Amid DOJ Probe, ‘Big Four’ Beef Packers Hit with Antitrust Class Action Over Alleged Price Fixing, Supply Limiting [UPDATE]

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A proposed class action lawsuit alleges the world’s largest meat processing and packing companies have unlawfully conspired to reduce beef supplies in the United States over at least the last five years.

As a result, the defendants—Cargill, Inc.; JBS USA Food Company Holdings; National Beef Packing Company; and Tyson Foods, Inc.—have artificially inflated domestic beef prices paid by direct buyers, the 53-page suit claims.

According to the complaint, the defendants were responsible for the sale of roughly 80 percent of the more than 25 million pounds of fresh and frozen beef sold in the U.S. market in 2018. Per the case, the companies collectively controlled in the ballpark of 81 to 85 percent of the domestic cattle processed in the U.S. since 2015.  

For at least the last five years, however, the defendants have exploited their apparent stranglehold on the “highly concentrated” U.S. beef market by conspiring to limit the supply and fix the prices of beef sold to central grocers, such as the plaintiffs, and others in the nationwide wholesale market, the lawsuit alleges. To accomplish this, the suit claims, the defendants orchestrated a “concerted scheme” centered on limiting the amount of beef entering the domestic supply chain. 

Ultimately, the defendants’ conduct led to the artificial inflation of beef prices, and direct buyers such as the plaintiffs paid prices far higher than they would have in a competitive market, according to the suit. 

Per the complaint, the U.S. Department of Justice (DOJ) and the Department of Agriculture (USDA) in early March 2020 began investigations into whether the defendants illegally fixed domestic beef prices. Before a Senate Subcommittee on March 12, USDA Secretary Sonny Perdue expressed “serious concern” that meatpackers were paying low prices for live cattle without passing those cost savings onto beef buyers, the suit states, noting that the difference between live cattle and wholesale boxed beef prices was “historically high.”

The lawsuit says that while the DOJ has yet to publicly confirm its findings, news sources reported on June 4 that the DOJ’s antitrust division sent civil investigative demands to the defendants in search of information on the pricing practices. The case further claims that while the federal agencies’ investigations were apparently sparked by a spike in beef prices during the COVID-19 outbreak, the cost increase seen in recent weeks is “only one manifestation of Defendants’ conspiracy.”

According to the lawsuit, at least one confidential witness previously employed by one of the defendants has confirmed the existence of a price-fixing conspiracy among the companies, with each expressly agreeing to reduce cattle purchase and slaughter volumes in order to increase their margins.

As the suit tells it, the defendants’ position at the top of the domestic beef food chain has afforded the companies relatively unchecked control over every facet of the nation’s beef supply. Myriad other factors, including high barriers to entry, inelastic demand and the commodity nature of beef, that the case says make the market ripe for collusion, have allowed the defendants to successfully foster their operation in a market “vulnerable to cartel formation and operation,” the lawsuit alleges. 

From the complaint:

“Defendants sit atop the supply and distribution chain that ultimately delivers beef to the market. Their vital role is to purchase cattle from the nation’s farmers and ranchers, slaughter and pack cattle into beef, and sell beef to Central Grocers and other Class members. Defendants’ gatekeeping role has enabled them to collusively control both upstream and downstream beef pricing throughout the Class Period.”

Among the tactics in which the defendants engaged, the case claims the companies bought fewer cattle than a competitive market would otherwise demand and ran their processing plants at less than available capacity. As a result, surpluses were created in the cattle market and shortages were produced in the wholesale beef market, the suit says. Amid these artificial conditions, prices for cattle were driven down and prices for beef were inflated, yielding the defendants higher profit margins, the lawsuit claims.

Moreover, the companies routinely exchanged supply, pricing and other competitively sensitive information, including by selling beef directly to each other, the complaint continues.

“In these buyer-seller relationships, Defendants were each other’s competitors and customers, thus allowing Defendants to share information that competitive businesses would conceal from each other,” the suit reads.

In all, the lawsuit describes an “abrupt change” in the fundamental economic relationship between cattle and beef prices that’s continued over the last five years to this day. Ultimately, the defendants effectuated a divergence in the degree of correlation between cattle and beef prices that lacks “any credible innocent explanation,” the complaint claims.

The suit can be found below. 

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