Reposted from: https://www.nytimes.com/2023/11/29/magazine/chicken-industry-antitrust.html
At Kentucky Fried Chicken, sales tend to peak at the same time every year: Mother’s Day. This has been the case since the 1960s, when the chain began to experiment with TV advertising. In a spot from that era, a man in an office answers a phone call from an anonymous male narrator who asks, “Sir, do you have any idea what your wife has to do to run your house?” Cut to a sped-up montage of an impeccably dressed 30-something as she dusts, irons, vacuums and balances the checkbook. Newly enlightened, the husband shows his appreciation by stopping at Kentucky Fried Chicken on his way home. Cut to a close-up of a happy wife biting into a drumstick. “Colonel Sanders fixes Sunday dinner seven days a week, and it’s finger-lickin’ good.”
The ad-created tradition endured even after the commercials stopped running, with dads and daughters expressing familial devotion by lining up at the drive-through window for eight-, 12- and 16-piece buckets of fried chicken. That’s why Mother’s Day 2014 was such a corporate disaster: Some KFC restaurants ran out of chicken, according to James Olson, a franchise owner and executive involved with buying chicken. Panicked management scrambled to purchase backup truckloads of meat at huge markups, but there wasn’t enough to go around. Franchisees, frantic, shuffled wings and thighs from one location to another to cover the shortages. Stores closed early. Brands spend years and vast marketing budgets trying to establish themselves as part of their customers’ holiday routines. The 2014 interruption threatened to undo five decades of Mother’s Day magic.
The trouble was that KFC’s chickens are small. The bird that made Colonel Sanders a household name is lighter than the raw chicken you buy in the grocery store: KFC chickens weigh in at about four pounds before they are killed, rather than the more common six pounds. That spring, small chickens were becoming harder to find as feed prices fell and the profits to be made from producing larger birds swelled. One of the chain’s suppliers had converted a small-bird processing facility into a large-bird plant, and KFC, as Olson recalled, was having trouble finding the 400 million pounds of small chicken it used each year to fill its buckets. Shifting to large birds was not an option in the near term. The chain’s fryers were all calibrated to cook chicken pieces of specific dimensions for the exact same amount of time — consistency is key in the fast-food industry — and a larger chicken fried according to small-chicken specifications ran the risk of being undercooked.
Soon after the Mother’s Day catastrophe, KFC’s chicken buyers paid McKinsey, the consulting firm, about $1 million to spend six weeks looking into the small-chicken conundrum. The firm found that if KFC didn’t lock down a consistent, long-term supply of small birds, it could lose as much as $1.5 billion in sales.
The KFC team buys its chicken through a bidding process. Its suppliers — chicken companies like Tyson Foods, Pilgrim’s Pride and a handful of others — are expected to compete with one another for KFC’s business by submitting confidential bids for contracts to sell to the fast-food chain’s franchises. One chicken processor might bid for business by offering 63 truckloads of chicken per week for $0.977 a pound, while another might send in a bid for fewer truckloads at a slightly lower price. KFC’s buying team spreads business among these suppliers according to transportation costs and other considerations, awarding the biggest contracts to the most attractive bids. In the summer of 2014, prompted by the Mother’s Day shortages and McKinsey’s warning, KFC’s buyers solicited bids for three-year contracts, hoping to stabilize their supply of small chickens.
Pilgrim’s Pride, a chicken supplier majority owned by JBS, the largest meat-processing company in the world, prepared to take advantage of KFC’s vulnerability. The fast-food chain was one of the biggest players around, and if KFC buyers agreed to pay more for small chickens, other big chains would have to follow its lead. In the weeks leading up to the bid, Pilgrim’s Pride executives traveled around to customers with a PowerPoint presentation to explain why they were increasing prices. During this “blitz,” they showed slides charting the shrinking supply of small birds and the higher profitability of larger birds. They argued that they needed higher compensation to continue to produce small birds; they hinted that they might convert another plant from small birds to larger birds if they couldn’t raise their profits.
At one such presentation to Popeye’s chicken buyers in Atlanta that July, a Pilgrim’s Pride salesman named Robert Bryant found himself in a room with his boss, Jason McGuire, their colleague Roger Austin and one other Pilgrim’s employee. In Bryant’s later testimony, McGuire turned to Austin and said, “I need you to put this out to the industry.” Bryant took this to mean that his boss wanted Austin to share the price-increase plan with their competitors. “I remember thinking, That’s how it works,” Bryant would later testify. “You know, this was one of my first national account meetings and I just — I didn’t realize that we shared that type of information with our competitors.”
