Creative Touch Imaging Ltd/NurPhoto via AP
Meat is seen at a grocery store in Toronto, Ontario, Canada, on March 11, 2023.
The federal lawsuit filed last week against Amazon, which was so hopelessly redacted we don’t quite know what’s in it yet, could ultimately have the biggest impact of any antitrust action we’ve seen in the Biden administration. By the same token, the currently active trials against Google for exclusionary dealing, against Sam Bankman-Fried for crypto fraud, and against Donald Trump for massively overstating the value of his real estate holdings are all interesting in their own way.
But a separate case from the Department of Justice against an agricultural analyst service called Agri Stats is perhaps the most emblematic of the old patterns of corporate America, and the new aggressiveness of this wave of antitrust enforcement.
Agri Stats, as described in the complaint, is essentially a work-around for explicit collusion by meat processors. The company delivers weekly reports based on proprietary data given to them by meat processors, which have so much granular detail that everyone in the industry knows precisely what everyone else is doing, including the prices they’re offering. This allows for specific coordination that raises prices for everyone purchasing meat, while boosting profits for the processor middlemen.
What’s incredible, after reading this case, is that Agri Stats has been allowed to exist out in the open for nearly 40 years. There are similar third-party facilitators in other industries, like the airline-owned Airline Tariff Publishing Company, which publishes up-to-the-minute airfares for over 500 airlines numerous times per day. The Justice Department sued ATPCO in 1992 for price-fixing, but it ended in a settlement that didn’t fundamentally change the business. It took 30 years for a new DOJ to bring essentially the same complaint against Agri Stats, with a mountain of data to back it up.
The conduct quoted in the lawsuit goes back to 2009, and there has been enough private antitrust litigation against Agri Stats that it shut down reports on two main lines of business—turkey and pork—four years ago. (Broiler chicken reports are still distributed.) Successive Justice Departments, for four decades, saw nothing wrong with a company that coordinates an entire industry on how to raise prices, in some cases explicitly according to the lawsuit. The muscles of antitrust were so shriveled that even the most obvious misconduct was ignored. It’s definitely a new day.
Agri Stats has not responded to a request for comment.
AGRI STATS WAS FOUNDED IN 1985 by an Indiana poultry consultant, “as a way to help industry participants make informed decisions based on accurate user data; delivered in a timely manner, and with the utmost confidentiality.” Bizarrely, the company fell into the hands of pharmaceutical giant Eli Lilly in 2013, which held it for five years until pressure from antitrust lawsuits led to a sale. Today, four individual Agri Stats executives and two foreign nationals own the company, funded through a Swiss venture capital firm.
The company essentially recruits the leading meat processors, all of which compete with one another, into its information-exchange service. The lawsuit states that the participating companies, which are listed in its reports, comprise at least 90 percent of the market for broiler chicken, 80 percent of the market for pork, and 90 percent for turkey. (Agri Stats estimates that those numbers are even higher.)
Agri Stats offers a “give-to-get” policy: If processors give up complete information for all their facilities, they will get complete information for everyone else’s. It sets up what is described as an automated “direct download” of key information from the various processors; none of it is survey data. It’s just precise, weekly information about births of livestock, raising and slaughter of animals, packaging and cutting of meats, and delivery to grocery stores, complete with production costs (including labor wages and benefits) and prices charged to customers.
Agri Stats offers a “give-to-get” policy: If processors give up complete information for all their facilities, they will get complete information for everyone else’s.
After collecting and auditing this data, Agri Stats converts it to make direct comparisons, and sends it back to the processors in a series of comprehensive “books,” which are hundreds if not thousands of pages long, updated weekly and monthly. In addition to sales, production, processing, and operating profit books, the “bottomline” book ranks every processor’s profit margins, on a per-animal and per-pound basis. Processors can ask for specific sales reports for cuts of meat or other categories. None of this data is made available to non-processors, like farmers, workers, or retailers.
Although the data itself is anonymized, it can be easily deanonymized. If a facility is identified in one report, it can be tracked across all reports. Processors are said to have held regular meetings to deanonymize and analyze the information; Tyson called this “the naming process.” As one Butterball turkey executive quoted in the lawsuit bragged, “I can pick the companies for rankings with 100% certainty.”
