Sysco Corporation has filed suit against the four largest meatpackers, accusing them of conspiring to limit the supply and fix wholesale beef prices since 2015.
Houston-based Sysco Corporation, a wholesale food service company for restaurants, hotels and other businesses, filed a jury trial demand in the U.S. District Court for the Southern District of Texas against Cargill Inc., JBS S.A., National Beef Packing Co. and Tyson Foods Inc.
The complaint states that since 2015, the meatpackers have conspired to artificially constrain the supply of beef entering the domestic supply chain, artificially inflating beef prices Sysco paid.
The suit states the four meatpackers sold 80 percent of the more than 25 billion pounds of fresh and frozen beef in the U.S., and their “gatekeeping role” has enabled them to control upstream and downstream beef pricing collusively. Sysco further asserts characteristics such as packer concentration, inelastic demand, the commodity nature of beef and market share stability enabled the packers to capitalize “on the fundamental mechanism of supply and demand operating in a beef market vulnerable to successful cartel formation and operation.”
Sysco contends industry data shows the packers colluded in 2015, as their slaughter numbers moved in tandem both quarterly and annually through 2019. Sysco also states the four packers slaughtered fewer cattle during that period compared to 2007-2014. Also, in 2015, the wholesale price spread with the per-pound price of cattle began to show unusual trends.
“According to USDA Economic Research Service data, the average spread between the average farm value of cattle and wholesale value of beef was substantially higher from January 2015 to present than during the preceding five years. From 2010 to 2014, the average farm to wholesale spread was about $34. But from 2015 to 2018, the average spread was about $54—a 59 percent increase. The spread continued to balloon, by 2020 reaching about $71, a 109 percent increase from the pre-conspiracy period average,” Sysco states in court documents.
The suit states the collective power of the four meatpackers allowed them to grow their operating margins to the point that JBS and Tyson had a 10.7 percent margin in 2020 versus 2.1 percent in 2014.
By reducing supplies in tandem and price fixing at levels higher than would have prevailed, Sysco states it “suffered antitrust injury by paying illegally inflated prices for beef it purchased from defendants.”
As with a previous case filed against the four meatpackers, Sysco cites a former Swift Beef Co. employee at a Texas plant who confirmed the existence of a conspiracy among the four meatpackers. The witness confirmed that all of the packers agreed to reduce their cattle purchases and slaughter volumes for the purpose of increasing their margins. The Sysco suit also cites the investigation launched by the Department of Justice and USDA into whether the four meatpackers fixed beef prices as far back as 2015.
Last year, District Judge John R. Tunheim of the U.S. District Court of Minnesota denied the four meatpackers’ motion to dismiss a similar price fixing lawsuit based, at least in part, on similar allegations relating to testimony from two confidential witnesses who claimed the packers purposely reduced slaughter to depress cattle prices.
Tunheim previously dismissed the case without prejudice in 2020, alleging the four packers violated the Sherman Antitrust Act of 1890 by engaging in a price fixing conspiracy and alleging the packers violated the Packers and Stockyards Act and the Commodity Exchange Act.
JBS agreed to settle for $52.5 million in February 2022 regarding the case. In a statement, JBS stated it did not admit liability, but settling was in its best interest, according to a Reuters report. The company also said it would defend beef price fixing claims by other plaintiffs. The settlement also contained information given to the Department of Justice, depositions of JBS employees and an opt-out provision that permits JBS to withdraw from the settlement if other packers elect to opt out of the settlement.
At a U.S. House Agriculture Committee hearing on concentration in the meatpacking sector in April, Rep. David Scott (D-GA-13), chair of the committee, explicitly asked the packers whether there was an agreement to corroborate on pricing and supply, to which the packers said no.
An initial conference in the Sysco suit is set for Sept. 19. — Charles Wallace, WLJ editor