When the KFC team received the proposed prices in suppliers’ bids that August, the magnitude of the increases was unprecedented — “disturbing,” one negotiator for the buying team later told a jury. Pilgrim’s Pride wasn’t the only processor to submit higher-than-usual quotes for small chickens: All the other suppliers had followed suit, asking for huge price increases.
The uniformity of the bids was no coincidence. The putative competitors were maintaining a steady stream of back-channel communications among themselves. Some seemed to take a perverse delight in imagining the KFC team’s reaction to their bids. “Can you smell their dirty drawers from where they crapped their pants? Ha,” McGuire wrote in an email to a colleague. A dismayed Olson tried to make deals with individual suppliers, but the sellers held firm.
The chicken companies got what they wanted; the KFC team agreed to price increases that roughly doubled each supplier’s profit. Pilgrim’s Pride’s profit margin rose to 22 cents per pound, up from 12 cents. The other six suppliers all raised their own profits on the KFC account by eight to 14 cents per pound. If KFC franchises purchased their typical 400 million pounds of chicken the following year, the impact of an average 10-cent-per-pound increase would have added up to $4 billion in additional profits for the chicken suppliers.
Jayson Penn, who later became the chief executive of Pilgrim’s Pride, referred to 2014 as “chicken nirvana.” In just one summer, a handful of friendly executives managed to increase prices for much of the fast-food industry thanks to an ominous PowerPoint presentation and a handful of back-channel phone calls. This was possible in part because four companies — Tyson Foods, Pilgrim’s Pride, Sanderson Farms (which in 2022 merged with the No. 6 producer, Wayne Farms) and Mountaire Farms — control more than half of the $50 billion in chicken raised, processed and sold annually in the United States. Once the small-bird processors began to talk to one another, capitalizing on KFC’s vulnerability was as straightforward as asking for a raise in unison and then refusing to negotiate. (KFC did not respond to requests for further comment.)
By 2020, the Department of Justice had begun to home in on the poultry-processing industry. That spring, a Wall Street Journal news alert appeared on Penn’s phone: “Chicken Industry Executives Indicted on Price-Fixing Charges,” the headline read. That, he claims, is how he learned the Justice Department was saying that he had conspired to restrain trade between 2012 and 2017. The criminal case would expand to include nine other executives from Tyson Foods, Claxton Poultry, Koch Foods and George’s Chicken, as well as the years 2018 and 2019. The centerpiece of the investigation was the intra-supplier coordination that took place throughout the summer of 2014 — the year that would come to be described as, in the words of a federal prosecutor, “the year the conspiracy went into overdrive.”
After the outgoing Trump administration passed the criminal case to the incoming Biden administration, the poultry industry became a focal point for the new president’s promise to take on anticompetitive behavior in the business world. In 2022, the Justice Department filed lawsuits claiming poultry processors held annual retreats where they conspired to suppress workers’ pay and used a data-sharing platform that enabled anticompetitive behavior. The poultry industry seemed like a straightforward target for reform, in contrast to more complicated battles against Big Tech. But today the government’s case against Big Chicken feels more like a cautionary tale about the difficulty of reviving antitrust enforcement after a half century of neglect.
Squint a little and the allegations made by federal prosecutors make for some powerful imagery: corporate executives at a beachside resort in Florida colluding to tamp down pay for low-wage poultry workers, many of them immigrants, while colleagues back home collaborate with the same set of would-be competitors to increase prices for their customers. It’s not too dissimilar from a late-19th-century political cartoon, published in the humor magazine Puck, that depicts Cornelius Vanderbilt, Jay Gould and other robber barons seated atop giant sacks of money. Underneath them, workers from various industries carry the raft of moneybags on their shoulders, eyes downcast.
For antitrust advocates in Washington, newly empowered by the Biden administration, the parallels between the two scenes are more than superficial. Decades of lax antitrust enforcement have led to a new Gilded Age, writes Tim Wu, a former White House official in the Obama and Biden administrations, in his 2018 book, “The Curse of Bigness.” In this view, the country again finds itself in an era in which powerful companies run roughshod over their workers, their suppliers and the politicians who are supposed to maintain a balance of power.
