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Thursday, September 25, 2008

Feds Probe Food Prices

Federal prosecutors are conducting criminal investigations into possible price-fixing by egg producers and California tomato processors, The Wall Street Journal reports. It's the latest in a series of federal probes of alleged price-fixing by farmers and processors.

Rapid increases in food prices have been blamed on the cost of fuel and feed but investigators say collusion may be an equally important factor.

Besides the egg and tomato probes, investigators have been looking into cheese, milk and fertilizer markets, trying to determine if suppliers worked together to manipulate prices. Last year, the Justice Department said it was investigating citrus fruit prices.

Milk prices have been a particularly sore point with many consumers, especially in New York City where shoppers have been paying $4.49 or more for a gallon of milk. Earlier this year, the New York City Council issued a report charging that high milk prices were due to "significantly decreased" oversight of New York State's Milk Price Gouging Law, resulting in citywide milk prices that are above the state-determined legal threshold.

In July, Danielle of New York City complained that she was charged $5.99 for a gallon of milk at the Amish Market on 9th Avenue. Maryellen said she also paid $5.99 at the Broadway Farms Grocery on West 85th St. Kim of Manhasset, Long Island, said she paid $4.19 at a BP station in Levittown.

Cynthia of Brooklyn told ConsumerAffairs.com, also in July, that she sent her son to the Produce and Meat Market on Livonia Avenue in Brooklyn to get ready-to-feed infant formula for her newborn baby. On July 23, the formula was $7.99. Two days later, it was $9.99, she said.
Price-fixing illegal

It is illegal for competitors to share pricing information or conspire to drive up prices but there are numerous loopholes, including an exemption for farm cooperatives that's intended to help small farms bargain more effectively with big processors.

Egg and tomato producers are claiming their collaborations are protected by that exemption, the Journal said, but a federal grand jury in Sacramento and the FBI are said to be continuing their probes.

Besides being sold as fresh produce, tomatoes are an important component of many processed foods, including ketchup, pasta sauce and salsa. Tomato growers suffered a setback earlier this year when tomatoes were wrongly blamed for a Salmonella outbreak but prices have since recovered, rising 16% in the year ending in August, according to government statistics.

Egg prices, meanwhile, are up more than 40% in the last year.

Part of the dilemma facing prosecutors is weeding out legitimate influences on prices from the results of illegal collaboration.

Food prices have been affected by the rising price of fuel, for instance, as farmers spend more to heat hen houses and transport animals to market. The growing use of ethanol has driven up the price of corn, a prime component of most animals feeds, to cite just a few examples.

The price of corn has risen almost 50 percent in the last two years, as both the cattle industry and ethanol producers have competed to buy it.

Increased consumer demand also drives up prices. Just as more Chinese are driving cars and increasing demand for gasoline, so are more families in emerging economies beginning to demand more meat, eggs and milk in their diets, putting pressure on prices in the U.S. and other developed nations.

By: Truman Lewis
consumeraffairs.com; September 23, 2008