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Minnesota Sues Sparboe Farms Over COVID-period Pricing

09/20/2021

On September 3rd the Attorney General of the state of Minnesota filed a complaint against Sparboe Farms alleging excessive pricing during April 2020.  The case arises from the unprecedented transitory increase in the wholesale prices of eggs. The lawsuit is based on an executive order issued by Governor Tim Walz on March 20th 2020 prohibiting “unconscionably excessive increases in the prices of essential items during the COVID-19 peacetime emergency.”

 

During late March and April, prices charged by Sparboe were greater than the 20 percent cap specified in the Minnesota Executive Order.  Reference to USDA data confirmed that the USDA Combined Regional Large Egg Weekly average price increased from approximately 85 cents per dozen in mid-March to a peak of $2.85 per dozen in mid-April with a sharp decline thereafter to previous levels by mid-May.

 

The Minnesota Attorney General presented evidence that retail and wholesale customers requested Sparboe to lower prices.  Sparboe apparently countered that the price was based on contracts linked to a widely used industry price discovery benchmark to justify price increases rather than any quantifiable increase in production costs. The Attorney General has discovered internal company documents and memorandums relating to the price increase.

 

Previously the Minnesota Attorney General settled an investigation into alleged ‘price gouging’ by Forsman Farms.  Under an assurance of a discontinuance document, Forsman Farms agreed on April 28th 2020 to limit prices to no more than 20 percent over pre-emergency values and to abide by existing contracts if they dictated a price lower than the ceiling.  In commenting on the settlement, Attorney General Keith Ellison stated, “I was encouraged to see Forsman Farms cooperate fully with my office’s investigation and I am pleased that the mutual resolution protects Minnesotans against excessive increases in egg prices during the emergency.”

 

This case also illustrates the distorting effect of the prevailing price discovery benchmark that amplifies both upward and downward swings in price. This occurs since fewer chain buyers represent a larger proportion of the market, all reacting to the published price for a perishable product with limited shelf life.