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Court Rules Pilgrim’s Pride Violated Packers & Stockyards Act

October 5, 2011

Last week, a U.S. District Court for the Eastern District of Texas issued a decision in Adams v. Pilgrim’s Pride Corporation, in which the court ruled that Pilgrim’s Pride Corporation (PPC) violated Section 192(e) of the Packers and Stockyards (PSA) when it closed and refused to sell a poultry processing plant in El Dorado, Arkansas to another processing company.  PSA Section 192(e) makes it unlawful for a live poultry dealer to engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices.  The plaintiffs in the case were poultry farmers who had contracts with PPC to grow out PPC-owned chickens in farmer-owned poultry houses for processing at the El Dorado plant.

When the PPC ran into financial troubles, in part from buying out another poultry processing company, PPC filed for bankruptcy and asked the bankruptcy court to allow PPC to idle the El Dorado plant and other PPC plants.  The governor of Louisiana offered to help broker a purchase by another poultry processing company of an idled plant in Louisiana, but withdrew the offer when PPC threatened to close another PPC plant still operating in Louisiana.

The El Dorado plant poultry growers objected to the idling of the PPC owned plants in the PPC bankruptcy proceedings.  They contended that the reason PPC idled the plants, rather than selling them, was to raise the price of chicken produced at other PPC plants.  The bankruptcy court excepted this claim from resolution in the bankruptcy proceeding, leaving the growers free to bring their PSA action against the company in federal district court.

The court agreed with the growers that there was sufficient evidence in PPC memos and the company’s actions to support the claim that PPC violated Section 192(e) by attempting to raise the price paid for poultry by idling and refusing to sell the poultry plants.  The court ordered PPC to pay a total of about $26 million to 91 of the poultry growers, with individual awards ranging $9,000 to nearly $900,000.   The awards were based estimates of the income the farmers could have expected from 2009 through 2015, if the PPC plant had not been idled by PPC in violation of PSA Section 192(e).  On Monday, October 3, officials at the reorganized PPC, now part of the JBS SA, announced that they would appeal the judge’s decision.

JBS SA, a Brazilian company that is one of the world’s largest meat and poultry packing conglomerates, ultimately bought a majority share in PPC as part of the bankruptcy workout.  JBS paid off PPC creditors, except most of the contract growers who were not affiliated with the company.  JBS SA also gave the PPC shareholders a 36-percent stake in the reorganized company.

In addition, USDA paid about $60 million in grants to states where PPC poultry producers had their contracts cancelled out without compensation by the PPC bankruptcy.   To qualify for funding from this USDA poultry growers assistance program, poultry producers were required to have had their integrator contracts canceled, as a result of the PPC insolvency, between May 1, 2008 and July 1, 2010, and been unable to enter into a subsequent contract for the affected production.  Payments were based on up to 95 percent of the producer’s most recent 12 months of receipts subject to a pro rata reduction to keep the total payment limit at $60 million.  USDA made the payments under authority in the Commodity Credit Corporation Charter Act that allows USDA to “reestablish farmers’ purchasing power by making payments” associated with “normal production of an agricultural commodity for domestic consumption.”

The state of Louisiana also provided up to $50 million to help Foster Farms buy out the idled Pilgrim’s Pride plant in Farmersville, Louisiana.

Categories: Competition & Anti-trust

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