Food companies alleging egg price fixing
December 15, 2011
by Eric Schroeder
CHICAGO — The Kellogg Co., General Mills, Inc., Kraft Foods Inc., and Nestle USA, Inc. filed suit Dec. 12 in the U.S. District Court for the Northern District of Illinois against several egg producers and egg cooperatives claiming alleged conspiracy to control supply and prices of eggs.
According to the lawsuit, the defendants “unlawfully agreed to and did engage in a conspiracy to control supply and artificially maintain and increase the price of eggs” starting in at least 1999 and continuing through at least 2008.
The lawsuit indicated the defendants undertook the alleged conspiracy through a series of collective actions, including short-term measures, control through the United Egg Producers’ Certified Guidelines, and coordinated, large-scale exports.
Regarding short-term measures, the plaintiffs allege the defendants in 1999 and 2000 established a supply adjustment program under which defendants agreed to engage in an immediate 5% flock molt, a 5% reduction of flock inventory in the next 6 to 12 months, and the development of a hatch reduction program. Around the same time, the lawsuit notes that the United States Egg Marketers voted to pursue development of a chick hatch reduction program. In a further short-term measure to control supply, the plaintiffs allege the defendants agreed to a 5% emergency flock reduction in 2001, and an early molt and hen disposal plan in 2002.
By at least 2002, the lawsuit claims the defendants realized that the UEP Certified Guidelines “were a more reliable, long-term way to control supply and artificially maintain and increase the price of eggs.”
“The UEP Certified Guidelines required defendants to increase the cage space for each laying hen (e.g., from 53 square inches to 67 square inches per hen),” the lawsuit noted. “Defendants agreed that this minimum floor space allowance would be achieved in part through a chick hatch reduction, which had the effect of limiting a producer’s supply. Further, defendants adopted this minimum floor space allowance with the understanding that hens displaced by lower density cages would not be replaced by building new facilities. The UEP Certified Guidelines had a direct and substantial impact on egg prices.”
Also as part of the UEP Certified Guidelines, the lawsuit said defendants imposed a series of monthly and other reporting requirements as well as annual or other periodic audits “to enforce the conspiratorial agreements and to provide a means to monitor for and detect cheating.”
At a UEP annual board meeting in October 2002, the lawsuit noted that defendants adopted the “100% Rule,” a rule that required each participant to produce all its eggs in compliance with the UEP Certified Guidelines, including eggs that the defendants purchases for resale.
“Defendants used this 100% Rule to extend the supply control requirements of the UEP Certified Guidelines to non-member producers,” the lawsuit said.
The defendants in the lawsuit include United Egg Producers, Inc.; United States Egg Marketers, Inc.; Cal-Maine Foods, Inc.; Daybreak Foods, Inc.; Hillandale Farms of Pa, Inc.; Michael Foods Inc.; Midwest Poultry Services, L.P.; National Food Corp.; Nucal Foods, Inc.; Ohio Fresh Eggs, L.L.C.; Rose Acre Farms, Inc.; R.W. Sauder, Inc.; and Sparboe Farms, Inc.
In an interview with Bloomberg, Timothy Dawson, chief financial officer of Cal-Maine Foods, said the company is aware of the lawsuit and would defend itself against the allegations.