USDA and DOJ Scrutinize the Meat Packing Industry
Competition in the meat packing industry is currently a central focus of the Antitrust Division of the Department of Justice (“DOJ”) and the USDA.
In 2008, the DOJ and 16 states challenged the merger of JBS and the National Beef Packing Company, leading the parties to abandon the deal. In its amended complaint filed against the transaction, the DOJ opposed the merger, claiming that it would have combined two of the four largest beef packing companies in the U.S. (“Post merger, over 80% of the nation’s fed cattle packing capacity would be controlled by a three-firm oligopoly. . . .”).
The DOJ’s concern about concentration in the meat packing industry apparently continues. As is often the case, a merger investigation educates regulators, and after the investigation concludes, the government’s lawyers maintain an interest in the industry. In March, the DOJ Assistant Attorney General for the Antitrust Division, Christine Varney, declared that in the near future we will see “unprecedented cooperation and collaboration between [the DOJ] and the USDA,” in her remarks at the first DOJ/USDA competition workshop, held in Ankeny Iowa. Varney noted that collaboration will include “taking full advantage of the authority that’s delegated to us in the Packer[s] and Stockyard[s] Act,” a 1921 statute that specifically addresses competition in the meat packing industry.
Earlier this month, the Associated Press reported that officials from the USDA’s Grain Inspection, Packers and Stockyards Administration (”GIPSA”) are speaking to cattle ranchers about competition and pricing in the meat packing industry. CEO of the Ranchers-Cattlemen Action Legal Fund (“R-CALF”), Bill Bullard, is quoted in the article, noting that ranchers in his organization have been frequently meeting with USDA officials in recent months. Ranchers argue that the country’s four biggest meat packing companies (Tyson Foods, JBS, Cargill, and National Beef) benefit from “buyer power.” They claim that buyer power drives down prices for the cattle that they raise. Economists would argue that such buyer power ultimately benefits customers.
In any event, does all this talk mean that aggressive enforcement of the Packers and Stockyards Act (to the benefit of ranchers) is on the horizon? A USDA official quoted in the Associated Press article suggests that may be true, corroborating the Assistant Attorney General’s comments above (“[W]hat we’re doing at GIPSA now is trying to . . . enforce the Packers and Stockyards Act . . . .”).
The DOJ and USDA are spending this entire year evaluating antitrust and competition policy in the agriculture industry, starting with a series of public workshops. There will be a workshop on the poultry industry on May 21, in Normal, Alabama. On August 27, the agencies will host a workshop in Fort Collins, Colorado, addressing “concentration in livestock markets, buyer power and enforcement of the Packers and Stockyards Act.”
DOJ Pursues Tomato Processors - One Executive Pushes Back
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By Guest Blogger Jay Eckhardt
On April 29, the Department of Justice (DOJ) announced that it had obtained a criminal indictment against the former CEO of SK Foods, Scott Salyer, for his participation in a conspiracy to fix prices and rig bids in the market for tomato paste. (SK Foods is now owned by Olam International, of Singapore.) This followed on the heels of a prior indictment against Mr. Salyer, obtained in February, for fraud, obstruction of justice, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Mr. Salyer was arrested by the FBI in February and has been held in federal custody since his arrest.
While entering a guilty plea is frequently the most prudent tactic for executives charged in criminal antitrust cases, when the stakes are high it may make more sense to fight back. In this case, Mr. Salyer has challenged the indictments against him and pleaded not guilty to the price fixing and bid rigging charges this week.
Government lawyers generally tend to prefer to shoot their fish in a barrel – which is to say, they seek cases that they think they will win. Of course juries didn’t agree with DOJ lawyers in 2008, when a hung jury refused to convict executive Gary Swanson for his role in a conspiracy to fix prices for dynamic random access memory chips (DRAM), and in 2007, when a jury found that the Stora Enso company did not conspire to fix prices for coated magazine paper. Mr. Salyer apparently hopes to join the successful minority that has avoided prosecution.
But what about the tomato processing industry? The LA Times reports that DOJ has been focused on bid rigging, corruption, and bribery investigations in the industry since 2007. With only five companies processing 95% of the tomatoes grown in the U.S., the industry is fertile ground for federal prosecutors, as the concentrated group of close competitors has turned out to be too friendly. Who are the victims? They are actually some of the largest American food companies: Kraft, Safeway, Frito-Lay, B&G Foods, and others. Government investigations have shown that these companies purchased tomato paste and other processed tomato products at inflated prices. In some cases, processors also lied about the contents of their products, mislabeling products at higher “grades” in order to get higher prices.
In the tomato investigation, Mr. Salyer is the first to fight his conviction. The first big conviction came from a broker for SK Foods who pleaded guilty in December 2008. According to the LA Times, DOJ has secured guilty pleas from at least nine individuals in the tomato processing industry. The same pattern emerged in the DOJ’s DRAM investigation. While Mr. Swanson avoided his prosecution, 14 others involved in the DRAM price fixing conspiracy pleaded guilty, and the DOJ secured fines and penalties of over $700 million from individuals and the corporations they worked for. With a little luck (and perhaps a misstep by the prosecution) Mr. Salyer may evade conviction. It appears that the industry as a whole will not be so lucky. The government, and the tomato processors’ customers, will likely pursue claims for some time.
