Grocers File Price-Fixing Lawsuit Against Major Beef Producers

Customers who have been shopping for beef have noticed that they are paying more than they did at the start of the year. Beef producers have claimed that labor shortages have forced them to curtail production, thereby raising prices for their products. However, recent investigations and accusations made in class action lawsuits may show that beef producers are not on the level when it comes to supplying the marketplace. A new lawsuit filed by an association of grocers alleges that the top four meat producers in the United States have been conspiring to limit supply since the start of 2015 in the hopes of raising prices.

Companies in an industry are forbidden from colluding with each other either overtly or tacitly. They cannot fix prices or agree to limit supply in order to impact prices. This is a violation of the antitrust laws that protect competition in the United States. This is exactly what the beef companies are accused of doing in the lawsuit.

The evidence in the lawsuit comes from both witnesses and examination of each of the company's operating margins. According to the plaintiffs, the two back each other up as evidence of a conspiracy.

A Witness Claims Hearing Mention of an "Agreement"

The lawsuit cites the testimony of a witness who used to work for one of the companies named in the complaint. This particular witness worked as a quality assurance supervisor for ten years. The witness has testified that they heard direct evidence of the agreement from a fabrication manager at the plant who explicitly used the word "agreement" to describe the alleged cooperation between the beef producers. In the witness' plant, the defendant only slaughtered 4800-5000 cattle per day at one plant when the capacity was much higher.

Here, the beef producers' expanding margins also come into play as proof in the lawsuit. The producers profit from the spread between the price of cattle and the wholesale price of beef. This compensates them for the services that they provide in slaughtering the cattle and packing the meat.

While there are some variations in the average spread, large hikes may be evidence that there are illegalities. From 2010 to 2014, the average spread was 34%. However, the spread increased 59& by 2018. In other words, there is a much bigger disparity between the price of cattle and the wholesale price of beef than there almost ever has been. This means that both cattle farmers and consumers end up taking hits to their bottom line with the money going directly to the beef producers.

This is before the recent price spikes that the manufacturers have attributed to COVID-19. In other words, the four major beef companies are making a lot more money recently than they historically have. This manifests itself in higher grocery bills paid by consumers, even when the price of other food staples has stabilized.

This is not the only lawsuit against the major beef producers for their pricing practices. They are also accused of conspiring to limit prices paid to cattle producers. The combination of low prices paid for inputs and higher prices charged to grocery stores has boosted these companies' bottom lines.

The U.S. Beef Industry Is an Oligopoly Controlled By Four Producers

One of the issues with the U.S. beef market is that four companies control roughly 805 of the market. This means that they can essentially decide the price if they illegally work together. Antitrust policy usually tries to prevent situations like this from occurring. However, there are some instances in which a small number of participants can practically dictate prices in the wholesale market. Then, grocers end up passing the higher prices along to the consumer at the checkout line.

When alleged conspiracies like this occur, the companies can face two different punishments. Violations of antitrust laws can even lead to criminal prosecutions against individuals and companies. Penalties can range from large civil fines to jail time for the individual conspirators. Currently, the Department of Justice is investigating these four companies for an illegal conspiracy.

Then, the companies can also be found liable in a civil class action lawsuit. Oftentimes, companies will be facing both of these legal tracks at once, as the beef industry is here. When there is an antitrust lawsuit, the law allows the companies behind the behavior to be forced to pay up to three times the amount that they reaped from their scheme.