Food Distributors Sue Tyson, Pilgrim's Pride, and Others Alleging Collusion --2nd Update

By FeaturesDow Jones Newswires

The two largest food distribution companies in the U.S. have launched lawsuits against the chicken industry, accusing Tyson Foods Inc., Pilgrim's Pride Corp., Sanderson Farms Inc. and other poultry suppliers of manipulating wholesale chicken prices.

Sysco Corp. and US Foods Holding Corp., which supplies food to U.S. restaurants, hotels and hospitals, alleged in separate lawsuits that the big chicken processors engaged in a yearslong conspiracy to limit poultry supplies, while pushing prices higher by manipulating a pricing benchmark.

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Spokesmen for Tyson and Sanderson denied the claims and said their companies would contest the lawsuits. A Pilgrim's spokesman had no immediate comment. Spokeswomen for Sysco and US Foods declined to comment Wednesday.

The 131-page complaints, filed late Tuesday in a federal court in Illinois, are the latest in a string of lawsuits and probes involving the companies that control the U.S. chicken industry, which produces about 41 billion pounds of meat annually for grocery stores, restaurants, and foreign-based buyers. U.S. consumers this year are projected to consume a record 92.4 pounds of chicken each, according to the U.S. Department of Agriculture.

Together Sysco and US Foods represent roughly 25% of the domestic food distribution business. Regional grocery-store chains and restaurant companies have filed similar lawsuits against U.S. chicken companies over the past 18 months, but the food distributors are the biggest companies so far to allege collusion among the meat processors that supply an estimated 90% of the country's chicken.

Sysco and US Foods, which together sell food to hundreds of thousands of food-service customers, allege they overpaid for that meat for at least eight years, beginning in 2008. The companies say they purchased chicken directly from Tyson, Pilgrim's and Sanderson, along with several other poultry companies.

The lawsuits alleged that the chicken companies curbed chicken supplies by coordinating their flocks of breeding birds, with each company keeping tabs on its rivals' activity via an industry information service called Agri Stats Inc.

The service, owned by Eli Lilly and Co., publishes operational information reported by chicken companies, which the service renders anonymous. The food distributors alleged that chicken executives nevertheless were able to glean important details about competitors' supplies, and adjust their own accordingly. Representatives for Agri Stats didn't respond to a request for comment.

Sysco and US Foods accused the chicken companies of also inflating wholesale prices for chicken by manipulating the Georgia Dock index, a benchmark which had been maintained by the Georgia Department of Agriculture, and based on price information supplied by chicken companies.

The food distributors alleged that chicken companies reported prices that kept the Georgia Dock index higher than other measures of chicken pricing, such as one compiled by the USDA. The Georgia Department of Agriculture suspended the index in late 2016. A spokeswoman didn't immediately respond to a request for comment. Chicken company executives at the time denied manipulating the measure, and said it was used to price a generally low percentage of poultry meat sold.

Tuesday's lawsuits follow earlier complaints filed against U.S. chicken companies by restaurants and consumers, making similar allegations. Pam Bondi, the Florida attorney general, is probing the matter and has sought information from poultry suppliers.

Shares of Tyson declined 3.2% in early trading Wednesday, while Pilgrim's shares fell 2.9% and Sanderson declined 3.4%. The S&P 500 stock index gained 0.2%.

Food distributors have been under pressure as farm prices for many commodities, including meat and poultry, have risen after a record-long period of declines.

Sysco, US Foods and competitor Performance Food Group Co. all pointed to rising poultry prices as a source of pressure during their most recent earnings reports.

"We saw significant year-over-year inflation, primarily in commodities such as pork, poultry, produce and seafood," US Foods CFO Dirk Locascio told investors in November.

Rising poultry prices helped drive inflation in food in federal numbers released in January, and analysts expect modest inflation in meat to continue this year.

--Heather Haddon contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

January 31, 2018 12:15 ET (17:15 GMT)

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