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Meet the “Gardening Blogger” Who May Have Overcharged Americans Billions for Supermarket Chicken

Thursday, November 24, 2016 17:33
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(Before It's News)

Billions of dollars worth of chicken are sold in the United States each year through various supermarket chains.  Given the shear volume of chicken sales, most Americans simply take for granted that the prices are set based on a transparent, competitive marketplace of buyers and sellers.  Certainly, before now, not many would have guessed that their grocery bills for poultry were being determined by a single, self-described “gardening blogger” from the Georgia Department of Agriculture.  Unfortunately, it’s looking increasingly like that is exactly what happened and it likely resulted in Americans being overcharged billions of dollars for chicken purchased in supermarkets.

When it comes to chicken pricing, there is very little infrastructure and processes in place to determine a truly “market price” for poultry.  Per the Washington Post, a significant portion of chicken sold to retailers is actually priced off an index maintained by the Georgia Department of Agriculture which is frequently referred to as the “Georgia Dock” price.  And while that may sound “official,” we’re now finding out that the Georgia Dock price has been unilaterally set by a single, untrained, “gardening blogger” based on a survey of just a couple local producers who refused to provide backup for their pricing.

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.

Arty Schronce, our gardening blogger and chicken price czar, was apparently the one to blow the whistle on his own pricing index after writing a memo to the Georgia Department of Ag saying that he had come to “question the validity of some of the information provided” by local producers.  The full private memo was obtained by the media and can be viewed here (it is also included at the end of this post).

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.

Schronce apparently grew suspicious of his own pricing index after receiving questionable feedback on his pricing surveys like “just keep ’em the same.”  Certainly, a quick comparison of the Georgia Dock price to the USDA composite seems to confirm Schronce’s concerns.

GA Dock

Schronce’s memo was brutally honest about his own capabilities saying that his “training was inadequate, inconsistent and sometimes in error”….but no big deal, just setting the official price for billions of dollars worth of commodity sales.

“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.”

Of course, as the Wall Street Journal points out, whether this is a case of blatant incompetence or intentional market rigging, several publicly traded chicken companies are likely to face substantial fines… 

Sanderson’s exposure is particularly high. Last fiscal year, a little under half of its processing capacity by weight was set up for the smaller birds sold to supermarkets. In 2015, when suspicions first emerged, the Georgia Dock index averaged about 24 cents a pound higher than the competing Urner-Barry index, calculated using verified sales to a different type of customer. From 2002 to 2014, the Georgia Dock index averaged 6 cents more than Urner-Barry, with a range from 12 cents less to 24 cents more.

If about 30% of overall sales were based on the Georgia Dock, then the impact of a 20-cent-a-pound difference in 2015 might have cut Sanderson’s $216 million net profit by about two-thirds, according to Wall Street Journal estimates. Individual contracts can be complex, and the company itself hasn’t broken out its exposure.

Whether the uproar over pricing turns out to be a matter of sloppy calculations or something more serious, the financial implications for meat companies may be more than just chicken feed.

and the stocks have already started to price in the downside.

Chicken Stocks

Meanwhile, the Georgia Department of Agriculture released a statement defending their index saying that they trust the companies they work with and that they “don’t see any reason they would submit information that wasn’t truthful”…sure, aside from the billions in extra profits…no reasons at all.

Schronce did not respond to invitations to comment. But the Georgia Department of Agriculture defended the accuracy of the influential price estimate and said that it is addressing the issues raised by his critique.

“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.”

Poor Arty, we think it may be time for you to get back into the garden blogging business…it looks like a lot of fun:

Here is the full internal memo written by Arty Schronce:

 
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BIN NOTE: If by now you haven’t figured out that Facebook and Google are in cahoots with the corrupt government, then I feel for you, but for those who are well aware of the issues it’s high time you switched over to Seen.life. It is a website that is similar to Facebook but without all the censorship.

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