The U.S. Justice Department has launched an investigation into how poultry processors pay chicken farmers; the agency is examining current chicken-grower contracts and payment practices during the probe.
The news came to light after an SEC filing by Greeley, Col.-based Pilgrim’s Pride Corp., one of the largest poultry producers in the U.S., alerted the company’s shareholders of the investigation. “The U.S. government’s recent focus and attention on market dynamics in the meat processing industry could expose [Pilgrim’s Pride] to additional costs and risks,” the company said in the filing.
Additionally, the Justice Department notified other major poultry companies about the investigation, according to a report published October 27 in the Wall Street Journal. No other company names were disclosed in the article.
Currently, poultry processing companies use a tournament system whereby two dozen farmers in a select region are compared with one another to determine payment rates. This method has long been criticized by some chicken farmers, who claim that the variables involved in chicken rearing often makes it impossible to fairly determine income. However, poultry processing companies argue that a performance-based structure such as this one incentivizes chicken farmers to maximize efficiency, better protects chicken health, and keeps prices low for consumers.
Under tournament systems, vertically integrated poultry companies, known as “integrators,” contract with chicken farmers who serve as growers. Integrators provide growers with birds and feed, and growers provide facilities and labor to raise birds to slaughter weight. Grower compensation is based on a grouping, ranking, or comparison of poultry growers whose poultry was harvested during a specified period—usually one week. Tournament group averages are established for formulaic flock performance metrics, and growers are ranked against the averages.
A particular grower’s pay is impacted by the performance of others in the tournament. Growers have no control over the other tournament members’ efforts and performance, nor over with which growers they are grouped. An individual grower’s effort and performance can be static, and yet that grower’s payments could fluctuate based on the grower’s relative position in the settlement group. Further, changes in payment may not be commensurate with the changes in grower’s effort and performance. These characteristics of the tournament system can add to the variability of pay and affect the ability of growers to plan and measure their own effort and performance.
Integrators also determine which growers are in each settlement group. While growers in a group must have similar flock finishing times, a live poultry dealer could move a grower into a different grouping by altering layout times to change the week that a grower’s broilers are processed. An individual grower may perform consistently in an average performing pool, but if the integrator places that grower in a pool with more outstanding growers, those outstanding growers raise the group average and reduce the fees paid to the individual. At its discretion or per the poultry growing arrangement, an integrator may remove certain growers it considers to be outliers from a settlement pool. This would likely affect the average performance standard for the settlement and affect the remaining growers’ pay.
Many in the poultry processing industry were not happy with the proposed rules. “This is just the first salvo in the [Biden] administration’s attempts to resurrect failed policies that would dismantle a successful industry structure that has benefited growers, chicken companies, and—ultimately—consumers all around the world,” says Mike Brown, president of The National Chicken Council. “The last thing USDA should be doing is pushing increased regulations, red tape, and costs onto businesses at a time of record inflation and input costs, threatening food security and potentially raising grocery bills even further for Americans.”
USDA is also proposing a series of new transparency measures designed to address many grower concerns relating to deception and lack of access to critical information in connection with poultry contracting and tournament systems. Furthermore, USDA is taking a range of steps to enhance fair and competitive markets in the meat and poultry sectors. For example, under the American Rescue Plan Act’s provision to enhance supply chain resiliency, USDA is investing directly into the creation of new and expansion of existing local and regional meat and poultry processing enterprises. Additionally, this year USDA and DOJ established a joint complaints and tips portal to enable both departments to respond in a more coordinated manner to a range of competition and fair markets concerns.
Requests for comment by the Justice Department were not immediately returned.