September 5, 2022

 

Antitrust regulator supports US efforts to change manner chicken firms pay farmers

 

 

One of the United States' top antitrust regulators is backing the Joe Biden administration's efforts to change the way chicken companies pay farmers, a move that could potentially reshape the industry.

 

Federal Trade Commission Chair Lina Khan praised USDA regulations that would protect poultry growers paid via the controversial "tournament system," which pits farmers against each other in a zero-sum game for a pool of money. Her statement adds momentum to the government's efforts to limit companies from using the payment method. She also publicly urged the department to do more.

 

The proposed regulations are "an important first step," said Khan. More rules restricting "deceptive, unfair, and discriminatory contract terms and business practices is needed," she added.

 

Antitrust in the meat industry has been in focus recently, as prices for beef, chicken and pork have been soaring and are a major contributor to the worst US inflation in four decades. Meatpackers have netted record profits while farmers have missed out on winnings.

 

The Justice Department last month made abandonment of the the compensation system a condition for proceeding with the Wayne-Sanderson Farms merger, which combined the country's third- and sixth-largest chicken producers.

 

Most processors, including Tyson Foods Inc. and Pilgrim's Pride Corp., compensate farmers via the tournament system, which rewards farmers that end up with the biggest birds. That's even though companies control and own everything from feed to the animals themselves, and farmers only provide housing and labor.

 

Critics said the tournament system rankings are often opaque, open to abuse, and subject to factors more in control of the processor. The system has come under fire especially over the last decade as more stories of poultry farmers forced into bankruptcy due to method have come into public view.

 

Khan wrote an article a decade ago detailing abuses of farmers by large chicken processors. In her comments on the proposed USDA rule, she noted many chicken farmers have little choice in processors to work for in their areas, citing 2012 research finding half of US chicken farmers can contract with only one or two poultry processors.

 

To remedy what it sees as too much concentration in the meat seat sector, US President Joe Biden issued an executive order earlier this year that included US$1 billion in federal aid to help smaller meat producers take on big packers.

 

The meat industry has also been targeted in a slew of price-fixing and antitrust lawsuits. Meatpackers have paid hundreds of millions in settlements with retailers in recent years.

 

- Bloomberg