The splashy Department of Justice office of public affairs press release reads “Agri Stats Suppresses Competition by Organizing and Managing Scheme to Share Competitively Sensitive Information Among Protein Processors.”
It’s the latest lawsuit by the DOJ antitrust division trying to rein in what the feds say is Agri Stats’ illegal “anticompetitive information exchange” that allows Big Meat to illegally share sales and production information “that is comprehensive, granular, current and available exclusively to processors.”
Yeah, that sounds bad. A violation of Section 1 of the Sherman Antitrust Act.
Here’s how Agri Stats works. Big Meat producers subscribe to the service. Agri Stats sends data technicians out to Big Meat offices to install software that collects detailed granular company information relating to sales prices, costs such as worker and farmer compensation, and output.
How detailed? Live production, for example, includes the quantity of breeder chicks produced, housing costs, feed costs, bird weights, hatching metrics and mortality rates.
All that information is then collated into “books” that Agri Stats distributes weekly to its subscribers. Agri Stats makes an effort to hide the identities of companies, but the data is detailed enough for many in the meat trade to unmask specific companies.
Agri Stat is aware of the problem, but hasn’t taken enough steps to prevent everyone in the industry from knowing what everyone else is doing.
The DOJ also claims Agri Stats has encouraged meat processors to raise prices and reduce supply:
“Although it could be profitable for a processor to increase production when its prices are below those of its competitors, doing so would tend to lower industry profits; Agri Stats instead enables and encourages processors to increase prices and restrict output to boost profits industry-wide. As one Agri Stats employee stated, “A common saying in the Agri Stats circle is that ‘you cannot produce your way to the top …’ An executive at Smithfield, a pork processor, summarized Agri Stats’ consulting advice in four words: ‘Just raise your price.’ ”
The DOJ maintains that companies subscribing to Agri Stats reports account for more than 90% of broiler chicken, 80% of pork, and 90% of turkey sales in the U.S. That’s just about everybody. It’s fair to say Agri Stats has a huge influence on production of meat in the U.S. But is what Agri Stats provides illegal?
There is no denying that Big Meat companies have conspired among themselves with Agri Stats reports in hand. This past June in Re: Broiler Chicken Antitrust Litigation, Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois confirmed the shenanigans among some Big Meat producers:
“The Court has found that there is sufficient evidence for a reasonable jury to find the existence of the alleged conspiracy by a preponderance of the evidence with respect to certain defendants, but not others. This finding is founded upon the strength of the economic evidence, including evidence that Defendants acted in parallel to reduce supply in 2008-09 and 2011-12.”
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Here’s the rub that will make it difficult for the DOJ to prove Agri Stats’ operation is crooked. In that same case Durkin granted Agri Stats summary judgment and dropped the company off the defendants list:
“There is evidence that the Agri Stats reports played a role in the alleged conspiracy. But that is because Defendants traded them with each other, thereby directly communicating their production and pricing information to their competitors, and crashing through the firewall of redacted information Agri Stats built… Just because Agri Stats provided a convenient form to transmit the information does not mean that Agri Stats itself joined the conspiracy (emphasis added). And there is no allegation that Agri Stats encouraged Defendants to exchange their reports with each other.”
If that’s not enough, Durkin also found “the act of trying to deanonymize information in the Agri Stats reports is not evidence of a conspiracy,” and that given the broad distribution of the benchmarking reports throughout the broiler chicken industry, it would be “irrational … to refrain from participation in Agri Stats when all your competitors are doing so.”
Let me translate. It’s peachy fine for Agri Stats to communicate Big Meat proprietary company production information. And it’s fine for Big Meat executives to try to decode Agri Stats’ masking system. What’s not fine is for Agri Stats to work directly with Big Meat, using their vast data set to offer up direction on how to increase profitability. Nor is it legal for Big Meat to conspire among themselves to increase profits based on their shared knowledge of Agri Stats reports.
And that, at least in litigation up to now, amounts to an Agri Stats get-out-of-jail-free card. The DOJ will have a big mountain to climb to prove Agri Stats is directly involved in conspiracy. Looking at the DOJ complaint, I’m not sure the feds have the goods.
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