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Egg producers accused of price-fixing

A lawsuit alleges that the nation's largest egg trade group and some leading farmers conspired to artificially inflate prices.

January 11, 2011|By P.J. Huffstutter, Los Angeles Times

Food service giant Sodexo Inc. has filed suit against the nation's largest egg trade group and some leading egg farmers, alleging they perpetrated a decadelong scheme to artificially inflate egg prices.

The civil complaint, filed in U.S. District Court in Philadelphia, claims that an egg cartel conspired to limit domestic supply by killing off hens under the guise of treating the remaining animals more humanely by giving them more cage room. The alleged scheme resulted in as much as a 40% increase in U.S. wholesale egg prices in 2008, according to the lawsuit.

The suit, filed Thursday by a Maryland-based unit of the French company, marks the latest salvo in a massive antitrust battle forming over the price of eggs. Egg producers say federal law allows them to work collaboratively. U.S. grocers, food suppliers and distributors claim that the industry illegally colluded to manipulate the market.

Among other things, according to the Sodexo complaint, the United Egg Producers trade group and five companies schemed to cull their flocks and not quickly replace the birds. They also allegedly required United Egg Producers members to join this effort in order to obtain the trade group's certification stamp on their cartons — a seal seen by many retailers as a sign of quality.

Sodexo bought more than $250 million in eggs and egg products from the defendants from 2002 to 2010, according to the filing.

Those companies were: Cal-Maine Foods, based in Mississippi; Hillandale Farms, headquartered in Pennsylvania; Michael Foods of Minnesota; National Food Corp. of Washington; Ohio Fresh Eggs of Ohio; and Rose Acre Farms of Indiana.

None of these companies could be reached for comment Tuesday. United Egg Producers denied the allegations. Its members control about 95% of all the nation's egg-laying hens, according to its website. The organization said in a statement that the industry's effort to shrink hen flocks was intended to allow the animals more space in response to concerns voiced by retailers and the public over the treatment of laying hens.

United Egg Producers said a 1922 federal law known as the Capper-Volstead Act gives egg farmers the right to form cooperatives and jointly market their products.

Sodexo's attorneys contend that because businesses other than egg farmers can join the trade group the law's protections don't apply in this situation. As a result, the plaintiff argues, United Egg Producers and the egg farmers are violating U.S. antitrust laws.

As the legal fight has grown, so too have the questions over whether Capper-Volstead protections are still helpful to both farmers and consumers. Peter Carstensen, a professor at the University of Wisconsin Law School who specializes in antitrust policy issues, pointed out that many egg farms have consolidated into massive enterprises — and that there are far fewer small, mom-and-pop operations than in the past.

"The egg case is the poster child of whether change will happen, and if the courts carve back the scope of immunity of Capper-Volstead," Carstensen said. "If it's going to happen, it could happen with eggs."

Sodexo's case follows on the heels of a separate class-action lawsuit and more than a dozen other similar complaints working through the federal court in Philadelphia.

The defendants in the egg cases are a veritable who's who of the egg world: Hillandale, whose eggs were at the heart of last year's massive recall; Ohio Fresh, which has ties to Hillandale President Orland Bethel and Austin "Jack" DeCoster, the other Iowa egg producer involved in the recall; Cal-Maine, the nation's largest producer and distributor of shell eggs; and NuCal Foods, an agricultural cooperative based in Ripon, Calif.

None of these defendants could be reached for comment Tuesday.

The Sodexo case also comes after the Justice Department's antitrust division recently wrapped up a yearlong series of workshops that examined whether monopolistic practices in the agriculture industry were driving up food prices. The public meetings, held in conjunction with the U.S. Department of Agriculture, were designed to allow producers, competitors and activists to air their concerns about the grain, dairy, livestock and poultry industries — as well as concerns over price margins.

Charges of price manipulation are an outgrowth of California's Prevention of Farm Animal Cruelty Act, better known as Proposition 2. That measure, which state voters overwhelmingly approved through a ballot initiative in 2008, banned small, confining crates or cages for veal calves, egg-laying hens and pregnant sows.

While preparing for the Proposition 2 campaign, staff members at the Humane Society of the United States discovered egg industry documents they said showed that producers were manipulating the market by collectively shrinking supply to boost prices. The society filed petitions with the Justice Department and the Federal Trade Commission over the findings. Later, class-action lawyers filed nearly two dozen lawsuits.

The plaintiffs got a boost last spring when Sparboe Farms of Minnesota — the nation's fifth-largest egg producer and one of the 21 farm operations and industry groups named as defendants in the various cases — released documents and internal memos showing that United Egg Producers called for its members to slow production, according to court filings.

The documents and memos remain sealed by court order.

p.j.huffstutter@latimes.com

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