Land O' Lakes settles suit over egg price fixing

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: June 10, 2010 - 10:25 PM

U.S. producers are accused of reducing hen populations.

The egg industry's resistance to a major price fixing lawsuit is cracking.

Arden Hills-based Land O'Lakes this week reached a $25 million settlement in a suit accusing it and the nation's other big egg producers of price fixing, an accusation recently bolstered by one of the egg industry's own flock. Sparboe Farms of Litchfield had settled this spring and agreed to cooperate with the plaintiffs, restaurants and food processors nationwide.

The suit, filed in federal court in Philadelphia, came on the heels of the biggest egg price spike in at least 30 years. Prices in 2007 alone rose almost 30 percent, though they have since fallen sharply.

Plaintiffs accuse egg industry trade organizations and egg producers of conspiring to restrict supply -- and thus raise prices -- through methods that allegedly included lowering hen populations, ostensibly in the name of animal welfare. The industry has maintained the price run-up was caused by a historic spike in the price of corn, the main ingredient in chicken feed.

United Egg Producers, the industry's trade group and a defendant in the suit, didn't return calls for comment.

Defendants read like a who's-who in the U.S. egg trade, and include Mississippi-based Cal-Maine Foods, the nation's largest egg producer, and Minnetonka-based Michael Foods. A Michael executive declined to comment Thursday, but a company report filed with securities regulators said Michael and other defendants are seeking dismissal of the suit.

Land O'Lakes' settlement still requires court approval. "Settling the lawsuit does not imply an admission of wrongdoing," the company said in a statement. "Settling the case avoids the expense and distraction of protracted litigation."

The settlement took a bite out of the big farm co-op's first quarter earnings. Earlier this week, Land O'Lakes posted net earnings of $30.9 million compared with $82.7 million for 2009's first quarter, and the company said a big part of the difference was the egg deal.

As part of the settlement, Land O'Lakes agreed to provide "significant cooperation" to plaintiffs in their case against the rest of the industry, according to a statement by Hausfeld LLP, the complainants' law firm. Land O'Lakes said its egg subsidiary, MoArk, has agreed to give plaintiffs' attorneys "access to its employees and documents."

Sparboe's settlement included no monetary payments but called for the company's cooperation, including providing documents to egg buyers' lawyers. In a court filing, the plaintiffs said the Sparboe settlement allowed them to "uncloak" several findings, including the defendants' alleged awareness and discussion of potential antitrust violations.

The plaintiffs used information from Sparboe to bolster their claim that the industry's animal husbandry program wasn't motivated primarily by animal welfare.

Animal-humane groups have long complained of overcrowding in egg producers' chicken coops, so in 2002 the industry adopted an animal welfare program. One of its key provisions was to give birds more room, gradually increasing a hen's cage space from about 50 square inches to 67 square inches by early 2008.

Fewer hens per cage

To do that, producers cut back the number of hens per cage -- from eight to six in many cases. Thus, tens of millions of birds were taken out of production.

United Egg Producers, the trade association, in 2002 implemented a so-called "100 percent rule," meaning that 100 percent of a producer's hen houses must follow the new cage space guidelines, according to the complaint.

Sparboe's then-general counsel, John Mueller, was "concerned that the 100 percent rule was a 'sham' that was likely to be viewed as an illicit supply-management program that would violate federal antitrust laws," the complaint says. Miller expressed such concerns to the head of United Egg Producers "on a number of occasions," the suit says.

In 2003, Sparboe drafted a letter to the trade group, complaining of the animal welfare program's "hidden agenda" and bringing up the prospect of "price fixing," according to the complaint.

Sparboe then ended its participation in the industry's animal husbandry program, the suit says. Thereafter, the head of the egg producers association called on a major Sparboe customer and attempted to persuade it to no longer carry the company's eggs, the suit alleges. Sparboe didn't return a call seeking a comment.

Egg prices can be volatile, and in 2007 they shot up 29 percent, followed by a 14 percent rise in 2008, according to the Bureau of Labor Statistics. While the supply of hens impacts prices, so does the cost of commodities, particularly corn, which makes up about 60 percent of an egg producer's costs.

Mike Hughlett • 612-673-7003

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