U.S. chicken producers including Tyson Foods Inc. and Sanderson Farms Inc. are being asked by the Georgia Department of Agriculture to meet new requirements for a price index as the agency makes changes amid concerns about the reliability of the benchmark.
The department is asking the companies and their representatives to submit affidavits and attestations declaring the price data they supply for the weekly so-called Georgia Dock index is accurate. The documents are due Tuesday, agency spokeswoman Julie McPeake said Monday. Companies that don’t meet the new requirements won’t be able to participate in the index.
Tyson, the largest U.S. chicken producer, continues to provide pricing data to the department but is considering whether to submit the affidavit, company spokesman Worth Sparkman said by telephone Monday. Sanderson said last week it’s also considering signing the affidavit.
"We’ve used it for 40 years and everybody’s always had a lot of confidence in it,” Sanderson Chief Financial Officer Mike Cockrell said of the index in a Nov. 23 telephone interview. “I hope they get this right because as I say, we’ve used it so long.”
The changes to Georgia’s pricing methodology come amid heightened scrutiny of the index. Tyson and Sanderson are among producers named as defendants in a series of lawsuits filed since September alleging supply collusion in the industry starting in 2008 to drive up prices. The companies deny the allegations.
The Georgia Dock price index “is highly susceptible to collusion,” according to a revised complaint filed in Chicago federal court. The lawsuit previously mainly alleged supply collusion that led to higher prices.
Another source of concern has been criticism of Georgia’s weekly chicken-price report from its director, Arty Schronce. Writing in September in an internal memo obtained by Bloomberg News, Schronce complained of inadequate resources and a lack of cooperation from the chicken producers, and said the Georgia Department of Agriculture should perhaps consider eliminating the report altogether.
Tyson didn’t immediately respond to requests for comment about Schronce’s criticisms of chicken producers while Sanderson declined to comment. Schronce couldn’t be reached for comment.
Responding to the comments about a lack of resources, McPeake at the Georgia Department of Agriculture said one of Schronce’s colleagues died unexpectedly. The agency made "every effort" to train him and brought in a retired employee to help Schronce with the transition, she said.
McPeake also said there are conflicting reports about how important the index is to the industry, and that it could be terminated if it’s determined not to be worthwhile. If the index is needed, the department is working to make sure the gauge is an accurate and informative trend analysis tool, she said.
The Georgia Department of Agriculture compiles prices for chicken products such as breasts, leg quarters and whole birds, plus the benchmark Georgia Dock index, which is widely used as the basis of prices paid by wholesalers and retailers. Published on Wednesdays, the index is an average of offering prices for birds weighing 2.5 to 3 pounds (1.1 to 1.4 kilos) as reported by producers. Each company’s contribution is weighted based on production capacity.
Tyson spokesman Sparkman said the index was only used to price 3 to 4 percent of Tyson’s chicken sales. While Sanderson has confidence in the accuracy of Georgia Dock, the potential disappearance of the index would have a minimal impact on the company, which would simply use another price-discovery mechanism, Cockrell said.
Still, the Georgia Dock has been a benchmark used across the country by retailers and other large buyers. Until recently, the U.S. Department of Agriculture used the index in its own poultry-market news report. The USDA said earlier this month it discontinued the report as it worked with the Georgia Department of Agriculture to "ensure that poultry producers and retailers have access to the transparent and reliable data they need."
Georgia, the largest chicken-producing state in the U.S., is working on the new pricing formula with the University of Georgia, the USDA and the Poultry Federation. McPeake said the state agency intends to release details in the near future.