IBP, Inc., the nation's largest meat packer and often referred to also as the nation's "number one corporate outlaw," has become the object of yet another lawsuit.
The law firm of Milberg Weiss Bershad Hynes & Lerach recently announced that it has filed a class action lawsuit in the US District Court for the District of Nebraska on behalf of all purchasers of the securities of IBP, Inc. between March 25, 1999, and January 12, 2000, charging IBP and certain of its senior officers and directors with violations of the Securities Exchange Act of 1934.
The complaint alleges that defendants issued a series of false and misleading statements concerning the company's compliance with state and federal protection laws applicable to the company's beef and pork production facilities.
Because of the issuance of the false and misleading statements, the suit alleges, the price of IBP securities was artificially inflated. The action further alleges that prior to the disclosure of the adverse facts, defendants intended to use millions of shares of artificially inflated IBP common stock as currency for a proposed corporate acquisition.
Recently the US Department of Justice filed a lawsuit that prosecutors say could affect IBP plants throughout the entire Midwest. The Justice Department lawsuit accused IBP of violating federal air, water and hazardous waste laws at the company's flagship plant and former headquarters in Dakota City. Acting on behalf of the Environmental Protection Agency, the DofJ alleges IBP emitted up to 1,800 pounds of hydrogen sulfide a day in Dakota City without notifying federal regulators. Disclosure is required for hydrogen sulfide emissions greater than 100 pounds a day, the government says.
The lawsuit also alleged that IBP exceeded the federal Clean Water Act by dumping excessive ammonia into the Missouri River since at least 1988. The Justice Department says it intervened after state officials failed to stem the company's tide of environmental abuses.
"This case presents a pattern of activity for which the common thread is IBP's avoidance of environmental regulations," US Attorney Thomas Monaghan told USA Today's Elliot Blair Smith. "We will hold them accountable."
IBP denies the charges. In response to questions from USA Today, IBP spokesman Gary Mickelson said the Justice Department cannot prove IBP's hydrogen sulfide emissions were excessive. "During the period in question," Mickelson said, "IBP was not required to measure air emissions from ... non-specific, non-point sources such as lagoons and manhole covers within its operations. Without such data, it was impossible to know if any air-quality exceedances were taking place."
The 48-page lawsuit by the US Department of Justice charging IBP with violating five federal environmental laws with numerous incidents of air and water pollution and with improper handling of hazardous waste in the latest in a series of lawsuits against a company already being sued for price fixing and for covering up job-related injuries in its plants.
In the Cattlemen's Legal Fund price fixing suit, IBP sustained another setback recently when Federal Judge Lyle B. Strom in the ongoing class action Pickett vs. IBP case ordered that IBP failed to meet its burden of showing good cause for blocking depositions by its board of directors. To prevent the depositions from inconveniencing the schedules of IBP's outside directors, the depositions have been ordered for the week around the normally scheduled IBP board of directors meeting.
IBP objections to its board members testifying under oath were soundly rejected on February 8 by Judge Strom.
IBP directors slated to testify included Robert Peterson, IBP Chairman and CEO; Eugene Leman, President of IBP's Fresh Meats Division; Wendy Gramm, former Chairman of the Commodity Futures Trading Commission and wife of US Senator Phil Gramm of Texas; Michael Sanem, past ConAgra-Monfort executive, the third-largest US meat packer; JoAnn Smith, past National Cattlemen's Association President and former Assistant Secretary for the US Department of Agriculture; John Jacobsen, member of the Jacobsen family, which was the former owner of National Beef, now Farmland-National, the fourth-largest U.S. meat packer; along with John Chalsty, President and CEO of Donaldson, Lufkin & Jenrette; and Martin Massengale, President Emeritus of the University of Nebraska. Richard Bond, IBP President of Fresh Meats, has already been deposed.
The case has been scheduled for trial in September. Cattlemen are complaining that IBP, through various anti-competitive practices, has violated the Packers and Stockyards Act. According to the cattlemen plaintiffs, damages in the case including 1994 through 1998 could very well exceed IBP's total assets of $3.7 billion.
Pork producers filed a similar suit against IBP and Smithfield, the nation's two largest pork packers, Dec. 28, 1999. The suit alleges illegal market practices to manipulate and depress hog prices. According to a statement by the National Pork Producers Council on October 22, 1999, "Producers have lost $4 billion in capital in the last 22 months." In contrast, consumers of pork continued to pay high retail prices while, according to the Wall Street Journal, IBP's earnings more than quadrupled.
Meanwhile, IBP in just-released figures reports a year of record earnings. Net earnings in 1999 were $321 million or $3.44 per share compared to 1998 earnings of $205 million or $2.19 per share, an increase of 57 percent in net earnings in one year.
As Les Messinger, market analyst for Barnes Brokerage in Chicago, Illinois, comments: "Logic tells us that IBP and other packer profits are a result of the difference between the price paid for live cattle and the price they receive for beef and beef by-products."
