Dive Brief:

• Agriculture giant Cargill and two poultry processing companies with which it just completed a merger agreed to pay $85 million to settle a Department of Justice complaint they shared wage data in an anticompetitive effort to keep payroll costs down.
• The settlement also directed the two companies involved in the merger, Sanderson Farms and Wayne Farms, to stop using the so-called tournament method of setting payment to the growers who raise chickens for processing.
• “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,” Doha Mekki, DOJ principal deputy assistant attorney general, said in a statement.

Dive Insight:

DOJ accused Cargill, Sanderson and Wayne of distorting the labor market for poultry plant workers by letting each other know, as part of a network of processors, what they pay their workers and what they plan to pay in upcoming periods. 

“For at least the past 20 years [these companies] collaborated on and assisted each other with compensation decisions,” DOJ said.

DOJ began looking into the companies’ practices after they announced plans last year to merge Sanderson and Wayne into a poultry processing giant. 

A Cargill spokesman said the DOJ allegations lack merit but it nevertheless agreed to settle without admitting guilt rather than drag the matter out in court. 

“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,” the spokesman told The Wall Street Journal. “We are pleased to have the review behind us.”

Information exchange

DOJ says Sanderson and Wayne participated in a network that used the help of a consulting firm to gather compensation survey data that covered 90% of poultry plant workers in the United States. The data was disaggregated to such a granular degree that participants could readily trace wages competitors were paying, even down to the plant level.

The companies kept their collaboration secret in an attempt to hide their anticompetitive conduct, DOJ said. 

“When antitrust authorities and private class-actions began to surface anticompetitive conduct in other parts of the poultry industry, the poultry processors grew alarmed about the risk that their conspiracy would be found out,” DOJ said. 

Ultimately, the network gave the poultry processors the ability to suppress competition and lower compensation below the levels that would have prevailed in a free market, DOJ said. 

“Rather than competing for workers through better wages or benefits, the Processor Conspirators helped each other make compensation decisions,” the agency said. 

In a separate consent decree, the data consulting firm and its owner were prohibited from conducting surveys or otherwise sharing competitively sensitive information in any industry.

Packers and Stockyard Act violations

DOJ also settled charges against Sanderson and Wayne that the tournament system they used to set compensation to the growers who raise the chickens for processing was anticompetitive. 

The practice bases compensation on a grower’s performance against other growers, but according to DOJ’s complaint, the companies controlled the number of chicks and the amount of feed the growers received, which has the effect of keeping key inputs that the growers rely on outside their control.

“Growers cannot reasonably evaluate the range of potential financial outcomes, manage their risks, or compare competing poultry processors” under the system the companies set up,” DOJ said. 

As part of the settlement, the companies agreed to no longer use the system, although they can still include an incentive mechanism as part of their compensation package. 

In addition to the $85 million settlement amount, split between Cargill and the poultry processors as a form of restitution to harmed workers, the companies’ operations are subject to a court-appointed monitor for a period of time.