A Cracked Plot

The Wall Street Journal is out with some major news: The Justice Department has opened investigations into food price collusion by tomato processors and producers of liquid and powdered eggs. The department’s already formally looking into price fixing in the cheese and milk markets as well as the citrus industry. Prosecuting antitrust violations in the agricultural sector is complicated because unlike other industries, the food industry has significant latitude to work collaboratively. That’s because of the Capper-Volstead Act, which was passed back in 1922 to help small farms that were up against large companies.

Some of the Justice Department cases seem clearly illegal, like a tomato processor that allegedly bribed food company buyers to pay inflated prices. But the most interesting case discussed by the Journal is apparently not being brought by the Justice Department. The paper investigated the fresh egg industry, where prices have skyrocketed, and what it found was devastating: United Egg Producers, an industry group with 250-plus members representing nearly all of the nation’s big egg producers, “helped tighten domestic supply and drive up the price of eggs across the country, according to newsletters and other documents that United Egg sent to its members.” For example:

After three years without significant exports, United Egg shipped nearly 100 container loads, or 24 million dozen fresh eggs, to Europe and the Middle East at the end of 2006 and early 2007, industry participants say. Each member was required to provide a share of the sale, prorated by flock size. The orders were sold at below the prevailing U.S. price for fresh eggs, United Egg said.

Egg prices went up more than 40 percent the next year. When they sank earlier this year, United Egg sent eggs to Japan and Iraq; domestic egg prices promptly went back up.

Over the last year, the dramatic rise in egg prices has almost always been blamed on higher feed costs. But the Journal notes that the USDA’s own economist acknowledged back in May that the primary reasons for higher prices were “limited production and tight supply.” Needless to say, even though United Egg is essentially an egg cartel, it defends its price-controlling actions as protected by the Capper-Volstead Act—the law that was designed to protect small producers.

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