Antitrust Case Tastes Like Chicken
Why did the chicken cross the road? To get away from federal antitrust regulators.
Last month the Antitrust Division sued George’s Family Farms, LLC, an Arkansas-based chicken processor, after the company acquired a processing plant in Harrisonburg, Virginia, from Tyson’s Foods, Inc. Tyson’s claimed losses of over $140,000 per week on the Harrisonburg plant — and more than $10 million in losses over the previous three years — and the company wanted out of the market. George’s bought the plant to help expand its existing capacity in the region (Virginia’s Shenandoah Valley). As noted in court papers, George’s said it has already expanded output at Harrisonburg from “425,000 to approximately 525,000 birds per week” and plans to go as high as 625,000 birds per week.
So what’s the problem? According to the Antitrust Division, the mere fact that George’s acquisition reduced the number of chicken processing plants in the Shenandoah Valley from three to two constitutes an unacceptable change to the competitive environment. The DOJ is concerned about a lack of “competitive prices” — not the prices paid by customers, but the prices paid to farmers for their chickens. When it comes to agriculture, antitrust regulators completely abandon their usual pretense of “protecting consumers” and swing effortlessly into maintaining higher price levels for the sake of politically favored farmers. Antitrust Division boss Christine Varney isn’t even trying to pretend otherwise:
The department’s lawsuit alleges that George’s acquisition of Tyson’s Harrisonburg chicken processing facility would reduce growers’ ability to receive competitive prices for their services. America’s farmers deserve competitive prices and terms for the sale of their services, and the Antitrust Division will vigorously pursue anticompetitive acquisitions that stand in the way of achieving that goal. (Italics added)
“America’s farmers deserve competitive prices” is a political statement. It completely undercuts any notion that Varney is some sort of neutral enforcer of the law. She’s not talking about individual rights, or protecting individuals from fraud, or anything even resembling law. She’s simply declaring that she won’t accept any exercise of private property rights that might result in lower prices paid to farmers for their chickens. Call it a subsidy. Call it ad hoc economic planning. Call it extortion. But don’t call it “law enforcement.”
The nature of this action is also borne by the hysterical manner in which Varney asserts that her office is the real victim of George’s refusal to immediately drop their plans when she dared to raise an objection:
Tyson and George’s publicly announced the acquisition on March 18, 2011. Upon learning of the proposed acquisition, the department’s Antitrust Division opened an investigation into the proposed deal. The department sought information on the potential competitive effects of the transaction, and George’s proposed business justifications for purchasing the Harrisonburg plant. On Saturday, May 7, despite the parties’ awareness of the department’s serious antitrust concerns about the transaction, and without providing a response to the information requested by the department, George’s and Tyson entered into an asset purchase agreement and simultaneously closed the transaction.
So now parties must abandon mergers whenever Antitrust Division bureaucrats raise “serious antitrust concerns”? Even the antitrust statutes don’t require that. George’s acted by the book — a book that, incidentally, deemed this transaction too small to warrant pre-merger notification. Mergers over a certain arbitrary value are subject to a federally mandated “waiting period” to allow the Antitrust Division (or the Federal Trade Commission) time to decide if it wants to open a full-blown investigation. Only a small percentage of reported deals get more than a passing glance from the Division. Varney and her minions literally ignore hundreds of mergers every year that are subject to notification requirements. Yet she chose to get all up-in-arms over a deal that wasn’t subject to notification.
Unfortunately, Varney’s petulance — and ignorance — have real economic consequences. George’s can’t fully proceed with its expansion plans as long as Varney’s lawsuit remains before the courts. George’s vice president Bob Kenney said in court documents filed last month that,
It would be highly imprudent to enter into long-term contracts with [chicken] growers to build new growing houses (and improve existing ones) without certainty that George’s will have the processing capacity to actually utilize the resulting birds and the ability to attract customers to purchase that output. Since George’s currently has sufficient growers for its [existing] complex, if George’s were forced to divest the Harrisonburg complex, it could be liable for continued payments of millions of dollars to growers whose birds it could not use. There is no certainty at all that another buyer of the Harrisonburg plant would want to take over new house contracts, which would leave George’s responsible for them.
Aside from the financial risks to George’s — which Varney obviously doesn’t give a damn about — there are also risks to the very farmers she’s claiming to protect. Al Saufley, a Harrisonburg-based lender to chicken farmers, explained in papers supporting George’s defense:
In my opinion, based on my many years in the poultry lending business in the Harrisonburg area that, as long as this litigation is pending, it will be difficult for the poultry growers who grow birds for the Harrisonburg complex to obtain financing for improvements on their poultry farms. … In fact, given the uncertainty that exists during the pendancy of this litigation, my institution would not be willing to extend credit for new houses or improvements to existing poultry houses for those who grow birds for the Harrisonburg complex.
Ultimately, Varney is attempting to micromanage a market she knows nothing about. George’s Kenney explained how Varney’s ignorance is hurting his firm’s ability to successfully compete in the market:
George’s acquisition of the Harrisonburg complex was intended to permit the company to replicate on the east coast what George’s had successfully achieved with two complexes approximately 45 miles apart in Arkansas and Missouri, which is processing and marketing programs with two different sized birds (big and small). George’s plan was to produce big (6.5 pound) birds at Harrisonburg to complement its existing small bird production at Edinburg, and then use that product mix to grow its business with food service and retail customers, most of whom have product needs for both bird types.
Hey, customers! Those people that Varney would normally claim she’s defending — except that she’s not here, because “America’s farmers deserve competitive prices” at any cost — are actually a concern for George’s. Which makes sense since they have to compete in the market, unlike Ms. Varney, who rose to a position far beyond her intelligence and capabilities based on (1) possessing a law degree and (2) a political kinship with the temporary occupant of the White House.
Actually, the real genesis of this case predates Varney’s appointment to head the Division. It goes back to the 2008 presidential campaign, when Barack Obama made this statement to the lobbying arm of the antitrust bar:
Between 1996 and 2000, the FTC and DOJ together challenged on average more than 70 mergers per year on the grounds that they would harm consumer welfare. In contrast, between 2001 and 2006, the FTC and DOJ on average only challenged 33. And in seven years, the Bush Justice Department has not brought a single monopolization case…. As president, I will direct my administration to reinvigorate antitrust enforcement. It will step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not.
In other words, Obama promised more welfare for antitrust lawyers in the form of additional merger cases. Indeed, in just the past two months, Varney’s Division has stopped or challenged at least six different mergers. Varney has been far more aggressive than her recent predecessors in seeking litigation — even in cases where the companies have offered to “settle” on terms highly favorable to the government. Quite frankly, she’s bringing cases like the ones against George’s simply because she can. She’s like a traffic cop trying to meet a ticket quota.
A bench trial on the DOJ’s case is scheduled for the week of August 22 in Harrisonburg.