Soon after taking office, Biden took steps to reinvigorate enforcement of antitrust law. He appointed three “antitrust hawks,” as Politico called them, to high-level government positions: Wu joined the National Economic Council (he has since returned to Columbia University); Lina Khan, a prominent antimonopoly advocate, became chairwoman of the Federal Trade Commission; and Jonathan Kanter, a vocal critic of concentrated power in the tech industry, now leads the Justice Department’s Antitrust Division.
These lawyers and others, dubbed by some critics as practitioners of “hipster antitrust,” have argued that federal antitrust enforcement lost its way during the Reagan administration. The courts’ interpretations of the laws regulating competition have since been dominated by a doctrine called the consumer-welfare standard, which holds that corporate consolidation is acceptable — even a good thing — when it leads to lower prices. Sanjukta Paul, a law professor at the University of Michigan, summarizes the theory this way: “If powerful people are doing something, it must be because it’s productively efficient, and therefore, it’s growing the pie for everyone.”
For Wu and others, the consumer-welfare standard is outdated. One of the overarching consequences of all that consolidation, they argue, is that companies have accrued too much power, and now they’re abusing it. The resulting dynamics contribute to a host of societal ills, like wage stagnation, stifled innovation, rising inequality and disproportionate political influence flowing to the ultrarich. Khan came to prominence in 2017 after she published a Yale Law Review article called “Amazon’s Antitrust Paradox.” Her article pointed out that while Amazon’s business was extraordinarily customer-friendly, the company’s dominance enabled it to control increasingly large swaths of the ecosystem in which it operated. Shouldn’t the government be able to limit the impacts of Amazon’s market power on vendors and workers even if its consumers aren’t unhappy? “At the broadest level, there’s a strong desire to turn the corner on 40 years’ trajectory in antitrust and try to move the ship in a different direction,” Wu says. “The main goal is not to sort of tinker around the edges, but to turn the ship in a different course and return to another set of American traditions, from different eras, that had a much broader view of what antitrust was supposed to do.”
In practical terms, this means taking legal actions that attempt to reverse the decades-long narrowing of courts’ interpretation of antitrust laws and set new legal precedents that protect consumers and also workers, small businesses and start-ups. This is accomplished by prosecuting both price-fixing agreements that harm shoppers and anticompetitive behavior that harms workers, like wage-fixing schemes among rival companies. It also means considering more than just the sticker price of goods and services when deciding whether to approve mergers and acquisitions.
The vision is expansive, and the Justice Department’s Antitrust Division under Biden has taken legal action against not only companies like Google — which offers many of its products to users free but stands accused of illegally monopolizing digital advertising and search technologies — but also small businesses like a handful of home-health-care agencies in Maine whose managers were accused of conspiring to suppress wages. In November, a trial got underway to decide whether the Justice Department could prevent JetBlue from acquiring Spirit Airlines. While the government’s track record has been uneven — it lost the home-health-care case, and the Google and JetBlue cases are proceeding — the Antitrust Division successfully blocked the merger of the publishing companies Penguin Random House and Simon & Schuster in part by claiming that further book-industry consolidation could suppress authors’ earnings, an unconventional argument that shifted the focus away from sticker prices for hardbacks.
Like the Justice Department, the Federal Trade Commission also has the power to police antitrust violations. In September, the F.T.C. filed what amounts to the government’s most significant antitrust case yet. After a multiyear investigation, the agency and 17 state attorneys general accused Amazon of anticompetitive tactics, including the use of an algorithm that raised prices for customers and an anti-discounting measure that punishes sellers who market their products elsewhere. The F.T.C. has also tried to block Meta from acquiring the virtual-reality start-up Within and Microsoft from buying the video-game maker Activision Blizzard.
Among these marquee names and splashy allegations, chicken companies stand out for the sheer volume and variety of antitrust lawsuits filed against them. By the time Biden took office, Pilgrim’s Pride and many of its competitors had already been hit with a cascade of slow-churning private-sector lawsuits claiming they conspired with one another to rig bids, constrain the chicken supply, suppress workers’ wages, fleece farmers on pay and lie to shareholders, among other things. Plaintiffs included pretty much everyone the poultry processors did business with — their customers, their farmers, their workers and their shareholders.
