CHICKEN COOP COLLUSION

            If you've been watching the news, you know that several large chicken buyers are suing the big four--Perdue, Pilgrim's, Sanderson's and Tyson's--for colluding to fix prices.

             The plaintiffs include Sysco and U.S. Foods as well as other large players in the wholesale poultry buying industry.  These buyers say the big four share information that enables price fixing and inventory manipulation to make chicken more expensive than it has to be.

             The poultry industry uses an informational system to share daily slaughter, hatching eggs and other bits and pieces.  They all send information into a common database and it helps them have a sense of where the industry is headed.  It's not unlike private databases that accumulate grain planting and harvest statistics, inventory, and pricing. 

             I subscribe to a service called Cattlefax that tracks all the feedlot placements, national heifer inventory, cow inventory, daily slaughter and several other pieces of data in the cattle industry.  If you look at the price spread between heifers and steers, for example, you can tell whether a shortage is coming or an overage.  If you watch annual sales and the cow inventory goes up, you can plan to either join the move or back off assuming there will be too many cows.

             The point is that sophisticated commodity tracking is ubiquitous in the world right now.  While I am certainly not a friend of these big four producers, neither am I a friend of the cutthroat plaintiffs in this suit.  Most people have no clue how narrow the margins are in the food industry.

             I just spent a few hours with a wholesaler who told me the normal profit margin in the industry is 1-2 percent.  That means in order to net $100,000, an outfit must move $10 million.  When you realize that Google and Apple and other big tech outfits operate on 35 and 40 percent margins, it shows just how economically skewed the food system really is.

             And that brings me to my point on this new litigation.  I think it shows much more about how narrow the margins are than anything about a conspiracy among the big four poultry producers.  Logistics and lean distribution is squeezing every penny out of wholesaling commodities.  The truth is that commodity chicken is commodity chicken; no difference regardless of who produces it.  But far be it for the wholesalers to seek better chicken as a leg up (pun intended). 

             Bankrupt of ideas, bereft of innovation, the pinched wholesalers who refuse to deal with better and innovative product, see no recourse but to litigate and ask a judge to give them relief.  How sad that we've come to this point in the food business.  While many folks will immediately assume Tyson's, Pilgrim's, Sanderson's and Perdue are the bad guys in this, I'm taking the contrary position.  I think they are the butt of a publicity smear campaign to shame them into dropping prices.  I think the plaintiffs are simply using this as a media stunt and emotional if not judicial extortion to buy relief in an undifferentiated and highly competitive price war.

             Why do big food wholesalers receive more public empathy than big food producers?