Is the U.S. chicken industry cheating its farmers?
The poultry industry has the potential to suppress farmers’ pay by using information from a secretive data-sharing company
The U.S. poultry industry is able to share highly detailed information on farmer pay, leaked documents show, giving companies the potential to collude and suppress prices paid to farmers already struggling to keep themselves afloat on razor thin margins.
A report for poultry companies produced by a secretive data-sharing company, reviewed in a joint investigation by The Guardian and the Food & Environment Reporting Network, shows how much producers are being paid per chicken alongside other sensitive market information. This information gives companies extraordinary power over farmers when negotiating the terms of their contracts, say industry experts.
The revelation comes as U.S. antitrust officials are conducting a grand jury investigation into poultry companies, following a massive class-action lawsuit alleging that the firms use that data company, Agri Stats, to keep supplies tight and artificially inflate chicken prices for customers.
Agri Stats produces daily reports for the poultry industry on chicken production, and has enabled companies to share detailed financial information with each other for decades. As well as data about farmer pay, the 2011 Agri Stats report reviewed by The Guardian and FERN includes information the industry considers proprietary, such as the amount of time elapsed between a farmers’ flocks and how farmer compensation in one region compares to the average for all farmers across the country.
Agri Stats says its information can’t be used to make decisions about future chicken production and pricing. But in lawsuits, farmers, wholesalers, distributors, and retailers have all alleged that poultry companies use the service to coordinate higher chicken prices and lower farmer pay.
The broiler chicken industry in the U.S. is highly consolidated, and just five companies — Tyson Foods, Pilgrim’s Pride, Perdue, Sanderson Farms, and Koch Foods — controlled about 60 percent of the entire chicken market in 2015. The companies own and operate all the means of production, including the feed mills, slaughterhouses, trucking lines and even the hatcheries that develop the best strains of chickens.
The only part of the market the biggest companies don’t own is the farm itself. Independent farmers borrow millions of dollars to build sophisticated warehouses where they raise hundreds of thousands of chickens at a time.
But there’s a catch to a chicken farmer’s independence: The farmers raise the birds under contract with an integrated company, giving firms strict control over the farming operations. The poultry companies own the chickens, the feed, and even control the chickens’ medical care. All farmers can do is try to raise the birds as efficiently as possible, even though most of the business is out of their hands.
This system has given the big processors far more power than farmers when negotiating the terms of grower contracts. The data that companies share through Agri Stats only enhances their control, farmers say, as it gives them a detailed view of how much their competitors are paying farmers. The reports are sent to executives who control as much as 95 percent of all the poultry production in the United States, including the largest companies.
Critically, none of the information in Agri Stats’ reports is available to the farmers themselves. This puts farmers at a severe disadvantage when they try to negotiate contracts or ask for pay raises, says C. Robert Taylor, an emeritus professor at Auburn University and a leading expert on antitrust laws and enforcement in the meat industry, who calls it “the biggest imbalance in all of agriculture.”
“Agri Stats strongly denies any and all allegations by farmers or plaintiffs in the ongoing lawsuits that Agri Stats reports can be used to coordinate either grower compensation or broiler prices … The work at Agri Stats is important and it really does help make protein production more efficient,” Agri Stats president Brian Snyder said in an email.
Yet some farmers have come together to sue these poultry companies over their alleged anti-competitive behavior. Charles Morris, one of the largest chicken producers in Kentucky who grows under contract for Tyson, and several other farmers brought a suit against Tyson in 2015, which is ongoing.
“We’re proud of what we do because we know we feed a lot of people in America and across the world,” he says of poultry farmers. “But we’re not proud of who we grow for anymore.”
It would be understandable to think that if farmers like Morris are fed up with Tyson, they could just drop their contract and sign up with another poultry company. But evidence suggests that this rarely happens. A report from the National Chicken Council, an industry trade group, found that in 2014 just 5 percent of growers switched poultry firms.
One reason for this could be that the poultry companies have an unspoken agreement not to poach farmers from one another, something farmers have alleged, including in a 2017 class action lawsuit. Another reason for farmers’ loyalty is that many poultry growers live in regions where, as a result of consolidation, there are just one or two processors left.
