Bloomberg Audio Studios, podcasts, radio news. Joe, why did the chicken join the Revolutionary War? I have no idea, because it didn't want to be cooped up under British rule.
Okay, but it sitting aside the terrible puns. Wasn't it really about taxes?
Joe?
Joe? Why did the colonial chicken refuse to pay British taxes because it didn't want to put all its eggs in King George's basket? Should I keep going?
I'm good, I'm good, Thanks, I'm good, Okay.
Fine. To understand chicken and the current landscape of the US economy and the companies in it, it helps to go back in time and revisit a few key moments in US history.
Going back to the founding, Americans were actually suspicious of the power of large corporations. And one reason for that is that it used to be that the government would grant corporate charters.
Right.
There's this history in the United States before general and corporation statutes that corporations are really creatures of the state, and so there was always this suspicion that if they grew to be too powerful, the kind of abuse that they could bring to bear on the lives of ordinary people was really extensive.
And so Doha Mecki is the Principal Deputy Assistant General in the Anti Trust Division of the Department of Justice. That's a long title. It means she's the second highest ranking official there.
Today.
The US government has a whole constellation of laws, acts, and agencies all aimed at ensuring that America's economy remains fair and competitive. One of the most important is where Doha works the DOJ.
The Any Trust Division is one component of many at the Justice Department, and our specific mandate is to enforce the anti trust laws and essentially to guarantee and vindicate the economic liberty of all Americans. And we do that by enforcing the federal and trust laws, the best known of which are the Sherman Act and the Clayton Act, but you've.
Probably heard of these before. The Sherman Anti Trust Act of eighteen ninety was famously deployed in the breakup of Standard Oil back in nineteen eleven, which is still probably the country's most well known anti trust case, and the Clayton Act arrives soon after that. But America's approach to anti trust has constantly changed over time.
And chicken, with all its accusations of price gouging and unfair labor practices and just huge corporate concentration, seems to be a perfect poultry Peatrie dish to experiment some new ways of looking at antitrust.
Welcome to Part three of Beak Capitalism, our ongoing exploration of the US economy through the medium of chicken. In this episode, we're asking how we can solve some of the problems that Big Chicken creates. Can we actually uncluck the system?
So a little bit of history. Actually, the relationship between agriculture and anti trust goes back to the beginning. Farmers were one of the big supporters of the Sherman Act, the first anti trust statue passed by Congress.
Michael Cati's is Deputy Assistant Attorney General for the Anti Trust Division at the DOJ. He works alongside Doha, but recently he spent a lot of time focused on agriculture and Act because it turns out the DOJ has a long history with the food industry.
And early on the Department of Justice brought a number of cases against meat packers and along about nineteen fourteen, Congress looked at the way the Supreme Court was handling that Act and was not happy, so they passed the Clayton Act, which was supposed to be broadened the enforcement powers of the Division. They also created the Federal Trade Commission.
And the first thing the President asked the newly created Federal Trade Commission to do was study the meat packing industry.
Fast forward to nineteen twenty, the FTC issues a three volume report documenting everything going wrong in meat packing markets, both collusion and deception, and at the same time, the Justice Department files an anti trust case that breaks up
the packing industry. And yet Congress still wasn't happy. So then in nineteen twenty one, Congress, now under a strong Republican and a fairly conservative Congress, passes the Packers and Stockyards Act, which really said, look, we are concerned that the people who ranch and grow hogs are always going to be facing very large, powerful interests, and we want to give them extra protections. And so was the anti
trust laws focus solely on competition. The Packers in stock Guards Act actually provided explicit protection for ranchers, hot growers, eventually chicken growers from deception on fairness discrimination.
You're going to want to remember the packers in Stockgards Act. It's been deployed quite a bit lately in the name of anti trust enforcement in agriculture and chickens especially.
But chicken also says something about fairness in business more generally.
