Bloomberg | U.S. Meat Giants Face Biggest Attack in Century From Probe

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by David McLaughlin

Source: Bloomberg Business

Date Published: June 15, 2020

The Trump administration is launching what could turn out to be the biggest attack in a century against the giants of America’s meat industry, which already faced uproar over employee treatment during the pandemic.

The Justice Department is bringing criminal charges in the poultry industry just as it opens a formal probe of beef companies. Regulators are also scrutinizing potential price manipulation, and on Capitol Hill, lawmakers are clamoring for a crackdown.

The threat from Washington is casting further spotlight on the industry after coronavirus outbreaks saw thousands of workers get sick, forcing plants to shutter. President Donald Trump in early May said he’d have the Justice Department look into beef prices, which more than doubled in about a month.

The timing of the moves is interesting given that farmers have long complained about the dominance of just a handful of companies in beef and poultry markets, but antitrust enforcers haven’t before taken significant action against the companies. The heightened scrutiny comes less than five months ahead of November’s presidential election. Action by either the Justice Department or the Department of Agriculture could shore up U.S. farmers, a key Trump constituency that’s been battered by his trade war with China.

“The market’s been broken for a long time, and the pandemic has just made it worse. Meatpackers are making record profits, and the ranchers are going out of business,” said Ben Gotschall, the interim executive director for the Organization for Competitive Markets, an advocacy group that opposes consolidation in agriculture. “Whatever Trump’s motivation might be, if he does the right thing you have to take it. I hope it’s more than just lip service.”

At issue is whether meat behemoths are thwarting competition in violation of antitrust laws. Prosecutors at the Justice Department this month said executives at two chicken producers, including the second biggest in the U.S. — Pilgrim’s Pride Corp. — illegally conspired to fix prices, and they hinted at additional charges in the industry.

The department is also setting its sights on beef companies in a separate antitrust investigation, issuing subpoenas to the four biggest producers — Tyson Foods Inc.JBS SACargill Inc. and National Beef Inc. They control more than two-thirds of all U.S. beef processing.

Cargill and Tyson declined to comment on the probes and livestock pricing. National Beef didn’t respond to emails seeking comment. JBS, which also owns Pilgrim’s Pride, didn’t respond.

The power of the meatpackers today echoes the early 20th century when the industry was dominated by a handful of companies known as the “beef trust.” A report by the Federal Trade Commission in 1919 found the five biggest companies, controlling about 82% of cattle slaughter, monopolized the market and crushed competition. The findings helped lead to an antitrust settlement against the industry in 1920 aimed at protecting competition.

If the Justice Department finds evidence in its current investigation that meatpackers are violating the antitrust laws, it can sue the companies to stop the conduct or negotiate a settlement like it did in its probe a century ago, when the companies agreed to restrictions such as not owning stockyards or retail meat businesses. The investigation could also be closed without action, which the department did earlier this year when it abandoned a probe into automakers over an emissions agreement with California.

Criminal investigations like the one involving chicken processors carry higher stakes — executives can go to jail and companies can be criminally fined.

Shares Lag

Meat company shares have underperformed in the wake of the probes and the scrutiny of the industry. Since March 31, Tyson’s stock is up a little more than 5%, while Pilgrim’s Pride slid about 2%. Sao Paulo-based JBS rose about 7% in Brazilian trading. The S&P 500 Index has jumped about 17% this quarter.

Tyson, America’s top meat producer, said it’s cooperating in the chicken price-fixing probe with the Justice Department’s antitrust division through its leniency program, which allows companies that report misconduct to avoid charges in exchange for cooperation. The company has declined to comment on how long it has been working with the Justice Department and whether it’s also cooperating in the beef probe.

Jayson Penn, the now-CEO of chicken giant Pilgrim’s Pride who faces as many as 10 years in prison in the chicken probe, entered a not-guilty plea June 4 in Colorado federal court. Penn went on a paid leave of absence and Chief Financial Officer Fabio Sandri took over as interim CEO, the company said in a statement Sunday.

It’s not just the Justice Department taking action.

Republicans and Democrats on Capitol Hill are also raising alarm bells. Last month, 19 senators, many from agriculture states, asked the Justice Department to look into whether the companies are suppressing prices paid for cattle. They warned that market conditions could lead to “widespread collapse” of the ranching industry and open the door to meatpackers acquiring cattle operations.

Lawmakers also are pushing federal officials to ease regulations on meat processing, which could help reduce costs and lower the bar for new smaller entrants into the industry. Legislation has been proposed that would allow, for example, meat plants that are inspected by state officials to sell products across state lines.

“We’ve not seen this kind of attention since the early 1900s,” said Bill Bullard, the chief executive officer of R-CALF USA, a trade association for ranchers that says the big packing companies are hurting cattle producers. “We’re in a precarious position now that necessitates congressional intervention.”

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