Georgia chicken firm pays $2.25 million to exit lawsuit
Posted November 6, 2018 3:17 p.m. EST
ATLANTA -- Fieldale Farms, a Baldwin, Georgia, chicken producer, has agreed to pay $2.2. million to extract itself from a federal, class-action lawsuit alleging massive price fixing by the major players in the broiler industry, a conspiracy the plaintiffs say was aided by the Georgia Department of Agriculture.
The settlement agreement is the latest development in one of a growing number of lawsuits targeting some of Georgia's largest chicken producers. Lawyers behind the suits say their clients and consumers were harmed by a conspiracy to keep chicken prices artificially high for years despite declining costs by manipulating the "Georgia Dock," a pricing index for whole chickens maintained for decades by the Agriculture Department.
The lawsuits target household names like Tyson, Perdue and Pilgrim's Pride, companies with large footprints in North Georgia's chicken-producing region. The companies are the leading broiler suppliers, controlling 90 percent of the $30 billion wholesale market that stretches around the globe.
The Agriculture Department, which is not a defendant in the class-action lawsuit, is accused of allowing producers to provide unsubstantiated sales prices to the Georgia Dock, despite internal warnings that the department was failing its regulatory duties.
Fieldale executives admitted no part in any conspiracy, but they agreed to provide documents and witnesses to the plaintiffs for the ongoing suit against other poultry producers. A motion filed before the U.S. District Court of Northern Illinois, where the class action was filed, shows that a former chairman of the Fieldale board and the company's sales director were interviewed last week.
Lawyers for Fieldale Farms did not return calls seeking comment. The lawyers for the plaintiffs declined to comment, citing the ongoing litigation.
The class-action lawsuit claims that, beginning in 2008, Pilgrim and Tyson led an effort to manipulate prices by cooperating to cut industry production. They did so by destroying their breeding hens, a move the lawsuit describes as "unparalleled" with consequences that "continue to reverberate in the broiler industry to present day."
As part of the conspiracy, the companies allegedly manipulated the market by feeding inflated prices for broilers to the Agriculture Department's price index. The department constructed the Georgia Dock's weekly price index by accepting, without any verification, self-reported prices from producers. Large chicken producers could then use those publicly reported prices as a baseline in contract negotiations with large retailers.
One of the strongest pieces of evidence came from an internal Agriculture Department memo written by Agriculture Department employee Arty Schronce. Schronce voiced concerns that the self-reported prices were "a liability to the Georgia Department of Agriculture" and he had "come to question the validity of some of the information provided." Moreover, the Dock price was influenced by an advisory board made up of industry executives which Schronce said had to be consulted before changes could be made.
The controversy extinguished the decades-old Georgia Dock. In December 2016, the Agriculture Department announced it was discontinuing it after producers declined to join in an effort to introduce verifiable market data into the index.
The following month, the department launched a new tool with randomly verified sale prices, called the Georgia Premium Poultry Price Index, but the department shut that down after a few weeks when poultry producers again refused to provide enough data.
Mark Johnson, a poultry economist, said the Georgia Dock was favored by retailers who were looking for stable prices to use as a benchmark for large contracts.
"The Dock was just so ingrained in the way people operated," he said.
But it was already something of a "legacy" price index at the time of the controversy, he said. The Dock priced birds based on an average weight of around three and a half pounds. But over the decades, broiler chickens -- chickens raised for meat and slaughtered by the time they reach 13 weeks -- grew heavier, ranging into six- to eight-pound territory.
"Given the shift in bird-weight trends, it wasn't the best market tool," he said.
When analysts started questioning whether the Dock was being manipulated, producers started "getting tight lipped," Johnson said.
Almost immediately, the Dock lost its value. Len Steiner, a New Hampshire-based poultry consultant, said the Georgia Dock was "rather odd."
"They surveyed the sellers and asked what they were asking for prices and didn't talk to the buyers," he said.
Steiner said the lawsuits stemming from the death of the Dock have made producers "much more cautious" about projecting sales figures, which has added some volatility to the wholesale market.
"I was talking to one guy," he said. "He was told by his boss, 'No more forecasts.'"
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