There are many lessons to be drawn from anti trust enforcement in the chicken industry that I think have made us better enforcers and that have really brought into focus the expansiveness of our mission. Again, anti trust is a big mandate. It rhymes with a lot of core democratic values that all of us hold as citizens of this country. And so to bring that down to the level of
enforcement anti trust enforcement at the market level. What we see in the chicken industry is that this outsourcing of risk is actually a business model that many kinds of companies employ. For example, a ride sharing company right that outsources risk investment and recoups a lot of the profit
for simply matching writers and passengers, for example. There are other examples in the real estate industry, in banking again where you see this sort of outsourcing of risk, and it raises fundamental questions about how those markets are functioning, whether consumers are ultimately getting the kind of choices good value innovation and other things that we really lean on the antitrust laws to deliver.
All of this raises the question of what exactly we mean by antitrust and what exactly is anti competitive behavior.
Yeah, we should talk about that because for years, competition was judged on the basis of a consumer welfare standard. What that means was, for example, if two companies decided to merge and prices for consumers ended up being lower as a result, then that was generally fine. Monopoly was only a really bad thing if it led to higher prices, right.
Because pretty much everyone likes cheap chicken, and at a minimum, you could argue that concentration in the poultry industry and industrialization of chicken and all the scale that comes with it has created a lot more white meat to go around.
But in recent years, policymaker's approach to anti competitive behavior has started to change a lot. Not only are they looking beyond simple chicken supply, but they're also arguing that it's not clear that all of this is leading to better outcomes for consumers either.
One of the problems in anti trust enforcement generally is people said, well, you know, if you have power on the buying side, that just will get passed down the line to the ultimate consumers. That's actually wrong, right. The concern here is if the middle person has the power, they're going to extract taxes up and down the line. And it's not the case that you would expect somebody if there are forcing prices down through any competitive means,
that they're going to pass that along. And just as a sort of general example, think about it this way. The way you exert monopoly power on the buying side, which we call monopsony power, right, is you actually buy less, so you're reducing demand so that prices go low. Well, if they're buying less, they're selling less, and so that can't help consumers. Consumers want more supply, more competition, So either it has sort of no effect downstream, or it
actually contributes to higher prices. So when we go after monopsony power in the agricultural industry and are successful, it benefits both and often the consumer.
Joe ring the monopsony clackson monopsony.
It comes up a lot nowadays. To put it simply, it's basically a market structure where there's only one big buyer, whether that's of labor, widgets whatever.
So if you're a chicken farmer in Rhode Island, for instance, there might be just one poultry processor that you can sell your chickens too, and that company might be able to dictate its terms.
So where a monopoly is all about a single seller the controls supply of a particular product or service, monopsony is about what's happening on the buy side. Here's Doha.
It's this idea of deep power that is exercised on the buy side of the market. And this is actually very old economics, right. This is a theory that was pioneered by Joan Robinson in the nineteen thirties, and so
there's this idea that buyer power might be harmless. But we've known for almost a century empirically that you know, if a buyer shoeses an inpu along a supply curve and then is able to exercise the power to drop the value of that input, maybe in the short run you get lower prices or expanded output, but if you drop the value below a reservation wage, right, especially when you're talking about labor markets, which a lot of producer and grower economies are basically labor markets that you will
eventually destroy incentives to continue making that input, and so in the long run you will actually get contraction in a market that is classical monopsony power that is empirically sound, and that has been I think upheld by a lot of economists for a very long time. There is another flavor of monopsony, of course, which is just the abuse
of bargaining leverage. If you fear termination of a contract that your buyer has any negotiated with you, if you fear this is the same thing with non competes, right, This is the same sort of economic idea that if you have lower bargaining leverage, you are likely to do everything you possibly can to be more compliant with the terms that are imposed by the purchaser of whatever product or service that you are selling. And so that just
maps on almost perfectly with the chicken industry. And what is really I think most fascinating in the chicken industry and other types of labor markets is that you can actually exercise power and abuse bargaining leverage at much lower concentration thresholds, which is a really interesting and fruitful area of economic research that has been produced over the last five to ten years.
