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Why Big Chicken May Be Obama's Next Antitrust Target

For years, chicken farmers who contract with the major chicken companies -- Tyson (TSN), Pilgrim's Pride (PPC) and Perdue -- have been grumbling about low pay, unfair treatment and a lack of control. Last week, a joint Department of Justice/USDA hearing in Alabama marked the first time that anyone in a position to do anything about it actually listened.

Current and former chicken growers, mostly from the South, gave attorney general Eric Holder and USDA secretary Tom Vilsack accounts of a lack of competition, poverty-level earnings and bait-and-switch tactics among the big chicken producers. "This system takes hard working farmers and makes them indentured servants on their own land," Kay Doby, a former chicken farmer from North Carolina, told a crowded room at Alabama A&M University.

Such statements do not bode well for the three members of Big Chicken, who together own more than half of the market, because the last time this sort of thing happened the company fingered as the big bully ended up the subject of a DOJ antitrust lawsuit. (That would be milk giant Dean Foods (DF), which some dairy farmers accuse of buying out competitors and forcing up prices.)

There's no guarantee that the chicken growers who showed up for Friday's meeting will get the antitrust clampdown they're hoping for, but there's no question that Obama's antitrust cops are out trolling for targets. The meeting was second of five that the administration will hold this year to investigate the ways in which a handful of big agricultural companies have come to dominate markets and in doing so have made life miserable for small American farmers. "We know that a growing number of American farmers find it increasingly difficult to survive by doing what they've done for decades," said Eric Holder at the first hearing in Iowa in March. "And we've learned that some of them believe the competitive environment may be, at least in part, to blame."

Chicken growers' complaints stem from the fact that, unlike most farmers, they don't actually own their animals. Tyson, Pilgrim's Pride and Perdue do. But the farmers are responsible for putting up all the cash -- typically at least a million dollars -- to build specialized chicken houses. This means that growers often feel obligated to sign new, unfavorable contracts and they can't simply get out of the business when their earnings start qualifying them for food stamps because they're on the hook for hefty loan payments.

The National Chicken Council, which represents producers, responded to the hearing by saying it was unfairly skewed with testimony from unhappy farmers. But a six-page letter to Holder and Vilsack was signed by the National Contract Poultry Growers Association and three state poultry growers associations, among other groups.

The NCC also said that chicken companies have long waiting lists of farmers eager to sign contracts, which may tell you everything you need to know about just how bad things have gotten in the rural South.

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