IPFS Menckens Ghost

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Chicken S**t Price-Fixing

Dear Thinker:

I had to read the following WSJ article three times to make sure I wasn't hallucinating.  It disabused me of three notions:  one, that we have a market economy; two, that price-fixing is illegal; and three, that prices are set by supply and demand and by competition for customers among suppliers.  Silly me.

The government has had a chicken fetish for a long time.  For example, FDR, one of the supposed best presidents of all time, allowed his administration to persecute the Schechter brothers, Jewish immigrant butchers from Eastern Europe, for 60 violations of the Poultry Code during the Great Depression.  Their crime?  They allowed customers of their Brooklyn butcher shop to select and examine the chicken of their choice.  This violated the Poultry Code, which required butchers to stick their hands in the chicken coop and sell the first chicken they grabbed to the customer.  In the thinking of the chicken politburo, if earlier customers were allowed to select the best chickens, then later customers might end up with inferior chickens and ask for a price discount.

I'm not making this up.  And I don't believe that the WSJ reporters made up the following, either.  I wish it were not true.

Regards,
Mencken's Ghost

Chicken Prices Under Scrutiny as New Rules Set to Kick In

Georgia Dock index now requires companies to submit documents verifying accuracy of data

By 

KELSEY GEE and

JACOB BUNGE

The Wall Street Journal, Updated Nov. 22, 2016 12:52 p.m. ET

Major poultry companies, including Pilgrim's Pride Corp. and Tyson Foods Inc., starting Monday will be required to submit documents verifying the accuracy of information they want included in a key industry benchmark used to set chicken prices at U.S. supermarkets.

The first major change to the Georgia Dock index's formulation in more than four decades comes amid growing questions about the index's accuracy. The benchmark, provided by the Georgia Department of Agriculture, has drawn scrutiny after a Wall Street Journal article earlier this year raised questions about how it was calculated. Prices have at times this year been 30% to 60% higher than comparable price quotes from other major indexes published by the U.S. Department of Agriculture and private services.

The USDA and the Florida Attorney General's office have both pressed the Georgia agency for information about how it compiles the index, Julie McPeake, a spokeswoman for the state agency, confirmed. On Monday, Florida Attorney General Pam Bondi said in an emailed statement that her office is "in the process of gathering more information at this time," but declined to comment further.

Price reporting practices for chicken are different than for cattle and hogs. Under a 1999 law enacted to provide transparent market information to farmers and ranchers, all meatpackers are required to disclose daily prices for beef, pork and livestock to the USDA. Sharing prices for poultry is voluntary.

The Georgia Dock index includes prices for chicken parts provided by representatives at nine different poultry producers with processing plants in the state. Pilgrim's Pride and Tyson control about half of the 18 contributing plants to the benchmark, which excludes outlier prices that are more than one cent above or below the average. There is no independent verification.

Previously, each company representative told the state agency how many pounds its plants sold of certain chicken parts, and at what price, based on an honor system in place since 1973.

"This is part of our effort to move forward and solidify the information we have been reporting," said Alec Asbridge, director of regulatory compliance at Georgia Department of Agriculture, who added that he wasn't reviewing whether or not prices have been distorted in the past. "We trust the companies we deal with, so this is our way of saying we have their validation that the information they provide is truthful."

The state agency said it won't independently verify the prices.

The Georgia Dock is one of the most widely cited price indexes in the chicken industry. Tyson and other poultry processors say they use it and other benchmarks in lieu of market prices in contract agreements with some grocery stores and other buyers, which commit to large purchases months in advance to ensure a steady supply of chicken for customers. In the low-margin supermarket business, paying fractions of pennies more or less per pound of meat at wholesale is typically passed on to consumers.

Because poultry companies aren't legally mandated to report the terms of their business agreements with retail buyers like Wal-Mart Stores Inc., it is unclear how many contracts use the Georgia Dock index, as opposed to other indexes.

Tyson's incoming chief executive, Tom Hayes, on a Monday conference call with company analysts played down the significance of the Georgia Dock index, which he said is a factor used to price 3.5% to 4% of its chicken volume, as retail buyers increasingly look to other pricing components such as the cost of feed grain.

"It will have no impact, if the Georgia Dock went away," said Dennis Leatherby, Tyson's chief financial officer.

Pilgrim's, the second-largest U.S. chicken processor, prices less than 5% of its current sales off the index, according to a spokesman. Officials for Pilgrim's Pride, Sanderson Farms and the other contributing companies didn't immediately respond to requests for comment on Georgia's request that they vouch for prices submitted.

Mr. Asbridge said the agency has already received affidavits from some of the participating companies. It is also testing a new model for collecting and reporting prices to replace the Georgia Dock in the coming months.

Meat buyers for a major grocery chain said they are glad someone is looking into the accuracy of the index. "It's been a long time coming," said a representative for the chain.

Some economists believe that any chicken pricing index will be flawed. Jeffrey Dorfman, a professor of agricultural economics at University of Georgia, said: "No matter how good an index you build, it will never perfectly capture prices because buyers and sellers don't want to reveal them."

—Annie Gasparro contributed to this article.

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