Poultry companies have agreed to pay $84.8 million to compensate processing plant workers under agreements with the Justice Department that will allow a major acquisition to go forward and could spell trouble for the industry’s “tournament system” of paying growers.
Cargill Meat Solutions, Wayne Farms and Sanderson Farms would pay the restitution to workers harmed by what DOJ called an “information exchange conspiracy” to suppress worker pay. Cargill’s share is $15 million, Sanderson Farms’ is $38.3 million, and Wayne Farms’ is $31.5 million. Wayne is owned by Continental Grain.
As part of the Justice Department’s allowing the acquisition of Sanderson Farms by Cargill and Continental Grain to go forward, DOJ negotiated the compensation deal and imposed a wide range of other requirements in proposed consent decrees filed in federal court in Maryland.
Said Cargill: “The merits of this deal outweigh the potential costs of prolonged litigation and any further distraction to our collective efforts to feed communities across the U.S. which is why we’ve agreed to a $15 million settlement of a lawsuit which alleges wage suppression by U.S. turkey and poultry producers to help facilitate its forward movement.”
DOJ also filed a complaint in federal court that alleges antitrust and Packers and Stockyards Act violations, but DOJ won’t move ahead with that complaint so long as the companies sign on to the consent decrees. The lawsuit “is part of a broader investigation into anticompetitive labor market abuses in the poultry processing industry,” DOJ said.
“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 Principal Deputy Assistant Attorney General Doha Mekki of the Justice Department’s Antitrust Division. “Today’s action puts companies and individuals on notice: the Antitrust Division will use all of its available legal authorities to address anticompetitive conduct that harms consumers, workers, farmers and other American producers.”
DOJ also reached an agreement with a data consulting firm, WMS. “If approved by the court, the proposed consent decree with … WMS would ban WMS from providing surveys or any other services that facilitate the sharing of competitively sensitive information in any industry,” DOJ said in a news release.
“I’m so pleased to see the close partnership between the Department of Agriculture and the Justice Department has led to enforcement that is good for farmers,” Andy Green, USDA’s Senior Adviser for Fair and Competitive Markets, said in the DOJ release.
“This resolution yields significant reforms to the poultry tournament system, including ending one of its most troubling aspects around deceptive base prices, and enhancing transparency in contracting, earnings and inputs that will protect and benefit growers — as USDA has proposed in our Packers & Stockyard Act rulemaking,” he said.
“Though we are disappointed with the assertions put forth by the Department of Justice and their approach to the review of our recent transaction, we have been cooperative throughout the process,” Cargill said. “The settlement is not an admission of guilt and Cargill denies any wrongdoing.”
DOJ said the agreements would “prevent Sanderson Farms and Wayne Farms from penalizing chicken growers by reducing their base payments as a result of relative performance, while still allowing for incentive, bonus and other types of payments to growers; require expanded information disclosures in grower contracts, consistent with proposed transparency rules set out by the USDA; and prohibit retaliation against growers who raise antitrust concerns with the court-appointed compliance monitor or the government.”
In addition, a consent decree with Cargill, Sanderson Farms and Wayne Farms “would prohibit them from sharing competitively sensitive information about poultry processing plant workers’ compensation,” DOJ said.
In addition to requiring the compensation, it would also:
- “Impose on the poultry processors a court-appointed compliance monitor who, for the next decade, will ensure their compliance with the terms of the proposed decree;
- “Grant the court-appointed monitor broad authority to ensure their compliance with all federal antitrust laws as they relate to their poultry processing facilities, workers at their poultry processing plants, chicken growers, integrated poultry feed, hatcheries, transportation of poultry and poultry products, and the sale of poultry and submit regular reports on the processors’ antitrust compliance;
- “Permit the Antitrust Division to inspect the processors’ facilities and interview their employees to ensure compliance with the consent decree.”
Farm Action, which provided information to DOJ as it reviewed the proposed acquisition, hailed the agreements, even though it opposed the acquisition.
The side agreements have “resolved a lot of the issues that we had with the acquisition and merger,” said Joe Maxwell, president of Farm Action. “I don’t know when this has been done before. We really commend [DOJ] for this.”
“These stipulations effectively prohibit Cargill-Continental’s use of the abusive tournament system, in which contract poultry farmers compete with each other for a price they will be paid for raising poultry,” Farm Action said in a news release. “The farmers who come out on top receive a bonus which comes out of the paycheck of the lower performing farmers. If firms as large as Cargill-Continental no longer use this system, and instead demonstrate greater respect for workers and contract growers, the dynamics of the entire poultry industry may well change.”
“The greatest achievement in this agreement is that the DOJ’s action requires Cargill-Continental to pay its contract poultry growers a guaranteed base price for each chicken, and to implement a bonus system,” Farm Action said. “The companies must also ensure that the bonus is never greater than 25% of the base price — so if costs go up, the base price must also increase.”
Maxwell said in an interview Monday that the companies agreed to the stipulations “because they want to do this acquisition.”
“We do see this being impactful on the whole industry, because now Continental and Cargill have stipulations they have to comply with that other companies don't,” he said. “So, I think we'll actually see Cargill and Continental be more willing to accept or at least not oppose these other reforms” to the Packers and Stockyards Act being pushed by Ag Secretary Tom Vilsack.
“It's in their best interest now to make sure everyone in the industry has to comply with the law,” Maxwell said.
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