5th Circuit Reverses Judgment Against Pilgrim’s Pride for Taking Unilateral Steps to Reduce Production With the Goal of Raising Prices

On Aug. 28, 2013, the 5th U.S. Circuit Court of Appeals issued an order overturning a district court judgment against Pilgrim’s Pride, a large producer of processed chicken, for unilaterally reducing its output of chickens in order to reduce an oversupply of chicken that resulted in financial losses. (See In the Matter of Pilgrim’s Pride Corporation, No. 11-10774, Chapter 11, 5th Cir. 2013).

Pilgrim’s Pride enters into Poultry Grower Agreements with local chicken growers. Under those agreements, Pilgrim’s Pride provides the growers with chicks, feed and other supplies, and the growers provide the facilities and labor needed to raise the chickens. Pilgrim’s Pride, facing financial losses, determined it was producing a surplus of chickens at great cost to itself so it allegedly reduced its production of chickens with the goal of having chicken prices stabilize at higher equilibrium prices. A group of the affected chicken growers sued Pilgrim’s Pride under the Packers and Stockyards Act of 1921 (PSA), 7 U.S.C. §§ 181 et seq., which prohibits the manipulation or control of prices for poultry.

The court explained that the relevant statute, section 192(e) of the PSA, is directed at conduct that is anticompetitive, and accordingly the appropriate test for evaluating Pilgrim’s Pride’s conduct was the “rule of reason”: “In light of all of the relevant facts, an action is unlawful only if it is likely to suppress or destroy competition.” The court found that because Pilgrim’s Pride had engaged in wholly unilateral conduct to reduce its own output in order to raise prices, it was not harmful to competition. “If a firm inadvertently over-produces a good and drives prices down, it does not break the law by cutting production so that prices may recover.” A copy of the decision is available here.