So, armed with that wider definition of competitive pressures, the DOJ has gone on the attack. For instance, they successfully blocked a merger of the publisher's Penguin, Random Had and Simon and Schuster by arguing that the deal would lead to lower earnings for authors.
But the DOJ's results when it comes to chicken have been more mixed despite that broader definition of anti trust. In twenty twenty, the DOJ indicted executives from poultry processors including Pilgrim's Pride and Claxton Poultry Farms for price fixing, only to see them acquitted by a jury.
There have been some wins too. The DOJ got a eighty five million dollar settlement with a bunch of poultry processors over allegations that they conspired to share information on wages.
One of the cases we brought involved an information sharing amongst chicken processors, and they were sharing incredibly detailed information about compensation. And not only were they sharing it, they were like meeting every year and eventually bringing their data so that they could all be sure that they were
sharing accurate data and then talking about compensation. So there's the example of coordination amongst people who should be competing for workers actually figuring out how not to compete with each other.
And last year Coke Food's, a huge poultry processor, agreed that it would no longer charge a penalty if contract growers choose to switch processors after the DOJ filed suit under Sherman and our good friend the Packers and Stockyards Act.
Another case we brought involved again a specific chicken processor who was contracting with and that's already a relationship where the processor owns most of the bargaining power, but decided that wasn't enough their growers. If you want to switch to one of our competitors, we're going to make you pay a penalty. So that is the processor preventing competition unilaterally by making it harder for the grower to actually
benefit from whatever competition exists in the market. And it is also just simply obviously unfair to these growers who don't have that much opportunity by denying them whatever limited opportunities exist.
It's a nice step for critics of the tournament system that we talked about in episode two, but there's also more that could be done.
The third case involved the chicken tournament system, right, and so One of the things chicken farmers face growing chickens is every six weeks when their chickens are picked up by the processor, they are actually weighed and measured against the other growers that are delivering chicks the same week, and it's almost you know, you're directly competing with your fellow chicken growers. And some people get penalized and some
people get a benefit. But given the risk these growers face, we brought a case saying the penalty itself makes it impossible for growers to really understand the financial risks they're taking because there's a lot of arbitrariness in the tournament and it's not just your results don't depend on how well you perform. And so Wayne Sanderson, who is the I believe the third largest chicken processor in the country, agreed that they would stop penalizing growers in their tournament.
System, so another small victory. Meanwhile, the US Department of Agriculture this year proposed more regulation of the tournament system under you guessed it, the Packers in Stockyards Act. Joe, should we make packers in stockyards merch?
Yes?
Absolutely, well maybe, but it is kind of interesting to think about how two hundred and fifty years ago, Americans were all worried about taxes under King George and the tyranny.
Of the state.
But today maybe we should all be worrying about something else, what Dilha calls the tyranny of the intermediary.
Thinking about the chicken industry in particular, you see limits on the ability to sell your product or service to a small number of companies. And that is how you get this problem of the tyranny of the intermediary. Right, it's the meat processor that sits in the middle, right between the ultimate purchaser and the grower, and can command a certain sum or lower the price on one side of the market and really grow revenues and get fatter in the middle.
So antitrust has a long history with agriculture and the poultry industry, although the way it's being viewed and enforced has been changing recently. But that's only one side of the story, because even as anti trust evolves, the way companies run their businesses has evolved too.
A lot.
When the Sherman Act and the Clayton Act and the Packers and Stockyards Act were all created, the middlemen of America were smaller and not as technically sophisticated. Obviously, if you're going to influence prices, you're probably doing it in a back room somewhere, smoking a cigar, probably playing poker.
But today companies have a host of new data sources and tech powered tools to run their businesses. And when it comes to chicken and souped up data sources, we have to talk about Agristats.
