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Federal Court Jury Ruled in Favor of Cattlemen, Against Tyson

posted on February 20, 2004

A Purdue University study is challenging the premise that marketing contracts between pork producers and meatpackers are bad for the hog industry. The study simulated spot markets, contract markets and vertical integration production systems for a fictional Midwest packing company. The study's conclusion? Vertical integration and marketing agreements protected producers from price volatility and dramatically improved the quality of pork products.

That may come as a surprise to many livestock producers, who have taken their grievances against some of the nation's largest packers to court. In one instance, a group of southern pork producers is suing Tyson Foods, claiming the company violated production contracts by shutting down its live swine operations in Arkansas and Oklahoma.

A similar complaint by cattle producers against Tyson Fresh Meats came to an expensive conclusion this week for one of the combatants.

Federal Court Jury Ruled in Favor of Cattlemen, Against Tyson

On Tuesday, a federal court jury ruled in favor of a group of cattlemen and against the nation's largest beef packer. After deliberating for four days, the jury awarded 1.28 billion dollars to cattlemen from across the country after finding Tyson Fresh Meats Inc. guilty of unfairly manipulating cattle prices. Tyson Fresh Meats was organized in 2001 when IBP was bought out by Arkansas-based Tyson Foods Inc.

For years, packers and producers have battled over the issue, but this case marks the first time the two sides have met in front of a jury.

In 1996, six cattlemen filed a class-action lawsuit on behalf of some 30,000 producers nation-wide. The producers had sold cattle to Tyson in the cash market between February 1994 and October 2002. The plaintiffs claim the company used a contract with a select few beef producers to create a captive supply of cattle. They say Tyson relied on this captive supply when cattle prices were high and entered the market for cattle only when prices were low -- thereby depressing cattle prices and threatening the livelihood of thousands of ranchers.

Tyson argued that even though it buys roughly one-third of the 30 million cattle sold to U.S. packers each year, that share of the market does not allow the company to set the market price unilaterally.

The parties also disagree about the amount of potential damages in the case. According to an Auburn University agricultural economist, Tyson's contracts drove cattle prices down by 5.1 percent or about 2.1 billion dollars during the eight-year class period. Tyson defended itself with two economists who claimed the Auburn professor's statistics were faulty and exaggerated the plaintiffs' alleged loss.

Attorneys for Tyson Fresh Meats plan to appeal. Whether any injunctive actions will be taken against the company is yet to be decided, leaving many questions for the beef industry. Analysts wonder whether Tyson will be the only company of its kind affected, if new laws will be created regarding packer agreements, and if decisions made from the ruling will apply to other industries. Economists report that while 30 percent of fed cattle are sold to packers under some arrangement other than cash trade, nearly 60 percent of hogs are in long-term agreements.

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