“If we could go someplace else, we would grow chicken for someone else,” says Morris. But instead, “you can’t go anywhere. You’re stuck.”
In the face of anemic competition, the take-home pay of chicken farmers has fallen. The same 2015 National Chicken Council report found that average farmer pay has fallen more than 6 percent between 1988 and 2015 when measured in 2009 dollars. Meanwhile, consumers spent $95 billion on chicken in 2019, and poultry companies have logged record-breaking profits in recent years.
“We’ve all at one time or another contemplated having to file bankruptcy,” says Morris.
Asked to comment on farmers’ allegations and on stagnant wages, Tom Super, senior vice president of communications at the National Chicken Council, wrote in an email that the Council has “nothing to do with grower pay, which is determined by a business contract between two private parties.”
“The average contract farmer has been raising chickens for us for 15 years,” wrote Gary Mickelson, director of media relations at Tyson Foods, in an email. “The compensation we provide is set out clearly in contracts the farmers voluntarily enter into and the contracts are typically three to seven years or longer. The farmers are free to discuss the terms of their contracts with whomever they want, including other farmers.”
Morris’ suit names Agri Stats as a key player in the alleged scheme to reduce farmer pay. Morris has some experience with Agri Stats himself: He was once a board member of the poultry farmer collective Gold Kist, which was bought by Pilgrim’s Pride in 2006. During his tenure on the board, the processor used Agri Stats reports to guide its decision-making, said Morris, calling it “the Bible [of] the poultry industry.”
Agri Stats was founded in 1985 by poultry feed dealer Jim Cox. Cox told Bloomberg Businessweek in 2017 that Agri Stats vetted its business model with an outside attorney to make sure that it conformed with antitrust laws.
The Department of Justice has also looked into whether Agri Stats’ model violates antitrust law. In 2010, then-assistant attorney general Christine Varney launched an investigation into Agri Stats’ legality. The investigation closed in 2012, and the DOJ did not require the company to change anything about its business model.
Now, the Trump administration has seemingly re-opened the case. On June 21, the DOJ intervened in a private-sector class-action lawsuit filed by food distributor Maplevale Farm. The agency asked the U.S. District Court for the Northern District of Illinois to stop work on the case temporarily to prevent interference with DOJ’s own grand jury investigation.
Agri Stats argued during the 2010 investigation that it operates simply as a benchmarking service, and that it preserves confidentiality among processors by masking the sources of the data it reports. A manager at Tyson, say, would see his particular “complex” — the collection of farmers surrounding a particular processing plant — listed by name in his version of a report, but the other complexes would be listed only as a number.
In practice, however, there is evidence that the poultry companies can reverse engineer the data to figure out which complex belongs to whom.
Rita Korn worked for Agri Stats as a senior executive assistant and office manager from 1996 to 2013, when she was fired. While bitter about her firing, Korn only spoke with admiration about Jim Cox and most of her time at Agri Stats. She says it was easy for poultry companies to figure out which plant was which. This was partly due to the fact that the plant numbers did not change from report to report, Korn said.
“Those people all know each other,” Korn says. “Anybody that followed those numbers and had a brain in their head — if they were in top management at one of those places — they knew who was who in those books. Your job is to figure out who was who in this book. I think they cared more about that than they did their own numbers.”
Agri Stats denied during the 2010 investigation that the data in its reports were identifiable to industry insiders and couldn’t be used by competitors in an anti-competitive manner because Agri Stats does not collect data on the nature of farmers’ contracts with processors.
Taylor says that in order for a collusive agreement to work, there has to be a mechanism in place to monitor competitors’ behaviors and ensure no one is breaching the agreement. “That’s where Agri Stats, or something like Agri Stats, can get in to a collusive arrangement,” he says.
In January, the two largest U.S. food distribution companies, U.S. Foods Inc. and Sysco Corporation, brought lawsuits against Tyson Foods and other big poultry companies alleging that they used Agri Stats data as a tool to coordinate their production cuts, inflating prices for consumers. Food retailers Walmart, Kroger, Albertsons, and others have since brought similar suits. Agri Stats was recently dismissed as a defendant in a lawsuit that alleged it was used to facilitate anti-competitive behavior in the beef sector.