Khan has characterized her career in antitrust as beginning with her research into the poultry industry. “You have millions of consumers on one end, millions of farmers on the other end, and they’re connected by a very small number of intermediaries,” she told The New Yorker in 2021. “I think those types of markets where you have deep asymmetries of power, sometimes on multiple sides of the market, can lead to all sorts of business practices that are harmful.” The structure of the poultry market she describes is not unlike Amazon’s: Farmers and sellers interact with eaters and shoppers through a powerful intermediary, which has the ability to control — and manipulate — the flow of goods.
“These are issues that have festered for a quarter of a century or more,” says Peter Carstensen, an emeritus professor at the University of Wisconsin law school who focuses on antitrust issues in agriculture. “So we’ve finally got an administration that says: ‘We get it, there are some problems here. Maybe we should do something.’”
The first criminal trial for the executives accused of cheating KFC was held in Colorado, where Pilgrim’s Pride is headquartered, in the fall of 2021. Jurors wore masks and sat in alternating chairs spaced three feet apart. Lawyers for the executives, all of whom pleaded not guilty, argued that their clients never broke the law. “Chicken nirvana has nothing to do with the conspiracy,” John Fagg, a defense lawyer for Bill Lovette, a former Pilgrim’s Pride chief executive, said. “It’s two employees of Pilgrim’s Pride emailing with one another.” He proposed an alternative explanation for the major price increase in 2014: “price courage.”
The defense lawyers said that it was market forces, not a conspiracy, that drove up the prices of small birds during the 2014 KFC negotiations. They pointed to the fact that their clients were earning higher profits on large birds and that the supply of small birds available to KFC had been shrinking — the growth of other customers, like Chick-fil-A, had increased the competition for the small birds. Pilgrim’s Pride hadn’t led a 10-person conspiracy in a bid-rigging play; rather, executives had simply surveyed the market, determined that their product was underpriced and bravely confronted the problem.
The defense also argued that it’s not illegal for competitors to share pricing information with one another. To prove a crime was committed, the government had to demonstrate that the executives agreed to rig bids or fix prices. Despite text messages showing a Claxton Poultry executive telling a colleague he had phoned a competitor “and told him not to come down on price,” lawyers for the defense insisted that the executives acted independently. As a defense lawyer put it in an opening statement: “Isn’t what happened here what businesspeople do every day, try to find out as much as they can about what their competitors are doing, so they can make their own best decisions about what to do?”
As for the flurry of phone calls that the chicken processors exchanged with one another during key moments in the KFC negotiations, their lawyers said those could have been about anything. Poultry processors routinely sell one another truckloads of chicken when they’re running short. Defense lawyers also tried to discredit Bryant, the only person to take the stand who witnessed the alleged crimes, by showing that he had lied to the F.B.I. (the substance of those lies was not made public).
After deliberating for nearly four days, the jury decided it could not come to an agreement, resulting in a mistrial in December 2021. The government made plans to retry the case.
The following month, Biden participated in a round-table discussion with Attorney General Merrick Garland, Secretary of Agriculture Tom Vilsack and a handful of small-business owners and farmers. The occasion, which took place over a video conference call, was the announcement of an action plan to encourage fairness and competition in the meat-and-poultry supply chain. “In too many industries, a handful of giant companies dominate the market,” Biden said after wishing everyone a happy new year. “And too often, they use their power to squeeze out smaller competitors and stifle new entrepreneurs, making our economy less dynamic and giving themselves free rein to raise prices, reduce options for consumers or exploit workers.” Then he added, “The meat industry is a textbook example on the price side.”
Three members of the White House’s National Economic Council had recently published a political brief pinning some of the blame for rapidly rising inflation on the meat industry, citing statistics showing that price increases for beef, pork and poultry accounted for half of the uptick in families’ grocery expenditures since December 2020. The brief noted that the companies’ profits were up. They didn’t explicitly use the term “greedflation,” but the concept is exactly what the authors described. “The dynamic of a hyper-consolidated pinch point in the supply chain raises real questions about pandemic profiteering,” they wrote.