We'll say, generally speaking, it's often been referred to as the most important, one of the most important companies you've never heard of.
That's Jonathan Canter, the Assistant US Attorney General for Antitrust at the DOJ. He's the head Honchow Doha and Michael's boss basically, and together with Lena Kahan, the chair of the Federal Trade Commission, he's been leading one of the most aggressive regulatory responses to antitrust in years, decades even.
And one of their more recent actions is against Agristads. Now onloads listeners will actually have heard of this company before. We spoke about it earlier this year with David Dian, the executive editor of The American Prospect. He did such a good job describing what Agristats does. Then we're just going to let him do it again here.
And this company collects real time proprietary data from all of the meat packing producers in a given market, whether it's pulk or pork, or poultry or.
Chicken or turkey.
And they put all this data in these giant books and they give them out to these various competitors, which now have basically a setup of everything that their competitors are doing, including their price, including their supply, including every
single thing part of their market. And now they can know that, oh, I can probably raise my price because I'm under price relative to my competitor, but I won't lose market share because my competitor is charging more for this product and it has the tendency to ratchet prices upward.
The DOJ filed suit against Agristats last year, arguing that it was violating the Sherman Act by sharing competitive information. We reached out to Agristats for comment, however, they didn't respond. The company published a statement on its website shortly after the lawsuit was initially filed. They're denying the allegations.
Currently, the case is still live, which means Jonathan can't talk about it in detail, but more generally, he argues that it illustrates the dominance of intermediarias in the economy.
So this is a case that we brought involving information exchanges, among other things, poultry processors and the idea. And this is something that we're seeing in many aspects of our economy, is that when large companies share competitively sensitive information using often faceless intermediaries, that sharing of information can result in higher prices to consumers, but it could also result in depriving, in this instance, family farmers and others of a fair return on investment.
So the way companies might share price and market information has moved on from those secret deals in dark rooms of the past. Now they might do it on a platform or through an algorithm, and antitrust enforcement has to adapt to this new world.
This is an issue that we are confronting throughout our economy and so the concerns around data sharing and coordinat are not new. The antitrust laws enacted initially in eighteen
ninety have been dealing with this ever since. But what we are encountering now is almost a supercharging of data sharing and coordination, and so the use of technology and intermediaries has created the opportunity for companies to contribute information, for example, to a central database or service and have that service essentially perform the function of coordinating and using that data to help those companies extract higher prices or offer lower returns to people who are selling their goods
and services. In the context of technology, now, something that used to be difficult to do because it required Manila envelopes of data and spreadsheets and calculators and a lot of manual labor is increasingly being outsourced to technology algorithms that can take this information and essentially take on the pricing or take on competitively sensitive functions of a business.
And the more that is outsourced to these technologies, these algorithms, the more the difficulties that used to somewhat restrict the ability of companies to engage in anti competitive coordination. Those frictions, those impediments are being lifted and eliminated, and it's going to make it easier and more effective. And that is a real big concern of ours. And so when we think about what does an agreement look like, what does
information sharing, what does coordination look like? In the year twenty twenty four, we have to look at what market realities present and market realities today present algorithms doing that work. And whether it's an algorithm taking the information, spitting it back out and resulting in higher prices, or two individuals in a smoke filled room as it might have been one hundred years ago, it's the same anti competitive end.
They're just doing it through different means. And so whether it's a handshake, using the postal service and sending mail to coordinate, whether it's it's using email or text messages or chat or phone, or in today's world, sharing information through an algorithm and outsourcing it to AI, it's still the same thing. It's coordination, it's price fixing, it's market allocation. In the anitrust laws applied just as much now, if not more, than they did when they were enacted in eighteen ninety.
So the outcome of the agristatsuit will be very interesting to watch.
But what about changes in the way we raise chickens too, Because even if chicken prices come down and labor practices improve, there might still be some other poultry related problems.
