Antitrust Division Annuls Koch’s Contract Exit Penalties
Citing the unreasonable burden placed on poultry farmers, the Justice Department’s Antitrust Division sued Koch Foods Inc. last month for imposing exit penalties on farmers who try to switch to Koch competitors, calling it an unfair effort to insulate itself from competition. The DOJ simultaneously filed a consent decree under which Koch Foods agreed to temporarily stop the practice and return any penalties it has collected from farmers.
The government says its action reaffirms the joint commitment of the Department of Agriculture (USDA) and Justice Department to protect farmers. The matter was filed in U.S. District Court for the Northern District of Illinois, Eastern Division.
Koch Foods, a leading poultry processor, has been employing termination penalties since 2014, an unfair and unreasonably burdensome practice under Section 202(a) of the Packers and Stockyards Act and in violation of Section 1 of the Sherman Act, the DOJ asserts.
The Market
Poultry production is big business. In 2021, roughly 8.9 billion broiler chickens and 243 million turkeys were produced nationwide. In 2022, poultry sales were $76.9 billion, an increase of 67% from 2021, according to the USDA. The poultry and egg industry is also a major U.S. employer, employing more than 590,000 people in 2019.
Tyson Foods Inc., based out of Arkansas, is the largest poultry producer in the U.S. with a market share of approximately 25%. In comparison, Koch Foods Inc., with a market share of approximately 4%, is the sixth largest poultry producer, falling behind producers Pilgrim’s Pride Corporation (20% market share), Sanderson Farms, Inc. (8% market share), Perdue Farms (7% market share), and Foster Farms (4% market share). Other producers behind Koch Foods Inc. include Wayne Farms LLC (3% market share), Mountaire Farms (2% market share), House of Raeford Farms, Inc. (2% market share), and Bell & Evans (1% market share). Additionally, there are many smaller, often family-owned farms.
Farmers sometimes must switch processors to secure better compensation and working conditions, which Koch Foods has used its power and leverage over farmers to block. The company aggressively enforced its onerous contract termination arrangements, having filed nearly a dozen lawsuits against farmers during the past three years. Many farmers cannot afford litigation defense costs and are forced to return to Koch.
Under the terms of the consent decree, Koch Foods has agreed to refrain from including termination penalties in grower contracts for seven years. Koch Foods must also meet certain reporting and compliance obligations.
The Koch lawsuit comes on the heels of a DOJ enforcement action in June against a set of other large poultry processors, Sanderson Farms and Wayne Farms, under the Packers and Stockyards Act. That suit seeks to end an alleged long-running conspiracy to suppress worker pay at poultry processing plants and address deceptive abuses against poultry growers.
Additional Reading
See our previous commentary and news posts on antitrust actions targeting the pork, poultry, and beef industries:
- DOJ Forces $85M End to Long-Running Conspiracy to Suppress Poultry Wages
- “Big Poultry” Producer Pleads Guilty to Price Fixing
- Pilgrim’s Pride Settles Poultry Price-Fixing Charges
- Beef Buyer Class Action Says ‘Big Beef’ Colluded to Score Record Profits by Manipulating Capacity
- Consumers, Ranchers Allege Cartel in Beef Industry
- Multiple Lawsuits Allege Price-fixing by Big Beef Companies