Shortly after poultry executives were indicted for price fixation and bid rigging, the big four beef packing companies were subpoenaed by the Department of Justice (DOJ) in an antitrust probe.
The “Big Four” is comprised of Cargill, JBS USA, National Beef Packing Company, and Tyson Foods. The four companies control more than 80 percent of beef processing in the U.S.; a reality which caused beef producers to cry foul.
The COVID-19 pandemic caused producers to further scrutinize the control the Big Four holds, and to call for investigations of the companies. In early March, the DOJ and the USDA began investigations into whether packers conspired to fix beef prices.
USDA Secretary of Agriculture Sonny Perdue expressed concern before a Senate subcommittee March 12 that packers were paying lower prices for live cattle without passing the cost savings onto beef purchasers. At this point in time, the beef cutout had begun its climb to historic highs.
The DOJ sent a civil investigative demand—akin to a subpoena—June 4 to each of the packers, seeking information on their pricing practices, according to a Bloomberg report. The subpoenas were issued after a group of states called for an investigation.
National Beef confirmed to Bloomberg that the company received an investigative demand from the DOJ, but, “The request was very narrow in scope, which leads us to believe that the DOJ does not necessarily believe there is an antitrust issue.”
The other three companies did not respond for comments.
Antitrust class action
Amid the DOJ probe, a complaint filed by a trustee for the bankruptcy estates of Central Grocers June 6 says the packers conspired to “constrain beef supplies in the United States, thereby artificially inflating domestic beef prices paid by direct purchasers.”
The lawsuit alleges a confidential witness, who was previously employed by one of the packers, confirmed the companies “expressly agreed to reduce its cattle purchase and slaughter volumes with the purpose and effect of increasing their margins.”
“Transactional data and slaughter volume records reported by defendants, information published by the USDA and defendants’ public calls for industry-wide slaughter and capacity reductions corroborate witness one’s account,” the suit read.
The complaint said the packers’ position at the top of the domestic beef food chain has afforded the companies unchecked control over every aspect of the nation’s beef supply. This, combined with other factors such as high barriers to entry, inelastic demand, and the commodity nature of beef have allowed the packers to operate in a market “vulnerable to cartel formation and operation,” according to the suit.
The case claims the Big Four purchased fewer cattle than a competitive market would otherwise demand and ran their processing plants at less than available capacity, thus creating “surpluses in the cattle market and shortages in the wholesale beef market.” In turn, the suit claims cattle prices were driven down and beef prices up.
The trustee also alleged the packers exchanged supply, pricing and other sensitive information by selling beef to each other and frequently meeting with each companies’ executives and employees.
“In these buyer-seller relationships, defendants were each other’s competitors and customers, thus allowing defendants to share information that competitive businesses would conceal from each other,” the case read.
The suit claims the fundamental economic relationship between cattle and beef prices changed abruptly five years ago, which is when the packers “began exploiting these favorable market conditions to launch the conspiracy.”
This is not the first class action suit filed against the packers. Rancher group Ranchers-Cattlemen Action Legal Fund (R-CALF USA) filed suit last year against the Big Four, alleging packers conspired to depress the price of fed cattle, starting from at least January 2015. — Anna Miller, WLJ editor
