DOJ brings antitrust charges against a data company for facilitating collusion in meat markets, costing consumers millions.

“American consumers have paid higher prices for staple food items, including chicken, pork, and turkey.”

By Eric Gardner

Agri Stats, an agricultural data and consulting company, faces antitrust charges for what federal prosecutors say is a decades-long anti-competitive scheme at the heart of the American food system. 

The case against the Indiana-based firm underscores the Biden administration's robust antitrust policy. Since taking office, the administration has challenged over three dozen major mergers and acquisitions, arguing that consolidation leads to less competition and higher prices.

The Department of Justice accuses Agri Stats of recruiting the nation’s largest meat processors to share confidential information about pricing and production. Agri Stats refused to sell the information to retailers or consumers. The alleged scheme, which involves 90 percent of the American chicken market, created an asymmetrical information exchange that allowed producers to increase industry-wide profits at the expense of retailers and consumers. 

Agri Stats has denied the DOJ’s claims, claiming in a statement that the lawsuit “threatens serious harm to American consumers of chicken, pork, and turkey because protein producers depend upon Agri Stats’ reports to help them identify opportunities to reduce production costs to keep prices low.” The company has also claimed that the DOJ disclosed competitively sensitive information in its lawsuit, filing a motion for the case to be placed under seal. 

"It's an aggressive case," an antitrust partner at a multi-national law firm told the Wall Street Journal, "and one in which they are trying to extend their view of what kind of circumstantial case they can bring." 

Underpinning the allegations is the role of first- and third-party data in negotiating food prices. Most normal people don’t know or care about either—but they are vital to the price you pay for food. 

First-party data includes information like how many products are manufactured, how much is sold and shipped to retailers, and at what price. This data is very valuable, so it’s owned by the company and often shared on a need-to-know basis. Suppose a competitor finds out that you sell your most popular product to retailers for $100, but it only costs $10 to manufacture; in that case, it's only a matter of time before they enter the market and offer a similar product at a cheaper price point.

Then there’s third-party data. The most common of these is called consumption data. First-party data only provides insight into what a retailer pays for goods. Since managers have no idea how much consumers buy and the price they pay, outside companies track that information and sell it back to the manufacturers and competitors. Firms then use this data to try to understand both their profitability, as well as competitors and retailers. 

This is, in some sense, public data, though generally, the people who collect it own it, and charge a lot of money to access it. 

This data collides when retailers and food processors negotiate sales agreements. In the United States, retailers—not food processors or manufacturers—determine what you pay at the cash register. Companies like Tyson want to charge as much as possible for meat, while retailers want to pay as little as possible to offer low prices, attract consumers, and still profit. This creates a tension that negotiation partly solves. Retailers win most arguments because the grocery industry has become increasingly consolidated, giving retailers immense leverage. 

But the DOJ’s lawsuit alleges that Agri Stats flipped these negotiations on their heads, with consumers ultimately paying the price. That’s because access to your competitor's first-party data instead of third-party consumption data is the difference between studying for a test and being given the answer key. 

Let's say you're a chicken salesperson at Company A. Your boss wants you to get a retailer to pay $1 more per pound. 

Here's how that typically works out:  

1. You spend three months pulling together different first and third-party data. The goal is to build a case to raise prices by $1. To do this, you’ll use that data to estimate many things, including how much profit retailers make on your products and how much your competitor may be charging, and thus gain insights into how much a retailer will pay for your products.

2. You meet with the retailer, present your case, and say, "You should pay $1 more for a pound of chicken."

3. The retailer says, "Okay. We can pay $1 more, but it only makes sense for two of the ten items we buy from you. We may switch to Competitor B for those other eight."

4. You return to your boss and say, "If we raise prices by a dollar, we're going to lose a bunch of money. They may quit selling eight of our products.."

5. Your boss will ask, "Do you think they're bluffing?"

6. They might be. You have no idea because you don’t know how much a competitor is charging for similar items. Your analysis was just an estimate. So you counter with a 50-cent-a-pound increase. 

7. Since they have the power, the retailer says, “make it twenty-five cents.” 

8. You agree. 

9. The retailer passes the price increase to consumers since it's chicken, a commodity staple. Shelf prices rise twenty-five cents. 

This is simplified, but it’s more or less how food negotiations work in a non-collusive market. It’s like a game of chicken, where one side is driving a Camry, and the other is driving a tank. 

The DOJ alleges that Agri Stats provided weekly sales reports that ranked processor prices compared to their competitors. For a few million dollars, processors knew what competitors were charging and what retailers were willing to pay. “Using these reports, processors target products priced low compared to their competitors’ products for price increases,” according to the complaint. 

Here's how the scenario could play out. Imagine again you’re a salesperson at Company A.

1. Executives at Company A realize that Company B charges a retailer $1 more per pound for a similar product. They tell you you have to go and get the same price. 

2. There’s no need to estimate what Company B may charge. The Agri Stats report has all of the information provided by Company B.

3. You meet with the retailer, present your case, and say, "You should pay $1 more for a pound of chicken."

4. The retailer says, "Okay. We can pay $1 more, but it only makes sense for two of the ten items we buy from you. We may switch to Competitor B for those other eight."

5. You know they're bluffing because your competitor told you through Agri Stats what B is charging. So you say, "Sorry. Inflation. COVID. No one wants to work anymore. Prices are up."

6. Not wanting to run out of chicken, and without options, the retailer agrees to pay $1 more. 

7. The retailer passes the price increase to consumers since it's chicken, a commodity staple. Shelf prices rise a dollar.

The above example represents merely a slice of the complaint’s implications. The government claims Agri Stats oversaw many information exchanges, ranging from how much competitors were paying employees to how many animals they planned to raise. Agri Stats was incredibly effective at “encouraging anti-competitive price increases,” the DOJ complaint explained, quoting one Tyson executive’s explanation that ​​“we not only have to increase our price but we also have to out run our competitors[’] improvements.”

Agri Stats allegedly pocketed millions by acting as the data conduit, meanwhile, affiliated processors raked in even more by curbing competition. Now, the DOJ is seeking to end the practice. 

As a result of the company’s anticompetitive exchanges, the DOJ said, “American consumers have paid higher prices for staple food items, including chicken, pork, and turkey. The United States seeks to stop these unlawful information exchanges.”