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WALL STREET JOURNAL REPORTS PROP 2 OPPONENTS PROBED BY JUSTICE DEPARTMENT FOR PRICE-FIXING
SACRAMENTO — An article appearing on the front page of today’s Wall Street Journal (“WSJ”) reveals for the first time that the U.S. Department of Justice has subpoenaed records from some of the leading opponents of Proposition 2, including the United Egg Producers (“UEP”), Golden Oval Eggs LLC, Michael Foods Inc. and MoArk LLC , as part of a criminal probe into whether illegal price-fixing is behind record food prices.
The UEP and these three large factory egg companies have contributed more than $800,000 to fight Prop 2, a measure on the November ballot that seeks to prohibit the most abusive factory farming practices in California and ensure modest animal welfare standards for farm animals by allowing them simply to turn around and stretch their limbs. UEP has organized the fundraising campaign for the opponents, and they have netted approximately $8 million in an attempt to defeat Prop 2.
“It’s no wonder these out-of-state factory farmers have so much cash to fight Prop 2 – turns out they’ve been picking our pockets for years while inflicting cruelty on the very animals laying their golden eggs,” said Jennifer Fearing, YES! on Prop 2 campaign manager and chief economist for The Humane Society of the United States. “No Californian should trust a word these people say – these agribusiness big shots have profound contempt for animals, consumers, the law, and voters.”
Relevant excerpts from the article, “Federal Prosecutors Probe Food-Price Collusion”:
Federal prosecutors have opened separate criminal probes into possible price-fixing by major egg producers and California tomato processors, the latest in a series of U.S. investigations of alleged collusion in food and agriculture.
The investigations, which have not been previously reported, add to concerns that beyond the rising cost of fuel and feed, a hidden factor may be driving food prices higher: collusion among farmers, food processors or exporters.
The Justice Department wouldn't disclose how it believes processors manipulated the prices of egg products. There's no indication that the department is looking into the larger market for fresh eggs, where prices have increased more than 40% in a year.
But producers of fresh eggs have coordinated their efforts to raise prices, according to industry participants and a Wall Street Journal review of industry documents.
Fresh-egg farmers acted together through a series of export shipments, organized by United Egg Producers, an industry cartel whose 250-plus members include virtually all of the nation's big egg producers. By removing a small fraction of eggs that would have been bound for U.S. sales and arranging instead for their export, United Egg helped tighten domestic supply and drive up the price of eggs across the country, according to newsletters and other documents that United Egg sent to its members.
The industry group itself credited the campaign with helping to boost domestic egg prices, which rose more than 40% in the next year. Gene Gregory, the Georgia-based group's executive director, said export orders amounted to less than 2% of industry output. "But it is amazing how one or two percent can have an effect on the rest of your domestic price," he said.
The U.S. Agriculture Department's chief economist said that while higher feed costs have played a part in lifting egg prices, the primary causes for price rises through 2007 and into 2008 were limited production and tight supply.
"In 2007, table-egg producers cut production," a decision that predated the run-up in feed costs, the Agriculture Department economist, Joseph Glauber, said in congressional testimony in May. "In 2007, the wholesale price for a dozen Grade A large eggs in New York averaged $1.14 per dozen, 43 cents higher than the previous year," Dr. Glauber testified.
The exports followed a previous effort by United Egg to limit supply by pressing members to cut the size of their flocks. In 2004, according to members and internal documents, the group pressed its members to increase the sizes of their hen cages, a response to the growing number of producers advertising "cage free" eggs and the threat by some states to introduce new animal-treatment rules.
But bigger cages also mean farmers can keep fewer hens in the same space. United Egg warned its members not to build additional cage capacity to make up for these flock reductions, according to its internal newsletters. Producers that raised flock size risked being removed from United Egg's "animal-care certified" logo program.
Before United Egg's export initiative and the industry's flock reductions, the egg industry had a boom-and-bust history of profit and overproduction.
The industry leader, Cal-Maine Foods Inc., of Jackson, Miss., has enjoyed sharply higher share prices and profit in the past two years. In the year ended July 28, it reported that higher egg prices helped push net income to $152 million, from $37 million a year earlier. Its shares traded as high as $48.80 in August. Cal-Maine shares have slipped recently, to $40.36, still well above the August 2006 price of $7.42.
"Greece had its Golden Age...and now the U.S. egg industry is having its turn," Watt's Egg Industry newsletter boasted in its February edition. "Egg prices have soared at historic highs through months in which producers usually hold on for dear life."
United Egg says its collective actions, including exports handled by a United Egg affiliate, are shielded from antitrust law under the Capper-Volstead Act. But its efforts to raise U.S. prices could lead to new scrutiny of exemptions from Congress and regulators.
The full article, “Federal Prosecutors Probe Food-Price Collusion,” is online at: http://online.wsj.com/article/SB122213370781365931.html
Prop 2 is supported by The Humane Society of the United States, the California Veterinary Medical Association, the Center for Food Safety, the ASPCA, the Consumer Federation of America, the Center for Science in the Public Interest, the United Farm Workers, Farm Sanctuary, the Cesar Chavez Foundation, California Council of Churches IMPACT, Republican and Democratic elected officials, hundreds of California veterinarians, family farmers, religious leaders, and many others.
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