence from plaintiffs'
attorneys and requesting a pause on further evidence-gathering to
protect a grand jury's investigation. The Justice Department later
issued subpoenas to Tyson, Pilgrim's, Sanderson and other poultry
producers. The companies said they would cooperate with the
government's requests.
Wholesale chicken prices climbed 11% from mid-2012, when the
U.S. Agriculture Department began calculating national prices for
whole chickens, until the end of 2018. Chicken prices fell about
27% from the start of 2019 through the end of February 2020 as
chicken companies ramped up production and expanded plants,
anticipating bigger exports after new trade deals were
finalized.
The National Farmers Union said the indictment showed the need
for stronger antitrust enforcement in agriculture. Price-fixing
translates to lower prices paid to farmers, while inflating
consumers' food costs, said Rob Larew, the Washington-based group's
president.
The chicken industry is dominated by a handful of companies
after decades of consolidation. The five largest companies control
61% of U.S. chicken production, according to Watt Global Media, an
industry publication. Tyson, the largest, represents 21%.
Colorado-based Pilgrim's represents about 17% of the U.S.
market, according to Watt, and the company estimates it produces
globally about 13 billion pounds of chicken annually. Claxton,
based in Georgia, estimates that it produces about 300 million
pounds of chicken a year.
Write to Brent Kendall at brent.kendall@wsj.com and Jacob Bunge
at jacob.bunge@wsj.com
(END) Dow Jones Newswires
June 04, 2020 02:47 ET (06:47 GMT)
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