Odd Lots: Beak Capitalism, Part 3 – Un-Clucking the System

Podcast Information:

• Title: Odd Lots
• Host/Author: Bloomberg
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: Beak Capitalism, Part 3: Un-Clucking the System
• Release Date: November 17, 2024

In the third installment of the "Beak Capitalism" series, Odd Lots delves deep into the intricate relationship between antitrust laws and the poultry industry in the United States. This episode, aptly titled "Un-Clucking the System," explores historical contexts, modern regulatory challenges, technological impacts, and the broader economic implications of industry concentration within the chicken sector.

1. Historical Context of Antitrust in Agriculture

Jonathan Kantor opens the discussion by highlighting the dynamic growth of direct lending in the private alternative space, emphasizing its role in supporting corporate borrowers and financial sponsors. The conversation quickly pivots to the historical skepticism Americans have held towards large corporations, a sentiment rooted in the early days of the U.S. when the government granted corporate charters. Doha Meki, Principal Deputy Assistant General in the Antitrust Division of the Department of Justice (DOJ), explains:

"Americans were suspicious of the power of large corporations because corporations were seen as creatures of the state, capable of extensive abuse over ordinary people's lives." [00:30]

The Sherman Antitrust Act of 1890 and the Clayton Act are introduced as foundational laws aimed at maintaining fair competition. The Packers and Stockyards Act of 1921 is discussed as a pivotal legislation that provided explicit protections for ranchers and growers, addressing issues beyond mere competition by targeting deception, unfairness, and discrimination in the industry.

2. Antitrust Enforcement in the Chicken Industry

Joe Weisenthal and Carmen Rodriguez explore how antitrust enforcement has evolved, particularly in the context of the chicken industry. Michael Cadies, Deputy Assistant Attorney General for the Antitrust Division, provides historical insights:

"Early on, the DOJ brought cases against meat packers. In 1914, Congress broadened enforcement powers with the Clayton Act and created the Federal Trade Commission to address issues in the meatpacking industry." [04:41]

The episode underscores the DOJ’s ongoing efforts to tackle corporate concentration and unfair practices within the poultry sector, highlighting significant cases and settlements aimed at curbing price-fixing and ensuring fair wages for chicken farmers.

3. Monopsony vs. Monopoly: Understanding Market Dynamics

A critical part of the discussion revolves around the concept of monopsony, where a single buyer controls the market, as contrasted with a monopoly’s single seller dominance. Doha Meki elaborates:

"Monopsony power involves deep buyer-side control, which can lead to lower prices and reduced demand, ultimately harming both producers and consumers." [10:22]

The conversation delves into how monopsony affects chicken farmers, often leaving them with little bargaining power against dominant processors. Michael Cadies explains the distinction and its implications:

"When a buyer has monopsony power, it can extract taxes up and down the supply chain, potentially leading to higher consumer prices or limited supply." [08:43]

4. DOJ Actions and Notable Cases

The DOJ’s enforcement actions are scrutinized, revealing a mixed track record. While some high-profile cases, such as blocking the merger of Penguin, Random House, and Simon & Schuster, demonstrated the DOJ’s broader antitrust ambitions, cases specific to the chicken industry have seen varied outcomes:

• Price Fixing Indictments: In 2020, executives from poultry processors like Pilgrim's Pride and Claxton Poultry Farms were indicted for price fixing but were ultimately acquitted by a jury. [13:01]

• Settlements: The DOJ secured an $85 million settlement with several poultry processors for sharing wage information, demonstrating some successes in curbing anti-competitive practices. [13:17]

• Tournament System Crackdowns: Actions against the tournament system, where chicken growers are penalized based on competitive rankings, led to voluntary changes by major processors like Wayne Sanderson agreeing to eliminate unfair penalties. [15:08]

5. Technological Impacts and Data Sharing Concerns

As the industry modernizes, technology plays a pivotal role in how companies operate and collaborate. Jonathan Kantor discusses the DOJ’s stance on data sharing, particularly focusing on AgriStats, a company accused of facilitating competitive information exchange among poultry processors:

"AgriStats collects real-time data from meatpacking producers and shares it, allowing competitors to adjust prices collaboratively, which can lead to higher consumer prices and unfair returns for producers." [18:25]

Kantor emphasizes that modern algorithms and digital platforms have transformed traditional anti-competitive behaviors, making it easier for companies to engage in practices that undermine fair competition. This technological shift necessitates updated enforcement strategies to address the complexities of data-driven coordination.

