Washington Post: “Internal document shows U.S. chicken prices may have been artificially inflated for years”

Internal document shows U.S. chicken prices may have been artificially inflated for years

By Peter Whoriskey

November 17 at 6:00 AM

In the vast and complicated U.S. economy, it is rare for an individual to exert much control over the price of a major commodity.

But then there is Arty G. Schronce and the price of chicken.

As director of a bulletin from the Georgia Department of Agriculture, Schronce makes a weekly calculation that gives supermarkets around the country the going rate for a pound of chicken.

The price average from Schronce directly affects what big retailers such as Walmart and Safeway pay for chicken — it’s often built into supermarket purchasing contracts — and that price is then passed along to shoppers. It has, in other words, affected billions of dollars in purchases.

But has it been accurate? Recently, this influential estimate has drawn questions about whether it artificially inflated U.S. chicken prices and elicited scrutiny from the U.S. Agriculture Department. Now it turns out that even Schronce has harbored serious doubts about its accuracy, according to an internal document from the Georgia Department of Agriculture obtained by The Washington Post.

Over the past two years, the price estimate, known within the industry as the “Georgia Dock,” has drifted significantly upward from other chicken price averages, rising about 20 percent or more out of line with a separate but lesser known index maintained by the USDA.

A deviation in supermarket chicken prices of that magnitude would have cost U.S. grocery shoppers billions of dollars in recent years.

Food price estimates such as the Georgia Dock affect the price of many perishable products — such as fruits, vegetables, nuts and livestock — because producers rely on them to set the terms of long-term contracts. Many of the price measures, used for decades, are products of long tradition.

The root of the trouble with the Georgia price estimate, as Schronce sees the matter, is that it is based on a price survey of eight anonymous chicken companies in the state, and he raised doubts whether those companies have been giving him accurate information. The chicken companies are not asked to show receipts or other documentation proving that their figures are accurate.

“I have come to question the validity of some of the information provided,” he wrote in September in preparation for a meeting at the Georgia Department of Agriculture. “I do not think I am getting actual weighted average prices from some companies.”

Schronce indicated in his memo that he had been contacted by an investigator from the antitrust division of the Florida attorney general. Moreover, in recent months, the USDA discontinued publishing the Georgia figure, citing its inability to verify the information.

Poultry is big business in Georgia, with sales exceeding $4 billion annually. An upward bias in the chicken prices would increase revenue for those Georgia companies as well as any others that sell in the United States. Some of the nation’s largest chicken producers — including Tysons, Pilgrim’s Pride, Perdue and Sanderson Farms — have had plants in the state.

As Schronce noted, the state’s poultry companies benefit from the Georgia Dock because it costs them nothing and yields prices that are seen as higher than others.

Schronce did not respond to invitations to comment.

The Georgia Department of Agriculture defended the accuracy of the influential price estimate and said that it is addressing the issues raised by Schronce’s document.

“All of the concerns addressed in the document are now being addressed internally,” spokesperson Julie McPeake said in a statement. “It is our responsibility at the Georgia Department of Agriculture to report the data we have received from the companies consistently and accurately.”

McPeake said the Georgia Dock index reflects prices of a distinct type of bird and customer. For that reason, the index could have rightfully diverged from other chicken prices.

“We trust the companies we work with,” Alec Asbridge, director of regulatory compliance at Georgia Department of Agriculture, said earlier this month. “We don’t see any reason they would submit information that wasn’t truthful.”

The Georgia Dock, which has been around for decades, is influential because so many grocery chains use it in their contracts with chicken companies.

While many chicken companies and retailers are secretive about how they set prices for buying and selling chicken, some very large players have acknowledged that the Georgia Dock is the basis of, or a factor in, the price they pay for chicken.

“Over time, most retail grocery customers and their suppliers have come to trust the Georgia Dock whole bird price quoted weekly by the Georgia Department of Agriculture as the most reliable reflection of the supply and demand dynamics of the fresh chicken market,” officials at Sanderson Farms, one of the nation’s largest chicken producers, wrote to the SEC earlier this year.

For all but one of Sanderson’s supermarket customers, the price is based on the Georgia Dock. Tyson Foods said a small portion of their supermarket contracts is “connected” to the Georgia Dock. A spokesman for Pilgrim’s Pride said that less than 5 percent of its sales are currently tied to the Georgia Dock, but company officials have repeatedly referred to the price index in calls with investors and analysts.

Among supermarkets, Walmart, Safeway and others confirmed using the Georgia Dock, as well as other factors, when negotiating chicken prices.

For all of its influence, however, the way it is calculated appears to have been somewhat haphazard. In the three-page document, entitled “Notes for meeting,” Schronce portrays himself as someone who was poorly prepared for the job of producing the index and who was treated contemptuously by the chicken companies from whom he was eliciting price information.

Schronce came into the job of producing the estimate for the “Georgia Poultry Market News” just a few years ago. He has previously authored a gardening blog, “Arty’s Garden,” for the Department of Agriculture and is seen in a Youtube video extolling the virtues of a native vine known as Carolina Jessamine. The blog describes him as “a lifelong gardener and a horticulture graduate of North Carolina State University.”

“My training was inadequate, inconsistent and sometimes in error,” Schronce wrote of his preparation for calculating the Georgia Dock.

Moreover, the companies he was required to survey were surly and sometimes unresponsive.

“I often received lackadaisical and rude responses to my requests for information,” Schronce wrote. Sometimes his calls were not returned, and sometimes the companies simply responded to his price questions with “just keep ’em the same.”

Companies said they had provided accurate information when surveyed. Tysons said in a statement: “When the Georgia Department of Agriculture asks us for pricing data, we provide accurate information based on actual and recent transactions. We do not see the prices reported by our competitors to the Georgia Department of Agriculture.”

Finally, the Schronce document suggests that the chicken industry may have too much sway over how the Georgia Department of Agriculture goes about computing the chicken price index.

Georgia Agriculture Commissioner Gary Black, who was president of the Georgia Agribusiness Council, lobbied for the agriculture industry for years before winning election in November 2010.

Schronce questioned the role that an advisory board composed of poultry industry executives has in shaping the chicken price estimate.

“I have questions about the ‘Advisory Board’ and its role over an office of a state regulatory agency that is supposed to be independent,” Schronce wrote. “I was told I could not make any changes without clearing them with the Advisory Board.”

He added he has “voiced concerns in the past.”

McPeake, of the Georgia Department of Agriculture, said a review process began in December 2015 after “serious concerns” emerged. She said that while Schronce’s training “may have been abridged due to unfortunate and unforeseen circumstances, every effort was made to ensure that he was indeed trained on some level.”

“I took and continue to take this job very seriously,” Schronce wrote. “However, my concern and my efforts can no longer overcome the diminished knowledge and experience and the inadequate staffing at both the Georgia Department of Agriculture and the reporting poultry companies.”