The fix, Biden said, was a multipart plan that would involve the Department of Justice, the Department of Agriculture and the White House. The Department of Agriculture would develop new regulations to strengthen existing competition laws and fund independent slaughterhouses. The newly created White House Competition Council would coordinate government efforts to enforce antitrust law.
The price-fixing case fit neatly into the overarching strategy, but the March 2022 retrial resulted in another hung jury. As Kanter, one of Biden’s “antitrust hawks,” pushed for a rare third jury trial that year, the government dropped the charges against five of the 10 executives. Having presided over the first two mistrials, the judge, now skeptical, asked Kanter to justify a third attempt. Kanter insisted that the streamlined strategy would strengthen the case and said he had “every bit of confidence” the trial would result in convictions.
About two months before the third trial, Kanter told an audience at the University of Chicago, “We are not part of the chickenshit club.” He was acknowledging a series of setbacks for his Antitrust Division and using a term popularized in a 2017 book by the journalist Jesse Eisinger that critiqued federal prosecutors’ reluctance to pursue corporate executives. Kanter was sending a signal: He wouldn’t back down, even if his team lost big cases. To make sure the subtext was clear, he told the audience that he instructed staff members to blast the Tom Petty song “I Won’t Back Down” on repeat.
Despite the streamlined strategy for the third trial, the jury acquitted the businessmen on all counts in early July 2022, after 10 hours of deliberations. The criminal case was over; the government lost. Federal prosecutors had faced hurdles in the case: high turnover among trial lawyers between the indictment and each of the three trials, a complex and sprawling set of allegations that were difficult to explain to a jury and a defense that had seen the prosecutor’s arguments twice already. Nor were prosecutors allowed to present any evidence about whether KFC passed the cost of the suppliers’ price hikes onto its customers — had such evidence proven substantial, it might have made the impact of the alleged bid-rigging feel more tangible for the jury.
Afterward, defense lawyers criticized the public statements the Biden administration made blaming meat companies for high grocery-store prices. “What this case shows, at least to me, is that populism is not really a strategy for law enforcement,” says Michael Tubach, a defense lawyer for Penn. “You can issue all the press releases you want and get as much publicity as you want about these kinds of kitchen-table issues, but in order to secure a criminal conviction, you still have to do your homework. And I think it’s pretty clear in this case, the government didn’t do its homework.” The evidence of a conspiracy to fix prices, he said, was insufficient. (Koch Foods and Case Farms did not respond to requests for further comment. George’s Chicken, Tyson and Pilgrim’s Pride made no additional statement on the cases. Claxton and Perdue both gestured toward the failure of the government’s prosecutions as evidence they were not involved in any wrongdoing.)
“If a jury actually believes in the presumption of innocence, and the requirement of proof beyond a reasonable doubt, that’s a tough mountain to climb,” Carstensen, the University of Wisconsin emeritus professor, says. “All that said, I was surprised by the result. It seemed to me that what the defendants admitted to was discussing prices with each other — the thing at the center of a price-fixing conspiracy.” Evidence later made public provided hints that the executives themselves believed they had broken the law. “FYI. Do not fwd. not exactly a legal conversation,” Penn wrote in a 2012 email.
With the loss of the jury trial, Biden’s plan to address competition in the meat industry appeared to falter. Still, criminal trials were just one part of the strategy. The Department of Justice could still bring civil cases against the poultry processors. Less than three weeks after the bid-rigging trial ended in defeat, the department’s Antitrust Division sued poultry processors again. This civil suit focused on another type of illegal anticompetitive behavior: wage suppression.
Every year, usually in May, representatives from about 20 poultry-processing companies, which collectively employed 90 percent of the industry’s workers (a total of roughly 240,000 in 2020), flew to a secret meeting. They called themselves the Poultry Industry Survey Group. In 2000, they hired a small consulting firm based in Pennsylvania — Webber, Meng, Sahl and Company — to conduct a detailed annual survey about each company’s current and future pay rates. The firm’s president, Jonathan Meng, later said in a declaration to the court that he would deliver a PowerPoint presentation with big-picture takeaways, then he would leave and the executives would meet behind closed doors, sometimes for another full day. Each company paid Meng $995 for the service, a fee that went up to $1,100 in 2018.
