US poultry group Sanderson Farms said it has agreed a new pricing formula with its customers after the Georgia Department of Agriculture announced the indefinite suspension of the Georgia Dock weekly chicken-price index.
The GDA suspended the index on 21 December over what it said was a lack of data provided by poultry producers. The move followed questions about the methodology of the index, which is used by chicken companies in their price negotiations with grocery stores, and claims of alleged industry collusion to control supply and drive up prices.
The GDA said it now expects to introduce the Georgia Premium Poultry Price Index (GPPPI) in the week of 4 January, with official reporting set to start in February.
Sanderson said its new formula, which will remain in force until the GDA’s new index is launched, “is similar to what is already in place”. The company said: “As in the past, pricing formulas will be negotiated based on a customer’s mix, location, volume and needs.” The processor said it was committed “to determining an appropriate pricing formula as quickly as possible”.
Sanderson said it has priced a portion of its production from its tray pack plants based on formulas that used the Georgia Dock whole bird price as its base. “For fiscal 2016, 10.15% of the company’s overall product mix was priced using these formulas,” the company said. “For the past 40 years and until recently, the Georgia Dock price was seen as a fair reflection of the dynamics of the retail grocery store market for chicken.”
Chairman and CEO Joe Sanderson Jr. said: “It is important to note that regardless of the benchmark used, our negotiations with customers ultimately determine the price, and we believe our prices fairly and accurately reflect supply and demand dynamics. We have had positive conversations with our customers and do not expect this recent action to affect our business.
“Retail grocery tray pack products are important to our overall business, and we value our customer relationships in this market segment. With the suspension of the Georgia Dock, we are committed to working with these customers to find a new benchmark to use in beginning negotiations with our customers. It is important to note that regardless of the benchmark used, our negotiations with customers ultimately determine the price, and we believe our prices fairly and accurately reflect supply and demand dynamics.”
Sanderson Jr. said he believed the GDA “are going about determining the new system in the right way; being deliberate and getting input from every constituency group who is affected by the benchmark, including buyers, sellers, distributors, regulators and other interested parties”.
A spokesperson for US meat group Tyson Foods told just-food the company will also “be talking with the customers affected by this change to establish a new pricing model that meets both parties’ needs”.
However, the spokesperson said: “Only between 3% and 4% of our chicken products are sold under contracts with ties to the Georgia Dock survey. We negotiate many different sales contracts with customers based on different pricing models.”