‘The Fix Was In’: DOJ Takes on Chicken Insiders in Price-Fixing Trial
(Bloomberg) -- “The fix was in.” That’s what the Justice Department charged against major players in the U.S. chicken industry as a hotly anticipated criminal antitrust trial got underway in Denver this week.
At the heart of the matter is whether the 10 defendants, which include two former chief executive officers, conspired together to keep prices elevated in the $95 billion U.S. market. In his opening remarks, DOJ lawyer Michael Koenig said the insiders, who worked for five competing chicken companies including top producer Tyson Foods Inc., came together to create “massive, historic price increases” and stonewalled efforts by customers including KFC Corp., Chick-fil-A Inc. to negotiate lower.
The result was profits so massive it prompted former Pilgrim’s Pride Corp. top executive Jayson Penn to tell his boss, Pilgrim’s then-CEO William Lovette, that “2014 was chicken nirvana,” Koenig said.
“The 10 defendants in this courtroom worked together to make sure they were not competing,” communicating by phone, text and email to coordinate pricing and guarantee high profits to their companies, he said. “The fix was in and the defendants didn’t budge.”
The defendants fired back.
“Chicken nirvana has nothing to do with fixing prices,” said Lovette’s lawyer, John Fagg, the first of 10 defense lawyers to deliver opening statements on Tuesday and Wednesday.
“There was no conspiracy,” he said. “There was no agreement among these men to fix prices or to rig bids.”
The trial comes as consumers are facing the fastest pace of food inflation in years, thanks partly to big increases in protein prices.
While the evidence covers alleged efforts to fix prices and rig bids from 2012 to early 2019, the findings could set the stage for further moves against the industry, which has caught the ire of the Biden administration. Officials have said meatpackers engaged in “pandemic profiteering,” squeezing consumers and farmers. Meat companies have also been thrust into the spotlight after a wave of Covid-19 outbreaks at packing plants early in the pandemic.
The trial is the first after a years-long investigation into the pricing of chickens sold to restaurants, grocery stores and consumers. The industry executives and employees are charged with a criminal antitrust conspiracy and face prison sentences and million-dollar fines if convicted.
All the defendants have pleaded not guilty. They claim price rises were a result of supply and demand, not an illegal agreement. And defendants communicated as part of their independent efforts to collect pricing information from many sources, said Michael Tubach, a lawyer for Penn.
Penn, who became Pilgrim’s CEO after Lovette retired in 2019, succeeded by using “chicken math” -- advanced analytical data tools designed to maximize profit, Tubach said. Prices rose after the 2014 negotiations because demand for small chickens, used by fast-food franchises, went up while supply was decreasing.
“It was market forces that drove up those prices,” Tubach told jurors. He claimed the government cherry-picked statements from more than 16 million documents but it has no witnesses who can tell jurors they have personal knowledge of any illegal agreement.
Dennis Canty, a lawyer for one of the defendants, warned jurors they’re likely to learn “way more than you ever wanted to know” about the chicken industry in the trial, which may last until Dec. 21.
Pilgrim’s Employee Testimony
Trial watchers are likely to closely monitor the upcoming testimony of Robbie Bryant, a Pilgrim’s employee who is currently on leave. He’s expected to take the stand against his former colleagues as a prosecution witness. Bryant is testifying with immunity as a result of the company’s plea deal.
In addition to Penn and Lovette, prosecutors charged Roger Austin, a former vice president of Pilgrim’s; Mikell Fries, president of Claxton Poultry Farms Inc.; Scott Brady, a Claxton vice president; Timothy Mulrenin, a Perdue Farms Inc. executive who previously worked at Tyson; William Kantola, a Koch Foods Inc. sales executive; Jimmie Lee Little, a former Pilgrim’s Pride sales director; Gary Brian Roberts, a Case Farms Inc. employee who had previously worked at Tyson; and Rickie Blake, a former director and manager at George’s Inc.
Each of the men is charged with conspiracy to restrain trade, which carries a maximum of 10 years in prison. Little is also charged with obstruction of justice, which has a 20-year maximum.
‘Sell it or Smell it’
Greeley, Colorado-based Pilgrim’s Pride, a unit of Brazilian food giant JBS SA, pleaded guilty to price-fixing conspiracy in February and was sentenced to pay $108 million in fines. As part of the plea, Pilgrim’s agreed to cooperate with the government investigation. In a statement Monday, the company said it is “focused on maintaining our commitment to fair and honest competition in compliance with U.S. antitrust laws.”
A lawyer for Austin refuted the government’s claim that the companies colluded in furnishing chickens to competitors who had promised to sell birds they didn’t yet own. Companies cover one another’s chicken short sales not as part of any illegal cooperation but out of a need to move a perishable commodity, Michael Feldberg, a lawyer for Austin said, citing what he said is an industry maxim: “Sell it or smell it.”
Lawyers for Claxton’s Fries and Brady told jurors the Georgia company is a very small player with less than 1% of the U.S. market, putting it at the mercy of its bigger fast-food customers.
“Claxton doesn’t control the market,” Fries’s lawyer, Rick Kornfeld, told the jury. “The market controls Claxton.”
The case is U.S. v. Penn, 20-cr-00152, U.S. District Court, District of Colorado (Denver).
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