The Big Four packers are facing new price-fixing allegations, this time from a group of small food distributors. The companies filed suit on Oct. 9 in the U.S District Court for the Northern District of Illinois against Cargill, JBS USA, National Beef, Tyson Foods and Swift Beef, claiming the packers have been conspiring about beef prices since 2015.
“Starting at least as early as January 1, 2015, Defendants exploited their market power in this highly concentrated market by conspiring to limit the supply of beef sold to purchasers in the U.S. wholesale market, including Plaintiffs, which resulted in higher prices paid by Plaintiffs,” the lawsuit read.
The food distributors said the packers’ conspiracy continued at least through 2021, and the conspiracy artificially constrained the supply of beef entering the domestic supply chain. This resulted in the distributors paying higher prices for beef than they would have in a competitive market, according to the suit. The companies allege violations of the Sharman Act and Packers and Stockyards Act.
A witness previously employed by Swift Beef was noted in the suit as having witnessed the conspiracy, confirming that packers all agreed to reduce their cattle purchases and slaughter volumes for the intent of increasing their profit margins.
“Defendants’ transactional data and slaughter volume records, information published by the USDA, and Defendants’ public calls for industry-wide slaughter and capacity reductions corroborate Witness 1’s account,” the suit read.
Distributors claim that in addition to restraining supply numbers, other market characteristics assisted with the defendants’ collusion, including “packer concentration, high barriers to entry, inelastic demand, the commodity nature of beef, frequent opportunities to conspire, market share stability, and decreased imports.”
The packers’ practices led to shortages in the beef market, which boosted beef prices and increased the packers’ profit margins, the suit alleged.
The lawsuit continues that further evidence of the packers’ collusion is shown by the frequent meetings between each company’s executives and key employees. “Trade association conferences and other industry events offered convenient opportunities to exchange information, plans, and strategies, and to build relationships,” the suit read.
Prior to 2015, prices of beef and cattle moved in tandem, which is their natural economic relationship in a competitive market, the distributors said. But once the Big Four began their alleged collusion, the price relationship between beef and cattle abruptly changed, because supply and pricing were no longer set at competitive levels, the companies claimed.
“Starting in 2015, wholesale beef prices began to show unusual trends. The per- pound price of cattle had historically stayed within 20 to 40 cents of the per-pound average wholesale price of beef,” the suit read. “But in 2015, the spread between those prices increased dramatically.”
The lawsuit cited USDA data that showed the average farm-to-wholesale spread was about $34 from 2010-14, but that trend increased 59% from 2015-18 to $54.
“Only colluding meatpackers could expect to benefit by reducing their purchases and slaughter of cattle, because as a result of their conspiracy, they knew that their nominal competitors would not increase their purchasing volumes as would be expected in a competitive market,” the food distributors concluded.
“By concertedly slashing their supply output, Defendants consistently expanded their profit margins, confident that none of them would grab volume from another Defendant.”
The food distributors requested a jury trial. A hearing was set by District Judge John F. Kness for Dec. 21.
Previous allegations
The Big Four have faced a slew of price-fixing suits in recent years, with most of them ending in settlements totaling tens of millions of dollars.
Most recently, in August, a federal judge dismissed a price-fixing case brought by a group of cattle ranchers under the Sherman Act and the Packers and Stockyards Act. Judge John R. Tunheim ruled the ranchers lacked standing and dismissed their lawsuit, ruling there were too many stages in the beef supply chain to attribute loss in cattle prices to the Big Four.
In 2020, the DOJ and USDA launched an investigation into whether the packers fixed domestic beef prices. USDA released an investigation report in July 2020, summarizing market conditions, fed cattle prices, boxed beef values and the spread during the “black swan events” experienced in the industry over the past few years.
“While the report does not examine potential violations of the Packers and Stockyards Act, USDA staff have maintained a cooperative relationship with the staff of the Department of Justice Antitrust Division and have discussed allegations of anticompetitive practices in the meat packing industry,” USDA said at the time. “Should USDA find a violation of the Packers and Stockyards Act, it is authorized to report the violation to DOJ for prosecution.” — Anna Miller, WLJ managing editor
