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SEC Investigates Tyson Foods Over Alleged Price Manipulation

leonkaye headshotWords by Leon Kaye
Investment & Markets
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Tyson Foods, the world’s largest meat processor and the largest U.S. exporter of beef, announced in a recent Securities and Exchange Commission (SEC) quarterly filing that it is under investigation over allegedly violating anti-trust laws.

The SEC probe results from a lawsuit filed by Maplevale Farms and other poultry producers against Tyson Foods and its poultry subsidiaries.

The lawsuit, which was filed last September, claims that Tyson Foods and other chicken companies conspired to limit the production of chickens while sharing data about prices and volume exclusively through a third-party data provider.

The complaint also alleges that such price-fixing dates back to January 2008, when Tyson Foods and Pilgrim’s Pride allegedly started working together to decrease the supply of broiler chickens, which comprise 98 percent of the chickens sold in the U.S.

As Denna Shanker of Bloomberg pointed out last fall, the steps that Tyson Foods supposedly took to reduce supply -- for which Maplevale Farms and other plaintiffs are suing the company -- is known as “capacity discipline” within the industry. In simple terms: By working together to limit supply, the meat industry can increase demand and therefore drive up prices.

The U.S. commercial airline industry has been investigated for using similar tactics over the years. For airlines, that means higher profits over a sustained period of time, something that long eluded U.S. carriers. For years, airlines engaged in price wars and introduced new routes in an attempt to grasp market share away from their competitors. But as any traveler knows, mergers within the air travel sector, as well as the smaller planes that fly with rarely an empty seat to spare, have resulted in higher prices.

A similar trend is now happening within the chicken industry. For decades, chicken meat prices were on a roller coaster boom-and-bust cycle, as known by anyone who remembers the frequent sales for chicken breast meat at 99 cents a pound. But chicken prices edged higher over the past several years and have not declined.

Meanwhile, regulators set their sights on the Georgia Dock, a pricing index that is little-known to consumers but has been used by retailers to negotiate with chicken producers since 1966. Critics of the Georgia Dock began to complain that Tyson Foods and Pilgrim’s Pride had too much influence over the index. And as an investigation by the New York Times revealed, U.S. Department of Agriculture (USDA) officials began to question the Georgia Dock’s pricing methodology last year.

Last August, the USDA eliminated the Georgia Dock from its weekly pricing reports. Then in November, Georgia’s agriculture department stopped publishing the Georgia Dock as officials said too few producers were contributing data.

The result, Shanker wrote in Bloomberg, is that Americans are paying as much as 50 percent more for chicken than what market forces would otherwise have dictated.

Chicken producers respond that the expensive price of corn and soy are behind chicken meat’s stubbornly high cost. Data provided by NASDAQ, however, shows that the price of corn has been on a steady decline since it peaked in mid-2012. The cost of soy also dropped precipitously in 2014, though it has recovered slightly in recent months.

Meanwhile, authors such as Christopher Leonard claim that a few companies have a stranglehold on America’s meat supply. And with government agencies such as the USDA and Department of Justice hesitant to launch expensive and complicated investigations and lawsuits, that function has largely fallen to private attorneys – hence the lawsuit Maplevale Farms has filed against Tyson Foods.

Image credit: Central Texas Food Bank/Flickr

Leon Kaye headshotLeon Kaye

Leon Kaye, Executive Editor, has written for Triple Pundit since 2010. He is also the Director of Social Media and Engagement for 3BL Media, and the Editor in Chief of CR Magazine. His previous work can be found at The GuardianSustainable Brands and CleanTechnica. Kaye is based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas.

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