CHICAGO (CN) – Kraft Foods, Kellogg and other major food companies claim in a federal antitrust complaint that an egg cartel conspires to fix prices through supply reduction programs and large-scale exports.
General Mills and Nestle joined as plaintiffs in suing United Egg Producers, United Egg Marketers and 11 egg farms and distributors.
From 1999 to 2008 the United Egg Producers and United Egg Marketers conspired to “control supply and artificially maintain and increase the price of eggs,” the complaint states.
“In their nonpublic internal communications in furtherance of the conspiracy, defendants recognized that, other things being equal, egg producers could profit from ‘boom’ prices and avoid ‘bust’ prices by controlling supply because the demand for eggs is inelastic. This means that a change in price of eggs does not materially affect the quantity of eggs that purchasers demand. As defendant Cal-Maine [Foods] stated in its August 4, 2011 Form 10-K (p.21), ‘[t]he non-specialty shell egg market is characterized by an inelasticity of demand.’ At the same time, defendants recognized, as defendant Cal-Maine stated in its August 4, 2011 Form 10-K (p. 21), ‘small increases in production or decreases in demand can have a large adverse effect on prices and vice versa.’ Defendant Michael Foods, Inc. (‘Michael Foods’), in an August 8, 2011 prospectus filed with the SEC, similarly stated that, ‘[i]n general, the pricing of eggs is effected by an inelasticity of supply and demand, often resulting in small changes in production or demand having a large effect on prices.’ Stated more concretely by Cal-Maine’s Chairman Fred Adams in a July 2007 ‘Investors Business Daily’ article, defendants recognized that ‘[o]ne or two percent on the supply side affects prices by 20 percent or 30 percent.” (Brackets and parentheses as in complaint.)
The food companies say the egg cartle created chick hatch reduction, emergency flock reduction and hen disposal programs as short-term measures to control prices and supplies.
“Beginning at least as early as August 2002 and continuing through at least March 2008, defendants engaged in coordinated, large-scale exports to control the supply of eggs. In a private document, UEP acknowledged that ‘exports [we]re only taken in large volume shipments over a very short delivery period for the purpose of having the greatest impact upon surplus supply reduction.’ Defendants often exported eggs at a loss, and agreed to reimburse each other for related losses. These coordinated exports had a direct and substantial impact on domestic egg prices,” the complaint states. (Brackets in complaint.)
The food companies say the conspiracy coincided with the elimination of almost 2,000 small egg farms.
“The relevant conspiracy period, starting in at least 1999 and continuing through at least 2008, coincided with the egg industry consolidation and rationalization. This reduced the number of producers and concentrated the production of eggs among a handful of large producers. By way of example, in 1987 the number of companies with flocks of 75,000 hens or more was around 2,500. In 2010, however, the number of companies with 75,000 hens or more (accounting for the ownership of 95 percent of layer hens) had shrunk to about 205,” the complaint states.
Farmers who refused to participate in the alleged scheme were punished, the food companies claim. When Sparboe Farms left the program in 2003, United Egg President Gene Gregory allegedly pressured its customers, including Canada Egg Marketing Agency, Albertson’s and Wal-Mart, to find another supplier.
The food companies claim they learned of the conspiracy from public disclosures of a government antitrust investigation in 2008.
They seek monetary damages for antitrust violations and fraudulent concealment and an injunction barring the egg producers from controlling prices and supply.
They are represented by John Kinney with Jenner Block.