US Foods sues Tyson, Perdue, Koch Foods over chicken prices – Consumer News

on Jan31

31 January 2018 | 6:31 pm

US Foods, the major food distributor based in Rosemont, is suing 10 chicken suppliers, including Park Ridge’s Koch Foods, alleging they illegally inflated their wholesale chicken prices by limiting supply while falsifying a pricing benchmark. Also named: Tyson and Perdue.

The lawsuit, filed in U.S. District Court in the Northern District of Illinois, alleges Tyson, Perdue, Koch Foods and their subsidiaries submitted false and artificially inflated information about its production levels to Agri Stats, a subsidiary of pharma giant Eli Lilly, and the Georgia Dock, a weekly benchmark price list compiled by the Georgia Department of Agriculture. Agri Stats is also a defendant in the case. (You can read the suit at the end of this story.)

The result, US Foods alleges, was an “unprecedented” reduction in the number of breeder chicken flocks beginning in 2008. This reduction, the lawsuit claims, disrupted the normal boom-and-bust cycles in the industry, in which producers reacted to rising prices by increasing production, which would then lead to oversupply and subsequent price reductions. “Defendants not only materially reduced or eliminated the historical boom-and-bust cycle of the chicken industry, they propped up chicken prices during periods of rapidly falling input costs by, among other means, coordinating supply restrictions and manipulating . . . price indices,” the complaint says.

The lawsuit by US Foods, which provides food to restaurants, hotels and hospitals, was joined by a separate complaint from Sysco, another major food distributor, headquartered in Houston. Together, the lawsuits represent the latest in a slew of litigation against the chicken industry. Restaurants and grocery chains have filed similar suits since 2016.

The US Foods complaint alleges that, beginning in early 2008, the defendants destroyed the breeder hens that produce broiler chickens—the chicks raised for meat consumption that comprise 98 percent of chicken meat sold in the U.S., worth about $22 billion to $33 billion annually over the past decade. These coordinated production cuts, which also included destroying eggs and exporting excess breeder flocks to Mexico, continued over time. By 2012, the suit claims, wholesale chicken prices had spiked 50 percent.

Furthermore, US Foods alleges, the 10 supplier defendants—which together control the vast majority of the chicken industry—used “modern technology” to circulate production and pricing data and forward-looking estimates among each other via Agri Stats. That allowed a coordinated reduction in supply that artificially boosted prices, even as the suppliers’ costs to produce the chicken fell significantly between 2014 and 2016, according to the suit.

US Foods claims the defendants reported prices that kept the Georgia Dock index higher than other chicken indices, including one produced by the U.S. Department of Agriculture. The Georgia Agriculture Department stopped compiling its index in late 2016.

Koch did not respond to a request for comment. A Tyson spokesman said the claims are unfounded and that the company “will continue to vigorously defend” itself. A Perdue spokeswoman declined to comment on pending litigation.

US Foods generated $22.9 billion in revenue in 2016 (it reports 2017 results in mid-February), while Sysco reported $55.4 billion in 2017 sales. In 2015, the companies nixed a proposed merger after the Federal Trade Commission sued to block the tie-up, noting that such a union would control three-quarters of the U.S. food service market.

US Foods v Tyson by AnnRWeiler on Scribd



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