The Justice Department is investigating how poultry companies pay their chicken farmers, the latest move by the government to clamp down on an industry payment system that has been criticized by some farmers.
Pilgrim’s Pride Corp.
the second-largest U.S. poultry processor by sales volume, said in a regulatory filing on Thursday that it learned earlier this month that the Justice Department had opened a civil probe into chicken-grower contracts and payment practices. The Colorado-based company said it would cooperate with the Justice Department.
The Justice Department has similarly notified other poultry companies, people familiar with the matter said.
Pilgrim’s Pride declined to comment beyond the regulatory filing. The Justice Department didn’t immediately respond to requests for comment.
Chicken farmers generally work under contracts in which poultry companies own the birds and feed, and instruct farmers how to grow the chicks. About two dozen farmers in a given region are typically compared against one another to determine their payment rates, using a sliding scale analyzing their chicken production, according to farmers and industry officials. It is an arrangement known in the industry as the tournament system.
Some chicken growers have complained that the many variables involved in chicken farming make it too difficult under the tournament system to gauge how much income they’ll be bringing in from flock to flock. Chicken companies have pushed back on the criticism, calling the system a performance-based structure that keeps prices down at supermarkets, incentivizes farmers to maximize efficiency and safeguards chickens’ health.
The method is used by many large U.S. chicken companies to pay growers and has drawn scrutiny from the Agriculture Department, which in May proposed new rules around the system that the agency said would increase transparency.
Earlier this summer, the Justice Department required the third-largest U.S. chicken processor, Wayne-Sanderson Farms, to stop using the system as part of an antitrust settlement that the companies said was needed to complete the merger that formed it. Wayne-Sanderson now offers bonuses to farmers who perform well and include a base pay, the company has said.
The probe into poultry farmers’ pay comes as the Biden administration has pushed to curb the power of large agriculture companies, accusing them of using their size to raise costs for consumers while underpaying farmers.
Earlier this year, the Justice Department opened a probe into whether poultry companies have engaged in anticompetitive sharing about employment practices and held down plant workers’ wages. The civil probe examines actions at several poultry companies and adds to the scrutiny that U.S. meat processors are facing from the government.
In September, the Federal Trade Commission filed a lawsuit accusing two major farm chemical suppliers of artificially inflating prices for farmers. The Agriculture Department has pledged funding for more competition among meatpacking plants, which government officials have said will help farmers and consumers.
A separate Justice Department effort was dealt a setback earlier this year after five chicken-company officials were acquitted following three attempts to win a conviction on charges that they conspired to fix prices. The department’s last criminal case against former poultry-industry officials accused of price-fixing collapsed earlier this month after a judge dismissed the charges.
—Dave Michaels contributed to this article
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