Thank goodness the US Justice Department has again saved food consumers from, well, it’s kind of hard to say…
by Dave Albin via Mises
Thank goodness the US Justice Department has again saved food consumers from…well, it’s kind of hard to say. This time, the target is chicken producers, but I wrote about similar events several years ago with the dairy industry.
The latest developments involve a $110 million settlement and indictments of executives, such as chicken producer Pilgrim’s Pride on allegations of price fixing, a violation of antitrust laws. The usual impassioned arguments related to saving the hapless consumer are trotted out, but as with the dairy case, even minimal examination of the details behind the scenes leaves little or nothing to be desired with the whole process.
Let’s start with price fixing—the idea that several firms in the same industry worked together to control supply of a product for their mutual benefit. The definition of price fixing is shockingly wide open—for example, the agreement can be “inferred from conduct” (not written or stated) and goes beyond consumer prices to include “shipping fees, warranties, discount programs, or financing rates.” In addition, “circumstantial” evidence of price fixing may be all that’s needed. As stated at the link above, “When competitors agree to restrict competition, the result is often higher prices.” But surely even regulators can understand that other factors, such as increased input costs or taxes, can also result in higher prices for consumers?
The picture gets more muddled as one investigates the evidence. We get insight into how what may have been a meaningless metric played a major role. The now-suspended Georgia Dock market estimate was an ongoing voluntary survey of the prices chicken companies have been receiving. One Georgia Department of Agriculture employee would simply call around and compile the data from producers in a report. Of course, there was no way to audit the information being received and reported, but that didn’t stop a group of Wall Street investors from making a big bet against the chicken producers. Never mind the validity of the data—if it looked good on a spreadsheet, that’s apparently all that mattered to them. When the payoff didn’t happen as planned, the genius investors hired a lawyer who uncovered a document from the Georgia Department of Agriculture (from the same person who compiled the Georgia Dock) that questioned its validity. This, combined with discrepancies in different price reports, is what led to the price-fixing lawsuit, the settlement, and potential jail time for some chicken executives—never mind the very real possibility that supermarkets simply ignored the Georgia Dock and negotiated prices with chicken producers on their own. Or that the producers were somehow responding to market forces on their own. I suppose you can’t blame a group of Wall Street investors for not understanding that functioning markets can actually do several things—rise, fall, stay the same—and don’t just increase for decades on end by design.
It’s also comical that, while evidence of chicken executives discussing prices exists, the same documents also reported undisputed competition—you know, the thing the Justice Department says they should be doing. In one case, an executive stated that another company should “feel the pain” of supply shortages. “We should not help them one micron” was another response.
The fact that this is happening to chicken meat producers indicatives a galling lack of historical perspective for this industry and what it has meant for consumers. Chicken meat is now ubiquitous in the US and around the world, and this has only occurred in the past several decades due to tremendous advances in productivity and efficiency. Several decades ago, chicken was more expensive than beef, but thanks to research and advancements in technology, the time it takes for a bird to get to market is less than half what it was a few decades ago. There’s no question that issues of pollution originating from chicken waste and animal welfare concerns (not to mention worries about processing plant employees) exist, but given the enormous progress within the industry, there’s no reason to think that these things won’t continue to improve as well. Especially if we still give the market some breathing room now and then.
Unfortunately, this latest round of DC theater may drag on for years. However, we can feel some relief knowing that if productive groups like the chicken industry have taught us anything, it’s that they’ll find some way to persevere while continuing to supply more and more people a quality source of animal protein and nutrients—the very things we need to survive, grow, and flourish.
Dave Albin conducts process development research and provides technical support for a food equipment manufacturer in Iowa.