Poultry Lawsuit Over Pay

Farmers Claim Poultry Companies Use Unfair Practices to Suppress Income

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A federal lawsuit has been filed in Oklahoma over provisions in the Packers and Stockyards Act.

OMAHA (DTN) -- A handful of poultry growers have filed a federal class-action lawsuit in Oklahoma against the nation's largest poultry companies, arguing the companies collude to suppress grower compensation.

The growers argue the companies disclose and share compensation rates for growers and also have agreed to prevent farmers from growing for other companies.

Defendants in the case include Tyson Foods and affiliated companies, as well as Pilgrim's Pride, Perdue Farmers, Koch Foods and Sanderson Farms. The lawsuit states those companies control roughly 60% of U.S. poultry contract production.

Five farmers are listed as current plaintiffs, but they leave it open for others to join them. The farmers are from Oklahoma, North Carolina, Alabama, Mississippi and Texas. They each have similar stories of borrowing several hundred-thousand dollars to build broiler houses to company specifications, only then to be asked to later spend more money on upgrades. Farmers complain the companies had threatened to stop delivering pullets if farmers did not make upgrades. Some of the farmers ended up going out of business with substantial debt.

The case was filed Jan. 27 in the U.S. District Court for Eastern Oklahoma. The poultry growers are seeking compensation for antitrust and unfair competition under the Sherman Antitrust Act and the Packers and Stockyards Act.

The lawsuit describes the multiple meat companies as a "cartel" that used similar data services and information to suppress prices for producers and keep farmers from changing companies to grow birds. The major poultry companies essentially have agreements with each other that ensure they do not take growers from other companies. The suit claims that under 5% of growers are able to switch companies, even though executives frequently move from one company to another.

"This illegal 'no poach' agreement inoculated the Cartel against potential cheating by its members," the lawsuit states.

The case comes as President Donald Trump's administration has delayed livestock marketing rules finalized and proposed at the end of the Obama administration. One of those rules would remove the onus on producers under the Packers and Stockyards Act to show that injury to a grower by a packer had adverse effects on competition. That interpretation of the law by courts in the past has frequently led courts to dismiss cases brought by farmers against meatpacking companies.

Through vertical integration and contract poultry production, the lawsuit alleges the chicken processing companies "have devised a system of 'farming' that effectively transfers the risk of broiler production onto growers, while allowing integrators to maintain supra-competitive profits."

The lawsuit adds that growers such as the defendants have no bargaining power with the integrators but must carry the debt on buildings and other equipment. The integrators also share pricing and compensation between each other, but require growers to maintain strict confidentiality.

The plaintiffs asked that the case be allowed to remain a class-action suit so others could join.

Tyson Foods issued a statement in response to the case saying the claims are false.

"We want our contract growers to succeed and do not consult with competitors about how our farmers are paid," said a statement from Tyson spokesman Gary Mickelson.

Tyson added that the average contract grower has been raising chickens for the company for 15 years. Compensation is clearly laid out in contracts, and the contracts are typically three to seven years in length.

"The farmers are free to discuss the terms of their contracts with whomever they want, including other farmers, and are also free to switch to other chicken processors who operate in their area," Tyson stated.

Tyson added, "Research shows that contract chicken farmers over time have been paid more for their efforts. According to a 2015 study by Dr. Thomas Elam, average farmer payments per pound of chicken have increased almost 53% since 1990."

Former Oklahoma Attorney General Drew Edmondson also is listed an attorney in the lawsuit for the plaintiffs. This isn't Edmondson's first battle with major poultry companies. When he was in office, he sued Tyson and other Arkansas poultry integrators for polluting Oklahoma rivers. Edmondson's successor, EPA administrator nominee Scott Pruitt, declined to continue the lawsuit, but sought to negotiate with the poultry companies.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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Chris Clayton