One of the most remarkable food miracles is the story of Chicken, a triumph of research on the farm and in the marketing system. Once something special for Sunday dinner. Chicken inspected and graded is now thriftly every day. Yes, in one generation, people of this country have doubled their consumption of potun bom research has led to the control
of disease, improvement of breeds, advancement of production. Marketing research has developed low cost methods of mass distribution in processing, storing, handling, and packing. And these boxes joined the never.
Ending technological changes in the way we grow chickens was once pitched as a big win for consumers. We talked about it in our earlier episode. The introduction of hormones, antibiotics, and growth promoters all combined to create a more robust chicken.
But just as antitrust regulators have started to prepare some of the damage wrought by new technologies, consumers have been pushing back too.
We spoke to Marion McKenna, the public health specialist earlier in the series, and as she explained it, people's attitudes towards let's call them augmented chickens has turned.
Now.
The worry is that all that antibiotic use in birds might make it more difficult to treat people, and that's led to a big change.
We got really significant change in the United States about how antibiotics were allowed to be used in the raising of livestock. Not legislation, because legislation had been tried on this issue back in the nineteen seventies and foiled by
some congressman with big agricultural interest behind them. What the Obama administration did in pretty much their last days in office was instead to change some regulations they're technically called guidances at the FDA that affected how antibiotics were allowed to be labeled. And since the label has the force of law for how an antibiotic can be used, that actually created significant change. What it basically did was outlaw
growth promotion. Now, the reason why this happened was first because the Obama administration took it on as a cause, and second because one of the most power chicken companies in the United States produce foods, got behind the change. In fact, you could argue led the change in some ways,
but also there was a consumer movement. And it's kind of remarkable to me that given the size of the economic forces that we're talking about, this incredibly large trade in livestock, that consumer voices were heard, but sets of very large buyers for instance, university medical centers and very large public school systems, both of which are feeding like
vulnerable children or feeding vulnerable patients. Said to essentially their wholesalers, we don't want any more to buy chicken that was raised with routine use of antibiotics, because if there is resistant bacteria on this meat, it is going to endanger people whom we're feeding. And that led both the companies and the regulators to understand and that if they stepped out and made these changes, there was an audience and a market waiting for them, and someone, to everyone's shock,
the change actually happened. So in the last days of the Obama administration, it became no longer possible to use growth promoters in the United States.
Because, of course, chicken isn't just about prices and wages. It's about lives too. We eat a lot of chicken meat and we want it to be good for us. Meanwhile, the use of antibiotics has gone hand in hand with crowded chicken houses and factory farming.
Is Marin mentioned. Perdue, the fourth largest poultry company in the US, got on board with the change. Even eight years later, it says it's still committed to quote no antibiotics ever in its flocks. Some other companies have backtracked, though Tyson, for instance, has dropped its no antibiotics label, though it says it's only using drugs that aren't important to human health.
In twenty twenty four, however, there is something else to worry about when it comes to chickens collective impact on human health, bird flu.
Bird flu has been coming back to the United States and being found not just in migrating wild birds and raptors, for instance, but also in domesticated birds. And when avian flu, which is incredibly pathogenic to birds, gets into a very large scale chicken operation, whether that's turkeys or broilers, meat chickens, or laying hens egg chickens, the results are incredibly dramatic. Entire farms can be wiped out, and those farms may
be very large. Egg farms can have more than a million chickens on them easily, and so it's a significant concern that this flu keeps on, sort of like knocking at the window of our agriculture and finding ways inside.
You may remember this virus from such inflatationary events as the twenty twenty three egg price spike, which was caused in part by the culling of millions of hens because of bird flu, as we discussed in the first part of this series.
So over the past couple of years, it's become very clear out in the wild world that this avian strain of flu, avian flu H five N one also can affect mammals. It had a really profound effect on several collections of mammals living by ocean sides, like sea lions, for instance, in South America. But I think it was kind of a shock for people to realize that somehow this flu had made a sufficient adaptation that it could affect cows.