6. Consumer Backlash and Antibiotic Use in Poultry

The episode shifts focus to consumer health concerns, particularly the use of antibiotics in poultry farming. Maren McKenna, a public health specialist, recounts significant regulatory changes:

"In the final days of the Obama administration, regulations were changed to outlaw growth promotion via antibiotics in poultry, driven by both regulatory initiative and consumer pressure from major buyers like university medical centers." [26:13]

This regulatory shift reflects a broader consumer movement towards healthier poultry products, influencing major companies like Purdue Foods to commit to "no antibiotics ever" in their flocks. However, some companies, such as Tyson, have reversed similar commitments, citing human health-focused antibiotic use instead.

7. Avian Flu and Its Economic Implications

Maren McKenna highlights the resurgence of avian flu (H5N1) and its devastating impact on poultry farms:

"Avian flu has been affecting not just wild birds but also domesticated poultry and even cows, leading to significant losses and raising concerns about potential pandemics." [30:38]

The outbreak has led to massive culling of livestock, disrupting supply chains, inflating chicken and egg prices, and exacerbating overall inflation. The economic ripple effects extend to rural communities dependent on poultry farming, threatening local economies and livelihoods.

8. Economic Impact on Farmers and Rural Communities

Jonathan Kantor underscores the broader economic ramifications of industry consolidation:

"Over the years, the farmer's share of the retail food dollar has plummeted from around 40% to about 14%, with a few companies dominating key markets. This consolidation threatens not only farmers but also the vitality of rural communities." [33:25]

The loss of local farms and businesses diminishes the economic diversity and resilience of rural areas, highlighting the critical importance of enforcing antitrust laws to preserve competitive markets and support family farmers.

9. Future Outlook and Regulatory Challenges

The episode concludes by contemplating the future of antitrust enforcement in an increasingly data-driven and technologically advanced agricultural sector. Jonathan Kantor emphasizes the need for evolving legal frameworks to address new forms of anti-competitive behavior facilitated by technology:

"As companies increasingly use algorithms and centralized platforms to coordinate pricing and market strategies, antitrust laws must adapt to identify and curb these sophisticated practices." [20:57]

The unfolding legal battles, such as the ongoing case against AgriStats, will serve as benchmarks for how effectively the DOJ can navigate the complexities of modern antitrust issues in the poultry industry and beyond.

Conclusion

"Beak Capitalism, Part 3: Un-Clucking the System" provides a comprehensive exploration of the multifaceted challenges facing the poultry industry in the context of antitrust laws. From historical regulations to modern technological impacts, the episode sheds light on the delicate balance between corporate power, fair competition, and the economic health of rural communities. As the DOJ continues to adapt its enforcement strategies, the outcomes of these efforts will significantly shape the future landscape of the U.S. agricultural sector.

Notable Quotes:

• Doha Meki [00:30]: "Corporations were seen as creatures of the state, capable of extensive abuse over ordinary people's lives."
• Michael Cadies [04:41]: "The Clayton Act broadened enforcement powers and created the FTC to address issues in the meatpacking industry."
• Doha Meki [10:22]: "Monopsony power involves deep buyer-side control, which can lead to lower prices and reduced demand."
• Michael Cadies [08:43]: "Monopsony power can extract taxes up and down the supply chain, potentially leading to higher consumer prices or limited supply."
• Jonathan Kantor [18:25]: "AgriStats collects real-time data from meatpacking producers and shares it, allowing competitors to adjust prices collaboratively."
• Maren McKenna [26:13]: "Regulations were changed to outlaw growth promotion via antibiotics in poultry, driven by both regulatory initiative and consumer pressure."
• Jonathan Kantor [33:25]: "The farmer's share of the retail food dollar has plummeted from around 40% to about 14%, with a few companies dominating key markets."
• Jonathan Kantor [20:57]: "Antitrust laws must adapt to identify and curb sophisticated practices facilitated by technology."

Production Credits:

• Written by: Tracy Alloway, Carmen Rodriguez, and Joe Wiesenthal
• Produced and Edited by: Carmen Rodriguez, with assistance from Cale Brooks and Dashiell Bennett
• Fact-Checked by: Dashiell Brooks
• Executive Producer: Brendan Noonam
• Head of Podcasts: Sage Bauman
• Theme and Mixing: Blake Maples

For more insightful analyses on finance, markets, and economics, tune into Bloomberg’s Odd Lots every Monday and Thursday.