Over the years, according to Meng, he became concerned that his presence was meant to provide a cover for illegal anticompetitive behavior among the group’s members; sometimes he warned the conference organizers that they were violating antitrust laws. But he didn’t quit the job. In 2017, fearing legal action, the group members dubbed him their “Antitrust Guidon,” using a military term for a flag flown when a commander is present, and asked him to ensure that no one broke the law at the conference. Despite the precaution, some participants’ corporate counsels forced them to drop out of the proceedings. Meng’s 2019 presentation made an attempt at gallows humor. Paraphrasing Shakespeare on a slide that listed the recently exited companies, he wrote, “The first thing we do, let’s kill all the lawyers.”
Later that year, following a private investigation, lawyers filed a class-action lawsuit, Jien, et al. v. Perdue Farms, Inc., et al., against Meng’s company and members of the Poultry Industry Survey Group, including all but one of the companies involved in the separate price-fixing case, on behalf of employees who claimed that the conferences amounted to a wage-suppression conspiracy. As part of a settlement, Meng outlined his role in the conferences in vivid detail in the declaration to the court. In the document, Meng maintains his innocence, portraying his company as an “unwitting tool” of the processors’ misconduct. (He could not be reached for comment for this article.)
The Justice Department evidently was not persuaded that Meng’s firm was an “unwitting tool,” because it named him as a defendant in a civil complaint filed in July 2022 against Cargill, Sanderson Farms and Wayne Farms. (The complaint also referenced 18 unnamed poultry-processor co-conspirators.) Relying heavily on Meng’s declaration to the court, the government claimed that the processors “artificially suppressed compensation” and “deprived a generation of poultry-processing-plant workers of fair pay set in a free and competitive labor market.”
Kanter has said that he is not a fan of complex settlements in which companies agree to change their business practices to secure the approval for a merger (he prefers that the government simply block potentially problematic deals). But on the same day that the Justice Department filed its civil lawsuit, it also filed a proposed final judgment in which the companies agreed to pay $85 million in restitution to their workers. The consent decree stipulated that, among other things, the defendants must cooperate with any further investigation or litigation related to information-sharing agreements regarding workers’ pay. Civil or criminal charges may be forthcoming against the unnamed co-conspirators. (In statements, Cargill and Wayne-Sanderson Farms each said they disputed the Justice Department’s allegations and had admitted no wrongdoing. “We chose to resolve the issue with D.O.J. to achieve Cargill’s larger goal of completing the Wayne-Sanderson transaction,” a spokesperson wrote.)
The same week, a $4.5 billion merger allowing Cargill and Continental Grain Company to jointly purchase Sanderson Farms and combine it with the Continental subsidiary Wayne Farms was completed. The restitution payments were equivalent to 1.9 percent of the merger deal. The new entity now controls roughly 15 percent of the poultry industry.
With an election coming in 2024, there’s no guarantee that the Biden administration will be around to see all its cases through. The White House’s antitrust agenda has yet to produce the kind of perception-shifting victory to show that reinvigorating antimonopoly rules can temper the excesses of capitalism. Earlier this year, following a loss in district court, the F.T.C. dropped its case seeking to block Meta’s acquisition of Within, the virtual-reality start-up. The commission argued that the acquisition would limit future competition in the nascent V.R. market, but the judge in the case found the theory “impermissibly speculative.” The government’s attempt to prevent Microsoft from acquiring the video-game company Activision Blizzard also faltered after five days of testimony failed to persuade a California judge that the merger would reduce competition in the industry. The F.T.C. has appealed the decision. Blocking the book-publishing merger could end up being an exception. Cases against Amazon, Google and JetBlue are proceeding, as are investigations of the entertainment company Live Nation, the P.G.A. Tour and the nation’s largest wine and spirits distributor, among others.
The cumulative takeaway from all this may be that existing antitrust laws are insufficient to limit corporate power in the 21st century. Much of the court system is still populated by judges who have come into office since the consumer-welfare standard took hold, and they could well remain unpersuaded by the legal arguments Kanter and Khan have advanced. In the rare instances where cases make it to a jury trial, outcomes are unpredictable. The line between savvy information-gathering and criminal behavior can be difficult to draw: “Price courage” and illegal collusion would both result in “chicken nirvana” for one party and expensive chicken nuggets for everyone else.
