Andrew Bailey, Attorney General for the state of Missouri will intervene in an antitrust lawsuit relating to the closure of the Dexter, MO. broiler complex. The State alleges anticompetitive behavior by Tyson Foods with approximately 50 broiler growers contracted to the Company deprived of their income.
The aggrieved farmers in Stoddard County, MO. allege that they invested capital in erecting and equipping broiler growing houses and in some cases took on higher debt burdens for required upgrades. Some growers have been provided with an alternate source of income since Tyson Foods sold the plant and other facilities including a hatchery to Cal-Maine Foods, the Nation’s largest egg producer. These more fortunate farmers were however required to invest further in equipment suitable to produce cage-free eggs in their houses.
It is alleged that the contract agreements with Tyson Foods prohibited growing for competitive broiler producers although with Dexter, MO. unlike the closed Noel, MO. Complex, there is no other integrator within an acceptable distance that would be inclined to extend contracts to the Stoddard County contractors. Under the circumstances it is justified for Tyson Foods to grant cancellations of onerous restrictions given that the complex is no longer in operation to produce and process broiler chickens.
In a statement, Attorney General Bailey noted, “People deserve better than big corporations who engage in anticompetitive behavior at the expense of Missouri jobs and communities” as his justification to intervene.
It is recognized that Tyson Foods had an obligation to contract growers with respect to additional investment on upgrades in the face of a possible closure of the complex. This said, contract growers should be aware that they are vulnerable in the event of acquisitions, mergers, rationalization of facilities or strategic decisions on production by integrators. While the decades-long relationship between contract growers and integrators has been to the benefit of all parties including consumers, there are risks in assuming responsibility for a 15-year mortgage with less than a one-year contract. This is especially the situation with small complexes in remote areas with no alternative integrators to extend contracts. For decades, Tyson Foods has carried the risk of market fluctuation, disease, escalation in ingredient costs and inflation in labor, packaging and other inputs. Contractors are shielded from these variables and are assured of an income from growing broilers with their contribution of labor, housing and utilities.
The situation with respect to the Dexter and Noel complexes is analogous to the party game of musical chairs. Everything is fine until the music stops. Should a company such as Tyson Foods with responsibilities to shareholders and other stakeholders be obliged to operate unprofitable complexes? Have integrators a moral as well as business obligation to their contractors? These questions among others conditioning the relationship between integrators and contractors have resulted in the current Administration developing a series of rules defining conduct of integrators and contractors under the Packers and Stockyards Act. At the present time, contractors seeking legal relief must demonstrate actual harm through injurious practices. Section 202 (a) of the Act as interpreted through case law requires that actions by integrators should demonstrably affect competition to be considered a violation. The proposed rules proposed by the current USDA Administration would allow relief if any anticompetitive conduct by an integrator resulted in harm irrespective of the involvement of competition per se.
Whether the proposed rules will remain in a subsequent administration is subject to speculation. Similar rules introduced during the Obama Administration by the then and now current Secretary of Agriculture, Tom Vilsack, were rescinded by his successor Dr. Sonny Perdue in 2017. A similar fate may await the series of rules developed over the past two years.
In the context of the Dexter situation, Cal-Maine Foods should be regarded as a “white knight” since it has provided some contractors with an alternative use for their houses and labor and restores the income stream to satisfy mortgage commitments and contributes to family earnings. A similar situation played out when the Townsend complex in Siler City, NC. closed in 2011 following the bankruptcy of the integrator.