Guest writer: Christopher Leonard, BloombergBusinessweek
On Dec. 8, 2009, Joe Sanderson, the chief executive officer of Sanderson Farms, held a routine earnings call with bank analysts. His aim was to reassure them that the company’s recent profits weren’t about to disappear, as the chicken industry’s usual business cycle dictated they would. For decades, poultry had been volatile in a frustratingly predictable way: When times started getting good, companies flooded the market with chicken, causing prices to crash. Sanderson Farms was having a pretty strong year, so naturally the analysts were expecting a downturn.
Sanderson told them that the industry had learned from its mistakes. There wouldn’t be a bust this time. Then he said something rather extraordinary: His competitors weren’t planning to ramp up production. He knew this because it had been communicated to him by a virtually unknown company. “I see a lot of information from Agri Stats that tells me nobody’s going to ramp up,” he said. Sanderson was right. The following year, Sanderson Farms reported that its profits had surged 64 percent. For the next six years, strategic production cuts and skyrocketing profit margins were the norm in the $90 billion chicken business.
At first the transformation puzzled industry watchers. Some speculated that a merger spree during the 1980s and 1990s was responsible—with fewer decision-makers in charge and fewer competitors, the remaining companies could more easily survey and predict the landscape. But Sanderson’s conference call suggested another source for the shift: Agri Stats, a private service that gathers data from poultry processors, produces confidential weekly reports, and disseminates them back to companies that pay for subscriptions.
Many industries, such as health care and retail, make use of information-sharing services, but Agri Stats provides chicken producers with a rare level of detail, in uncommonly timely fashion. The company’s reports, portions of which Bloomberg Businessweek reviewed, contain exhaustive data about the internal operations of the nation’s biggest poultry corporations, including bird sizes, product mixes, and financial returns at participating plants. According to a 2011 presentation prepared by Agri Stats, the company gathers information from more than 95 percent of U.S. poultry processors.
Agri Stats has for years maintained that its reports don’t violate antitrust laws, in part because the information provided is historical. A typical report doesn’t say how much a company plans to charge for a cut of meat, only what it charged last month or last week. But historical data can be used to gauge future production levels, as Sanderson, who declined to comment for this story, demonstrated when he said he saw no evidence of a forthcoming ramp-up. He was referring to Agri Stats data showing the number of egg-laying hens, or pullets, that his competitors were placing on farms. This figure largely determines the number of eggs that will be laid and therefore how many chickens will be hatched and grown—a key marker of future production.
Last September, Lockridge Grindal Nauen, a law firm in Minneapolis, filed a class-action lawsuit against more than a dozen of the nation’s largest chicken companies, alleging that they colluded to inflate chicken prices from 2008 to 2016. The suit was filed on behalf of Maplevale Farms and other wholesalers, who claim that the price they were paying for chicken was inflated by an illegal, if tacit, agreement among the big companies. Agri Stats, the suit says, “acted as an agent and/or co-conspirator” of the defendants, serving as a kind of digital evolution of the proverbial smoke-filled rooms where collusive schemes are said to be hatched and orchestrated. If successful, the suit could cost chicken companies billions of dollars in damages; they’ve filed a joint motion to dismiss. A separate lawsuit filed last year builds on the Maplevale case, making the same allegations of collusion but expanding the pool of plaintiffs to retail purchasers of poultry—meaning the 95 percent of Americans who eat chicken.
The U.S. Department of Justice, which is chiefly responsible for antitrust oversight, doesn’t appear to have taken any significant price-fixing actions against Agri Stats. But on Feb. 6, Tyson Foods revealed that it was cooperating with a subpoena by the U.S. Securities and Exchange Commission. Some media coverage of the announcement speculated that it might relate to the Georgia Dock Index, an obscure price-setting mechanism, but Tyson said the investigation had likely been sparked by the Maplevale lawsuit, which alleges a central role for Agri Stats.
In keeping with its insider business model, Agri Stats seems to relish its low profile. The company’s bland and thinly detailed website says, beneath an image of a small red barn in a cornfield, that it was founded in 1985, “on a kitchen table in the USA’s heartland,” by a man named Jim Cox. This down-home picture wouldn’t lead most people to imagine a sophisticated agribusiness-to-agribusiness data company whose development coincided with, and helped spur, a revolution in the poultry industry.
Cox was born during the Great Depression, in the town of Essex, Mo. When he was 12 his father died, leaving a widow to raise five children. “We were very poor, OK?” Cox recalls. He developed a strong work ethic, paying his way through Purdue University by laboring for as many as 80 hours a week on a dairy farm. After college he sold feed and feed additives for an Indiana company called Central Soya, which entailed spending a lot of time driving around to service large poultry companies across the South.
Chicken had long been a pricey specialty meat, reserved for Sunday dinners, but in the postwar era, technology and a new generation of entrepreneurs was making it cheaper and more available. The traditional barnyard coops were replaced by automated warehouses, where chickens were hatched by the million. Scientists at the University of Arkansas and elsewhere bred hyper-productive birds whose weight doubled on half the feed.
As Cox made sales, he collected information that helped him and his customers figure out which mixes of feed and additives helped birds add the most weight at the lowest cost. By the 1980s he’d persuaded his customers to fill out a standardized form that gathered key performance metrics. He didn’t realize at first that this information might be more valuable than the feed itself. As he recalls, one of his customers approached him and said, “Well, you know, Jim, while you’re getting that, why don’t you just make a little comparison? Don’t tell us who else is on the report or anything. Just make a comparison of the companies so that we can see how we’re doing.” Cox’s first report was about 10 pages long. His clients loved it, and soon he was handing out reports with feed orders.
When Central Soya was purchased in 1985, Cox sat down at his home in Fort Wayne, Ind., and decided to start a business focused entirely on data. He hired his secretary away from Central Soya, and the two set up shop with a borrowed copy machine and data-sharing agreements from 16 companies. That April he incorporated Agri Tech Systems (later changing the name to Agri Stats). Then he hit the road and persuaded more poultry producers to join his network, developing methods to standardize their data sets until his monthly report ran to about 500 pages. With each new page, Agri Stats’ value grew.
Cox’s long history in the chicken business gave him an in with poultry executives, who were a quintessential old-boy network. Many were Southern men who’d grown up in small towns during the Depression. When one of them trusted Jim Cox, others tended to follow. “They’re very, very competitive,” he says. “But at the same time, it’s like a family when it comes to relying on one another.”
As Agri Stats expanded, chicken was moving from the era of drumsticks to the era of McNuggets, overtaking beef and pork to become America’s staple meat. Chicken carcasses were being divided and subdivided into a complex map of economic opportunity: The breast meat was worth so many cents per pound, the thigh meat far fewer; the value of livers fluctuated wildly.
During the 1990s, Tyson became the world’s largest poultry producer in part by embracing data. Sensing an opportunity, Cox pitched Tyson senior executive David Purtle on his service. Purtle leveraged his company’s market position, striking a deal for an Agri Stats subscription, he recalls, “where I didn’t have to pay as much as everybody else.” Cox confirms this but adds, “I came back to him about a year later, and he anted up some more.” Whatever the price, it was worth it: Tyson added rich data on a significant number of plants to Agri Stats’ reports, making them a de facto industry standard.
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