There have been 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. Federal prosecutors have opened separate criminal probes into possible price-fixing by major egg producers and California tomato processors. This is the latest in a series of U.S. investigations of alleged collusion in food and agriculture. Prosecutors are already pursuing criminal or civil inquiries in the markets for fertilizer, citrus fruit, cheese, and milk, examining whether suppliers worked in league to manipulate prices.
Under U.S. law, it’s a crime for competitors to collaborate on production or prices. Price-fixing is a criminal violation that can bring stiff fines and sometimes prison terms for executives. In recent years, U.S. antitrust enforcers have aggressively pursued such cases. Although federal law bars competitors from collaborating when setting their prices, Congress has created antitrust exemptions, like the 1922 Capper-Volstead Act, intended to help small farm groups and cooperatives bargain with large food processors. There are also exemptions for exports. Egg and tomato producers say their cooperation is shielded by these exemptions.
Egg prices have increased more than 40% in a year. 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.
Tomatoes are among the big price gainers in the past year despite the salmonella scare. In the tomato industry probe, the prosecutors are trying to determine if dominant processors of tomatoes for canning, ketchup, salsa, and sauces conspired to fix prices. The investigation comes after allegations that a consultant to SK Foods, Inc., a big processor located in Lemoore, California, was working with SK to bribe buyers at six major food companies to pay inflated prices for tomato paste and chili peppers. In wiretaps and raids carried out as part of the bribery probe, investigators found evidence of the wider price-fixing conspiracy.
The big dairy cooperative Dairy Farmers of America is under investigation for alleged manipulation of cheddar cheese futures prices in the Chicago Mercantile Exchange in an attempt to restrict competition.
This is an election year. Farmers are a powerful political voice, and the exemptions aren’t likely to be repealed. But the latest food industry investigations show that antitrust enforcers are increasingly willing to challenge the co-ops they allege have overstepped the spirit of the law. If businesses are going to use narrow exemptions to engage in anti-competitive conduct, the government must take a hard look at that.