So think about what we have here. Pretty much every competitor in the meat processing industry has near-real-time access to everyone else’s proprietary information on production and sales. They can even monitor bird weights, freezer inventory, and “head killed per operating hour.” There’s no need for direct communications between processors, because Agri Stats is feeding all the information they need to know. Processors can make decisions on whether to raise prices or cut production knowing exactly how that will affect them in the marketplace.
THE COMPLAINT CONTAINS A NUMBER of examples of processors raising prices in direct reaction to Agri Stats reports. It also has examples of processors fighting to restrict supply, based on forecasts of their competitors. Multiple processor employees are quoted saying that their companies could increase exports to reduce supply in the U.S., enabling more increases in prices. Several quotes from top executives demand that their firms push prices up (a Tyson exec told sales staff to “[h]ave price courage”), and there are even cartoons depicting this ability to raise prices without consequences.
Just being a facilitator for price-fixing, as the lawsuit lays out, would be bad enough. But Agri Stats appears to also explicitly favor moving prices upward. Presumably, Agri Stats data could also be used to support lowering prices, to undercut the competition and gain more market share. But that’s not what happens. The lawsuit includes this amazing quote: “An executive at Smithfield, a pork processor, summarized Agri Stats’ consulting advice in four words: ‘Just raise your price.’”
Agri Stats rankings put the company charging the highest prices first, and the one charging the lowest prices last. Processors have, according to the complaint, given bonuses to staff for finishing high in Agri Stats’ rankings. In this sense, the entire goal of Agri Stats is to keep pushing lower-ranked company prices higher, which pushes up the average, which triggers more price increases. It’s a Garrison Keillor scenario, where every meat processor wants to be above average.
Agri Stats has openly stated that its “customers are the producers.” It meets with processors several times a year, exploring for “price opportunities.” The complaint takes pains to prove that Agri Stats is interested in facilitating industrywide profits. One Agri Stats analysis asks producers to “exercise restraint” in supply. In another example, a processor was thinking about unsubscribing from Agri Stats, and Agri Stats personnel persuaded it to stay by citing “$100,000 in additional revenue the processor could make by raising prices on particular bacon products,” the lawsuit states.
These aren’t just words of encouragement, but they bear out in the results. Costs decreased in the turkey market between 2013 and 2016, according to the data from the complaint, yet prices went up, and profit margins soared 300 percent.
THE JUSTICE DEPARTMENT IS SEEKING a ruling that Agri Stats’ conduct represents an unlawful restraint of trade under the Sherman Antitrust Act. It wants to stop Agri Stats from facilitating the sharing of competitive information, which is really all the company does.
Reading the lawsuit, I had a few thoughts. First, DOJ is in the midst of an antitrust trial with Google where the accessibility of data is the major story line. Google is trying desperately to hide basic financial information, like how much revenue it has shared with Apple to become the default search engine on its products. We didn’t really need a separate case to demonstrate how important data is in assessing anti-competitive conduct, but Agri Stats perfectly reveals it. If you have the data of everyone in your industry, you can wield it at the expense of customers. That’s why no company wants the public to know about the information being exchanged.
Second, we’ve just gone through a long back-and-forth among wonks about so-called “greedflation,” where opponents of the theory surmised that prices are generally the product of a free market and not subject to the profit-maximizing concerns of businesses. But here we have a large body of evidence showing that there’s nothing resembling a free market in meats, which not coincidentally is one of the products that shot up in price during the pandemic. We saw during that time that prices paid to ranchers for cattle or hogs dropped at the same time that prices paid in stores for beef and pork grew. The middlemen processors were capturing that spread, and Agri Stats shows one way you could do that: by knowing your competitors’ pricing, and coordinating increases.
Finally, the fact that Agri Stats was an existing business for nearly 40 years is nothing short of incredible. The complaint notes that Agri Stats does not even have an antitrust compliance program and conducts no antitrust training, despite distributing sensitive data among entire industries. There’s an arrogance to this implicit belief that the wizened antitrust enforcers would never disrupt such a scheme. Thankfully, that was (belatedly) misguided.
Biden’s antitrust enforcers have finally mustered up the courage to prosecute anti-competitive behavior. That includes obviously anticompetitive behavior like in the case of Agri Stats, which is maybe more important. The more that clear violations of the Sherman Act are enforced, the closer we get to unrigging markets that have been manipulated by tacit corporate conspiracies for too long.
