Chicken Industry Executives Indicted on Price-Fixing Charges -- Update

The chief executive of one of the country's biggest chicken producers and three other industry executives were indicted Wednesday for allegedly conspiring to fix prices on chicken sold to restaurants and grocery stores, the Justice Department's first charges in a continuing criminal antitrust probe.

Pilgrim's Pride Corp. (PPC) CEO Jayson Penn and a former company vice president, Roger Austin, were charged in the one- count indictment, returned by a federal grand jury in Denver. Colorado-based Pilgrim's, majority owned by Brazilian meat conglomerate JBS SA, is the nation's second-largest chicken producer. Also charged were the president of Georgia-based Claxton Poultry Farms, Mikell Fries, and a vice president, Scott Brady.

The indictment, filled with alleged instances of cozy discussions about pricing and text messages about holding the line on bids to customers, charged the executives with colluding to fix prices and rig bids from 2012 to 2017. The charges also referenced other unnamed executives and chicken suppliers and suggested the sharing of pricing information extended beyond the alleged discussions between Pilgrim's and Claxton.

Neither Pilgrim's nor Messrs. Penn and Austin responded to requests for comment. A Claxton spokesman declined to comment.

The charges sent share prices across the $65 billion chicken industry sharply lower. Pilgrim's dropped 12%, and shares of chicken companies Tyson Foods Inc. (TSN) and Sanderson Farms Inc. (SAFM) fell 3.8% and 6.2%, respectively.

The indictments come amid growing concern among farmers, grocery stores and restaurants that declining competition among a smaller number of big meatpackers is pushing up meat prices for consumers while reducing farmers' and ranchers' income. Some of the country's biggest grocery chains, including Walmart Inc., Kroger Co. and Albertsons Cos., sued chicken companies last year, alleging anticompetitive practices.

"Executives who cheat American consumers, restaurateurs and grocers, and compromise the integrity of our food supply, will be held responsible for their actions," U.S. Assistant Attorney General Makan Delrahim, the Justice Department's antitrust chief, said.

The Justice Department said its efforts in the probe are continuing.

The indictment painted a picture of rival executives who kept close contact and weren't shy about sharing -- and coordinating -- pricing strategies in bids to chicken buyers.

When a restaurant chain in late 2012 was soliciting bids for dark meat for the coming year, Mr. Austin, then working for Pilgrim's, called Claxton's Mr. Brady, himself a former Pilgrim's employee, after both companies had submitted bids, according to the indictment.

After the call, the Justice Department alleged, Mr. Brady told Claxton's Mr. Fries that Mr. Austin had urged Claxton to raise its prices.

"Tell him we are trying!" Mr. Fries said in a text message, according to the complaint. Mr. Brady responded, "Will do."

Pilgrim's and Claxton that December both signed supply deals with the buyer, at or near the prices that Messrs. Austin and Brady had discussed, the Justice Department said.

While negotiating chicken prices with a purchasing cooperative in August 2014, Pilgrim's Mr. Austin and Claxton's Mr. Brady again talked about holding firm on prices, the indictment alleged, and both companies signed deals with the customer.

In the fall of 2014, the indictment alleged, Mr. Penn texted with a Pilgrim's colleague about ongoing price negotiations with a nationwide fast-food chain. The Pilgrim's employee told Mr. Penn that a competing chicken company's bid was higher than Pilgrim's, and that the competitor wasn't negotiating further. "They are listening to my direction," the Pilgrim's employee told Mr. Penn.

"Who is they?" Mr. Penn texted back. "If they is illegal don't tell me." The Pilgrim's employee clarified that he was referring to Mr. Austin, who also was involved in the negotiations.

As negotiations with the fast-food chain progressed, the complaint said, Mr. Penn told Pilgrim's then-CEO that the chain should "pay market price plus the special A-Hole Premium." Pilgrim's CEO at the time was Bill Lovette, who retired in March 2019.

In other alleged communications included in the indictment, Mr. Penn in November 2014 likened a rival poultry company to "the town drunk" for selling cheap chicken and running short of supply. "They need to pay so they start acting appropriately," Mr. Penn allegedly said after the rival sought to buy more chicken from Pilgrim's.

Collusion accusations have shadowed the poultry industry since late 2016, when restaurant companies and other poultry buyers sued major poultry producers, accusing them of illegally coordinating operations to inflate prices.

The chicken companies, including Pilgrim's, Claxton, Tyson Foods (TSN), Sanderson Farms (SAFM) and Perdue Farms Inc., have denied those allegations and are fighting the civil lawsuits. They said that supply and demand factors drove poultry prices higher over the years, including rising domestic consumption and exports.

The Justice Department's probe into chicken pricing came to light last year when government attorneys sought to intervene in that continuing litigation, seeking evidence from plaintiffs' attorneys and requesting a pause on further evidence-gathering to protect a grand jury's investigation. The Justice Department later issued subpoenas to Tyson, Pilgrim's, Sanderson and other poultry producers. The companies said they would cooperate with the government's requests.

Wholesale chicken prices climbed 11% from mid-2012, when the U.S. Agriculture Department began calculating national prices for whole chickens, until the end of 2018. Chicken prices fell about 27% from the start of 2019 through the end of February 2020 as chicken companies ramped up production and expanded plants, anticipating bigger exports after new trade deals were finalized.

The National Farmers Union said the indictment showed the need for stronger antitrust enforcement in agriculture. Price-fixing translates to lower prices paid to farmers, while inflating consumers' food costs, said Rob Larew, the Washington-based group's president.

The chicken industry is dominated by a handful of companies after decades of consolidation. The five largest companies control 61% of U.S. chicken production, according to Watt Global Media, an industry publication. Tyson, the largest, represents 21%.

Colorado-based Pilgrim's represents about 17% of the U.S. market, according to Watt, and the company estimates it produces globally about 13 billion pounds of chicken annually. Claxton, based in Georgia, estimates that it produces about 300 million pounds of chicken a year.

Write to Brent Kendall at brent.kendall@wsj.com and Jacob Bunge at jacob.bunge@wsj.com


  (END) Dow Jones Newswires
  06-03-20 1917ET
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