Still, the specter of government intervention may have a significant deterrent effect. If The Wall Street Journal’s editorial section is any indicator of corporate sentiment, Khan’s role at the F.T.C. continues to rile business leaders; a tracker by the American Economic Liberties Project found that the paper has published articles criticizing Khan once every 10 days since she took office. In a recent podcast interview, Kanter counted 12 mergers that were abandoned before the Antitrust Division filed litigation, and two more that were dropped after his office filed lawsuits.
And what about cleaning up the poultry industry? Viewed from one angle, the events of last summer look like a failure. The sole criminal trial ended in an acquittal; the wage-suppression case settled within days of a merger that led to further industry consolidation. Khan and Kanter have each emphasized the importance of tackling ambitious, needle-moving cases, even if that means they sometimes lose. But Khan herself underscored the risk of losing too often in a 2012 article she wrote for Washington Monthly taking stock of the Obama administration’s efforts to reform poultry processors’ bird-purchasing practices. Publicizing the issues but failing to act had the impact of “implicitly condoning” the status quo, she wrote. “The message to the processing companies is, after all, absolutely clear: You are free to continue to act as you will.”
The Antitrust Division continues to push forward in the poultry sector. Kanter recently visited Minnesota to hear from farmers about the impact of corporate consolidation across agriculture. In September, the Justice Department sued Agri Stats, a data firm that, like Meng’s, facilitates the flow of information among meat companies, claiming its practices suppressed competition. Six state attorneys general have joined the case. (A spokesperson for Agri Stats said the company strongly denied the allegations.)
If the big chicken cleanup has so far done little for fast-food consumers and workers in the industry, there’s one part of the business that has experienced real change following the Justice Department’s efforts. It’s a shift that has gone little noticed outside farming circles, one resulting from cases that never went to trial. Nestled in the consent decree that settled the wage-suppression allegations against Cargill, Sanderson Farms and Wayne Farms — the agreement that came around the time of their merger — is a commitment. For many years, poultry processors have contracted with nearby farmers to grow their birds. The companies deliver chicks and feed to the farms, then retrieve the full-size chickens several weeks later. The farmers with the healthiest, heaviest birds are paid bonuses, and those with below-average performance are penalized. Critics call this zero-sum payment scheme the tournament system, and farmers have long argued it is unfair because the companies control most of the inputs.
The Obama administration tried and failed to challenge the tournament system through the federal rule-making process. After Biden selected Tom Vilsack, the secretary of agriculture for both of Obama’s terms, to return to the role, Joe Maxwell, co-founder of the advocacy group Farm Action, was not optimistic that the Department of Agriculture would address chicken growers’ concerns. “Our definition of insanity is hiring Vilsack back a third time and expecting a different result,” he said.
But Maxwell recognized what he called an “appetite to deliver” in Kanter and Khan. Indeed, last year, the wage-suppression case included a claim that didn’t seem to fit with the rest of the allegations. In a case that primarily dealt with employee pay and secret tropical retreats, the Justice Department also alleged that Sanderson and Wayne Farms’ use of the tournament system violated the Packers and Stockyards Act, an antitrust law that has historically fallen under the purview of the Department of Agriculture. This was the multipart government plan to promote competition in the meat industry in action: The Department of Agriculture had referred the case to the Justice Department.
As part of the consent decree, the defendants agreed to end the use of the tournament system. Going forward, the newly formed Wayne-Sanderson Farms will pay growers a minimum base rate. No one with below-average performance will be paid less than that. “It’s a very, very important legal precedent,” Maxwell says, adding that he believes it will prove that poultry processors can survive without the tournament system and eventually prompt a Department of Agriculture rule banning the practice outright.
It’s a convoluted workaround, and it doesn’t affect the biggest players in the industry. You could argue that it will be difficult to extract similar concessions from chicken companies that aren’t trying to win merger approval. But Maxwell is optimistic the case is the start of something bigger. In November, the Antitrust Division filed another lawsuit and proposed consent decree, this time with Koch Foods. This one didn’t contain an agreement to end the tournament system, but the company did promise to stop fining growers who terminated their contracts early to go work with competitors. Maxwell called it a “shot across the bow.”
These settlements are not significant victories in court or a triumphant repudiation of the “chickenshit club” moniker. Their scope is limited to a couple of companies. They certainly don’t forecast much threat to Big Tech. But the cases have succeeded where years of rule-making efforts failed: They changed the status quo.