Having documented IBP's earnings, Messinger suggests examining cattle prices for the last two years and how they have compared with the beef industry. In 1997 the average live cattle price was 64.2 percent of the average lightweight choice boxed beef price. In 1999 the average live cattle price fell to 59.1 percent of the same boxed beef price. To put this in a clearer perspective, note that this 5 percent difference of a $114 boxed beef price amounts to a difference of $5.70 per hundredweight, or a little over $68 per head loss to the producer.
According to USDA data, Messinger continues, over 42 percent of the cattle purchased in Texas and Kansas were acquired through either formula or contract (captive supply).
"I am sure that the packer aligned feeders who are receiving preference when provided with the $10 or $20 per head incentive over the cash market were very pleased with themselves, even though common sense shows us that their actions created that $68 per head loss in the live cash market. Reflect for a moment on what an additional $68 per head would have meant to the independent cattle rancher operation," he adds.
Another strong connection between increased "captive supplies" and lower cattle prices has been established in a recent USDA report which indicates that the controversial cattle marketing practice may be costing farmers and ranchers more than a billion dollars per year.
The Texas cattle study, according to the Western Organization of Resource Councils (WORC), an organization of family farmers, ranchers and consumers, now gives Secretary of Agriculture Dan Glickman the conclusive evidence he needs to restrict the use of the marketing practice, known as captive supplies.
"We have a proposal on Secretary Glickman's desk to fix this problem," Shane Kolb, a Meadow, South Dakota, rancher speaking for WORC, said. "The billion dollar question is, 'Will Dan Glickman adopt WORC's proposal and stop the secret cattle deals?'"
USDA's Grain Inspection, Packers & Stockyards Administration (GIPSA) released the results of its Investigation of Fed Cattle Procurement in the Texas Panhandle in late December. Last year, Secretary Glickman said that he would act on WORC's proposal to regulate captive supplies after the Texas study was completed.
The Texas study examined tens of thousands of cattle transactions in Texas from 1995 and 1996. It found that a 1 percent increase in the use of captive supplies by packers was associated with a decrease of $0.08 per hundredweight in the market price of cattle. "At today's level of captive supplies, that means lower cattle prices, which cost producers more that $1 billion per year for fat cattle alone," Kolb said.
Just over 42 percent of fat cattle delivered to packing plants so far this year have been captive supplies, according to statistics from USDA's Agricultural Marketing Service. If cattle prices are lowered 8 cents for every percent of captive supplies, today's captive supply levels would be associated with a $3.44 per hundredweight drop in cattle prices, or $41.28 per head. That works out to $1.23 billion for the 29,836,000 head of fed steers and heifers sold to packers in 1999.
"Our proposal is a moderate, common-sense response to this billion-dollar problem," Kolb said. "It would restore competition to the industry without resorting to a flat prohibition on captive supplies. We've said before, and we say again today: It is time for Secretary Glickman to act."
Three years ago, the USDA asked for public comment on a petition for rulemaking filed by WORC. The petition asked USDA to limit the use of captive supplies of cattle by beef packers. Cattle that packers own and feed in their own feed lots are called "captive" because the packers control them. Packers also sign contracts with feedlot owners to buy some or all of their cattle, which are also called "captive." Many farmers and ranchers say that beef packers' use of captive supplies limits open competition and lowers the price they get for their cattle -- without lowering the price of beef to consumers.
The minority report of Secretary Glickman's Advisory Committee on Agricultural Concentration endorsed WORC's proposal, and the majority report concluded that his authority to adopt such measures under existing law was clear. The National Commission on Small Farms unanimously recommended adoption of the proposal in its January, 1998, report, "A Time to Act."
Organizations supporting adoption of the rules proposed by WORC represent hundreds of thousands of producers and consumers. They include the National Farmers' Union, National Farmers Organization, American Corn Growers Association, Corporate Agribusiness Research Project, National Contract Poultry Growers' Association, New England Milk Producers Association, Campaign for Family Farms and the Environment, Farm Aid, Western Livestock Digest, Center for Rural Affairs, National Family Farm Coalition, US Catholic Conference, United Methodist Church, and the National Campaign for Sustainable Agriculture.
WORC's petition for rulemaking asks the Secretary of Agriculture to adopt rules to:
(1) Prohibit packers from procuring cattle for slaughter through the use of a forward contract, unless the contract contains a firm base price that can be equated to a fixed dollar amount on the day the contract is signed, and the forward contract is offered for bid in an open, public manner.
(2) Prohibit packers from owning and feeding cattle, unless the cattle they feed or own are sold for slaughter in an open, public market.
IBP, ConAgra and Cargill -- the Big Three beef packers -- slaughter 81 percent of all U.S. fed cattle. Contact Secretary Glickman: The Honorable Dan Glickman, Secretary, U.S. Department of Agriculture, 1400 Independence Ave, SW Washington, D.C. 20250; fax: 2027205437; email: agsec@usda.gov
See WORC's website: www.worc.org/usda.html
A.V. Krebs is director of the Corporate Agribusiness Research Project, P.O. Box 2201, Everett, Washington 98203-0201; email avkrebs@earthlink.net; web: www.ea1.com/CARP/