000920 Cattlemen File Price Fixing Suit Against IBP

Omaha, NE - In the first class action lawsuit ever certified under the Packers & Stockyards Act, a group of cattle producers asked U.S. District Judge Lyle Strom to recertify their class action suit against IBP, Inc., claiming the giant meat packing firm has unfairly fixed the price of cattle ready for market.

If the cattlemen prevail, damages could reach as high as $1.5 billion.

Through their attorney, David Domina, they assert the Act was designed to insure that meat packers would not unduly and arbitrarily lower prices to producers. It specifically forbids “unjust or deceptive practice...(which have the effect of)...manipulating or controlling prices.” Cattlemen maintain IBP, through a practice known as “captive supply”, has deliberately depressed the price of cattle on the open market, violating both the spirit and letter of the law.

When cattle are ready for market, they must be shipped within a few days. If they become over fat, their value goes down precipitously.

In early 1994, Iowa Beef Packers began contracting directly with producers many weeks before delivery, at set prices. The company also owns feed lots in Canada and ships fattened cattle into the U.S. for slaughter. These sources are known as “captive supply”. Cattlemen claim IBP locks-in huge parts of its supply in this manner, and buy the rest on the cash or “spot” market. Since they process nearly twelve million cattle each year, even a 5% downward price movement is the equivalent of taking 600,000 head without payment.

Producers who do not contract with the meat packer sell their cattle on the spot market. Since IBP accumulates controlling portions of the total product need through captive supply, the company can easily enter the spot market and offer the lowest possible prices, or as some cattlemen put it, “they pretty much steal the rest.”

Six hundred thousand cattle a year for the six-year period in question, loaded into trucks, would stretch in an unbroken line from Canada to Mexico. The cattlemen argue that over time, IBP's “take it or leave it” attitude has a pernicious effect on the price of all cattle.

None of this mischief would be possible if the current market were not extraordinarily concentrated.

Captive cattle supplies would mean little if it were not for the fact that meat packing in the United States is essentially controlled by three companies: IBP is the largest -- in this country and worldwide -- followed by the Monfort subsidiary of ConAgra Foods, and Excel, a division of Cargill International. A fourth company, Farmland, is a producers' co-op partly owned by a group of feeders. Together, the four companies account for nearly 90% of all beef -- hamburgers, steaks, roast, deli beef -- processed in the United States.

Ironically, when the Packers and Stockyards Act was passed in 1921, the government was concerned because five meat packers controlled 45% of the market, and the top twenty packers controlled 60%.

Former USDA official Kathleen Kelley, an expert on market concentration, says, “The market for fed cattle is more concentrated that it has ever been in history. No producer can sell to more than a very few packers.”

The cattlemen are prepared to call nearly 80 witnesses, including many experts, to testify on their behalf. USDA officials, commodities dealers and traders, and agricultural economists will join cattlemen on the witness stand at trial. Most involved are likely to be two agricultural economists, Dr. Robert Taylor of Auburn University and Dr. Catherine Durham of Oregon State University. Each has independently run extensive econometric models on the effect of IBP's use of captive supply and the price it pays on the open market. Their results -- verified by Dr. Bernard Siskin, who heads up the Center for Forensic Economic Studies in Philadelphia -- show a significantly negative connection between IBP's practices and the overall price of fed cattle since 1994.

The cattlemen first filed their lawsuit in 1996, and the Court certified their case for trial in April, 1999. IBP successfully delayed the proceedings when an appeals court signaled that the original class was too broadly defined. Cattlemen believe that has now been corrected. Domina is confident the action will go forward, and feels the cattlemen have an excellent chance of success.

“Imagine there were only three stockbrokerage firms in the country,” he said, “and each of them held significant holdings in all American corporations. They would completely control the price of all securities. That is essentially what is happening here, only it's livestock instead of corporate stock.”

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