Two large poultry processors agreed to guarantee a base payment to the farmers who raise their birds, a fundamental reform of the so-called tournament system that pits growers against each other for income, said the Justice Department on Monday. The reform was part of a proposed consent decree that would order the processors, Sanderson Farms and Wayne Farms, plus Cargill Inc. to pay $84.8 million in restitution for conspiring to hold down wages paid to processing plant workers.
The consent order, open to public comment for 60 days after publication in the Federal Register, would resolve a civil antitrust lawsuit against the three processors. The lawsuit and the proposed decree were announced at the same time and were part of a broader investigation of anticompetitive labor market abuses in the poultry processing industry, said the Justice Department.
Poultry farmers will benefit from the “significant reforms to the tournament system, including ending one of its troubling aspects around deceptive base prices, and enhancing transparency in contracting, earnings and inputs,” said Andy Green, USDA senior advisor for fair markets. The USDA proposed a regulation in June to revamp the tournament system to give poultry farmers more protection against abuse by processors.
As part of the highly integrated poultry sector, farmers sign contracts to raise broiler chickens, with the processors providing the birds and the feed. Pay is generally determined by how well the farmers perform compared to other farmers — the so-called tournament. The processors “control nearly all the key inputs … that often determine a grower’s success,” said the Justice Department.
Under the proposed consent decree, Sanderson Farms and Wayne Farms would be barred from penalizing farmers by reducing their base payments as a result of relative performance. Incentives, bonuses and other types of payments would be allowed. The two companies also would be required to provide more information to growers in their contracts, similar to the transparency rules proposed by the USDA. They would be prohibited from retaliating against growers who raise antitrust concerns.
“The greatest achievement in this agreement” was the requirement to pay contract growers “a guaranteed base price for each chicken and to implement a bonus system,” said the group Farm Action. “If firms as large as Cargill-Continental no longer use this (tournament) system and instead demonstrate greater respect for workers and contract growers, the dynamics of the entire poultry industry may well change.”
Farm Action used the name Cargill-Continental because Sanderson Farms has been purchased by a joint venture of Cargill and Contiental Grain Co and combined with Wayne Farms, a Continental subsidiary, to create a new business named Wayne-Sanderson Farms. The purchase was announced last August and completed at the end of last week. The deal was valued at $4.5 billion.
Restitution to workers would be funded by $38.5 million from Sanderson Farms, $31.5 million from Wayne Farms and $15 million from Cargill, said the proposed decree.
A court-appointed monitor would have broad powers to ensure compliance with the consent decree, which would be in force for 10 years. The processors would be barred from activities such as taking part in surveys by consultants that facilitate the sharing of information on wages and benefits.
“Through a brazen scheme to exchange wage and benefit information, these poultry processors stifled competition and harmed a generation of plant workers who face demanding and sometimes dangerous conditions to earn a living,” said Doha Mekki, principal deputy assistant attorney general of the Antitrust Division.
The proposed consent decree is available here.
The antitrust lawsuit is available here.