Did you hear that bird flu is now found in cows. That's your chicken sandwich and your milkshake.
And now avian flu H five to one has been found in primarily in dairy farms up and down the US. It may well be in other types of cattle raising
as well. It happens that on dairy farms, first workers are pretty face to face with the cows fairly often, and second they interact with the cows fairly often because the cows have to be milked regularly, and so that flu caned sicken cows and can cross from cows to humans has become visible on dairy farms in a way that I think no one really expected and that has taken us by surprise.
At the time we're recording this, the Center for Disease Control and Prevention is confirmed that healthcare workers in Missouri got sick if they're nursing a patient who is infected with bird flu. It's not yet clear how they got it, but it is a reminder the chicken might end up being grown zero for another pandemic too. It's probably a stretch to say that the US economy, whether it's inflation, wages, quality of life, etc. Rests on how we grow, treat,
and sell its chicken. But like there's a lot there, it contained multitudes.
Chicken does contain multitudes. When demand goes up and supply chains and labor markets get upbended, whether it's from disease or climate disaster, chicken prices go up too, adding to overall inflation, and companies might push price in that scenario to make up for lost volumes, which also adds to inflation and.
Chicken on the way birds are raised could be the source of another major pandemic, one that could cause a lot of disruption yet again, and the.
Tournament system has a lot to say about the balance of power between big companies and platforms and the people who rely on them. Plus, chickenization is on the march more broadly, making its way into pig farming and other parts of American agriculture.
In the meantime, the intense concentration in the poultry industry has captured the attention of regulators and prompted some action on things like price sharing, but with mixed results so far.
For them, chicken is really important because it's not just about lost or lower earnings for farmers. It's also about what happens after that. Here's Jonathan Canter from the DOJ Again.
If you look at the aggregate data, our country has lost more than one hundred thousand farms between twenty eleven and twenty eighteen. This farmer's share of the retail food dollar used to hover around forty percent. Now it's down to about fourteen. We've got four companies that control eighty five percent of the corn seats market. We have three manufacturers that control ninety five percent of equipment production and maintenance.
We have four companies that control over eighty percent of beef packing, and we have a small number of significant packers that control poultry, including chicken. The changes that have occurred in our economy around these industries and the consolidation and the concentration are alarming and often are one of the reasons why it is important that we remain vigilant and focus on forcing the law when the facts and the law demand it. But it affects the local community.
It affects the ability of people to maintain their way of life. It affects the bookstore, It affects the independent pharmacy. It affects the survival of the local hospital. It affects the local bank, which is important to providing capital to local businesses who want to build. These are pillars of our rural communities, which are in turn the lifeblood of
our economy. And if we're not investing in preserving a competitive economy that provides opportunity for our family farmers to thrive and build and maintain and sustain those small businesses hand them down from generation to one another, we are not only doing a disservice to our family farmers, but we're doing a disservice to our rural communities at large, and that is a significant problem, and it is why these cases are so important.
So there you have it. Chicken can be an engine for economic growth too, and when farmers can't make enough money producing it, whole communities might suffer. Chicken can influence entire towns, counties, states, and economies.
So the next time you eat a delicious chicken sandwich, or a hard boiled egg, or even a nugget, we hope you'll think about the bigger economic picture. The Chicken Represents.
Beat Capitalism is written by Tracy Alloway, Carmen Rodriguez, and Joe Wisenthal.
This short series was produced and edited by Carmen with the help of kil Brooks and Dashel Bennett.
It was also fact checked by Dash and Kale.
Blake Maple's chickenized our Odd Lots theme and mixed this episode too.
Brendan Newnham is our executive producer, and Sage Bauman is Bloomberg's head of Podcasts. If you enjoyed this three part deep dive into the chicken industry, please consider leaving a positive review on your favorite podcast platform. Thanks for listening. Thanks