Tyson Foods Inc., the nation's largest meat producer, was hit with a $1.28 billion judgment on Tuesday by a federal jury that said the company manipulated the cattle market and must change its buying practices.
The ruling by the Montgomery, Alabama, jury in the eight-year-old case could have a far-reaching impact on the $70 billion U.S. beef industry. If the decision stands, beef plants would have to change the way they buy up to 45 percent of their cattle, industry sources said.
"It means the cattle business has a real chance to remain in the hands of independent producers, and not fall solely to contract growers controlled by integrated slaughterhouse companies," David Domina, the plaintiff's lead attorney, said in a statement.
He said the jury found Tyson manipulated cash cattle prices downward between Feb. 1, 1994 and Oct. 31, 2002.
Tyson said it will ask the judge to set aside the verdict, and will appeal the decision if the judge does not act. The verdict should not affect the company's operations or liquidity, the company said in a statement.
"The verdict is a disappointment to our company and thousands of cattle producers who want to maintain the right to market cattle the way they want," said Tyson in a statement.
In an unrelated matter, Tyson on Tuesday said it planned to cut its work force by 5 percent, or nearly 6,000 people, and spend close to $70 million in 2004 to further automate some facilities.
The Springdale, Arkansas-based company said it will reduce its work force primarily through attrition.
SUIT FILED IN 1996
The case dates back to 1996 when IBP Inc., now a Tyson unit, was sued by the plaintiffs who accused the company of controlling large supplies of cattle that kept cattle prices low.
"I think we proved that Tyson used contract, or what's called captive supply, to depress the cattle market," said Randy Beard, attorney for the plaintiffs. "We believe that this verdict takes away Tyson's ability to manipulate and fix the price that it pays for fed cattle."
Up to 30,000 cattle producers could be affected, said Beard.
"We claim that each producer that sold to IBP during that class period received less than what their cattle were worth, because IBP fixed the price, and pushed the price down, by using captive supply," Beard said.
The lawsuit was filed under the Packer and Stockyards Act, a 1921 law passed in response to the concentration of the U.S. beef packing industry among five dominant companies.
Cattle producers have complained that the concentration in beef packing is even more intense now with giants Tyson Foods, Cargill Inc's Excel unit, and Swift & Co. leading the market. Producers have complained that the use of captive supplies gives beef plants greater leverage when negotiating prices on the spot markets.
The use of cattle marketing agreements became popular in the mid- to late 1980s as meat plants developed new products that required consistently sized beef cuts. Up to 45 percent of all grain-fed cattle are now sold under such agreements.
"It helps them guarantee a supply of cattle to their plants at some regular time schedule and to help them control the quality of cattle through those plants," said Clement Ward, agricultural economist at Oklahoma State University.
Outlawing captive supplies would be disruptive to the industry, he said.
"Any time you restrict a procurement method and you do it all at once, I think it will be disruptive," said Ward.
"It will be putting the industry back 30 or 40 years," said Steve Kay, editor of the Cattle Buyers Weekly newsletter. "I feel confident that common sense will prevail and that this decision will be overturned."
Tyson, which bought IBP in 2001, is the dominant producer of chicken and beef in the United States as well as a top producer of pork. Its shares closed down 17 cents, or 1.04 percent, at $16.21 on the New York Stock Exchange.