Takeaways from potato cartel lawsuits against McCain, Cavendish Farms

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Two Canadian frozen food giants are accused of being part of a potato cartel that fixed prices on certain products in the United States for years.

McCain Foods Ltd. and Cavendish Farms Corp., along with American companies Lamb Weston Holdings Inc. and J.R. Simplot Co., are accused of fixing prices for frozen French fries, hash browns, tater tots and other products in a lawsuit filed in Chicago federal court last week by Redner’s Markets Inc., a Pennsylvania grocery chain.

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The same companies, as well as marketing group Potatoes USA, were named separately on Sunday in a proposed consumer class action lawsuit in the same court over similar claims.

McCain Foods has denied the accusations while Cavendish has yet to comment.

The four companies account for about 98 per cent of the US$68-billion frozen potato products market, the plaintiffs said.

The lawsuits said the companies shared competitively sensitive commercial data with a third-party industry group that provides market snapshots and that discouraged the companies from competing.

McCain Foods, a privately owned company headquartered in Toronto, had global revenues of more than $14 billion last year and is a major producer of frozen potato products. It boasts that one in four “fries in the world is a McCain Foods fry.”

Cavendish Farms, part of the J.D. Irving Ltd. group of companies, headquartered in Dieppe, N.B., is North America’s fourth-largest processor of frozen potato products.

None of the allegations have been proven in court, but here’s what you need to know.

When did the alleged cartel begin?

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Both the consumer and retail lawsuits allege the price-fixing scheme started as early as January 2021. The companies, according to the plaintiffs, acted in concert to fix, raise, maintain and stabilize the price of the frozen potato products they manufactured, distributed, sold or imported into the U.S.

In February 2021, McCain announced a price increase that was followed soon after by the three other companies, the plaintiffs said. That began “tit for tat” price increases. Frozen potato product prices increased 47 per cent from July 2022 to July 2024, even though input costs declined by 33 per cent during the same time period.

The retail lawsuit suggests McCain was one of the ringleaders, claiming the company “tore up” its contracts in 2022 and increased all prices to guarantee a 30-per-cent margin. The others followed suit.

Company executives were well aware of the price-fixing scheme, the plaintiffs said, and it eventually became obvious to anyone paying attention to the market.

According to the consumer plaintiff, a former vice-president at Lamb Weston in 2023 said his old employers, J.R. Simplot and McCain, “have never seen margins this high in the history of the potato industry.”

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The reason given was an unwillingness by the defendants to compete on price. He said the three companies had “no incentive to fight that hard.” Instead, they were all “behaving themselves” in order to maintain high margins.

The plaintiffs said Lamb Weston did what it could to avoid a paper trail and told its managers to communicate about competitor pricing and business intelligence via texts instead of emails since they would be more difficult to trace in the event of an antitrust investigation.

Similarly, the lawsuits allege, a former senior director at McCain Foods in 2024 said the company was unwilling to compete with Lamb Weston on the price of battered fries. He said he originally thought McCain should compete and pursue additional market share, but “the higher-ups in the room” advised against it.

How did the companies allegedly collude?

The lawsuits also paint a picture of a close-knit industry that made it easy for the companies to collude and share sensitive information.

Each of the defendants belonged to the National Potato Council, “the voice of U.S. potato growers” and a powerful lobbyist. Another key player, Potatoes USA, which is named in the consumer lawsuit, works to expand existing markets and develop new markets for potatoes and potato products.

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The organization provided a method for “the potato cartel defendants to communicate with each other as well as to provide joint marketing, updates on export sales and, most importantly, to facilitate the exchange of data between each of the four producers,” the consumer lawsuit said.

Sylvain Charlebois, a professor at Dalhousie University and director of the Agri-Food Analytics Lab in Halifax, said the case reflects how seriously the U.S. takes collusion and price fixing.

“We don’t know if the allegations are true, so that’s a thing we need to be careful about,” he said. “When it comes to price-fixing accusations, there’s rarely smoke without fire. There’s probably enough evidence to suggest that the allegations may be warranted.”

Is there price fixing in Canada?

The lawsuits in question are in the U.S., but earlier this year, Loblaw Cos. Ltd. and its parent company George Weston Ltd. agreed to pay $500 million to settle a class-action lawsuit regarding their involvement in a bread price-fixing scheme that plaintiffs said happened over a 14-year period.

The class action was brought against a group of companies that included Loblaw and the Weston companies, Metro Inc., Wal-Mart Canada Corp., Giant Tiger Stores Ltd., and Sobeys and its owner Empire Co. Ltd. The lawsuits against the other companies are continuing.

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Of the $500-million settlement announced last summer, $96 million was already paid out in the form of $25 Loblaw gift cards in 2018. More than 3.8 million Canadians registered to receive the gift cards.

The plan for disbursing the remaining $404 million has yet to be finalized and must receive court approval. Once that happens, people can contact an administrator of the settlement funds to make a claim.

Charlebois said price fixing has long been a problem in Canada and the country needs to take it more seriously. He said the U.S. takes a much tougher stance on market collusion and that Canada should follow suit.

“It might be telling us something that these U.S. proposed class action suits are targeting Canadian companies,” he said.

Monopoly money

The lawsuits in the U.S. describe a perfect storm of factors that gave way to years of alleged price fixing, including a potato market that has grown more concentrated than it was two decades ago when more than a dozen companies kept prices more competitive.

Smaller outfits simply can’t compete or afford the huge costs of entering the frozen potato product market. The consumer lawsuit points to a Cavendish Farms’ plant in Alberta that cost $430 million to build. The lawsuits said a consolidated market means less competitive pricing and encourages collusion among its players.

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What’s next?

The lawsuits are seeking compensation for consumers and retail businesses that purchased frozen potato products from the companies since Jan 1, 2021. Both cases seek unspecified monetary damages and a court order ending the alleged price fixing.

None of the allegations have been proven in court, which must decide if the cases meet the requirements of a class action suit. If that happens, anyone who was likely affected by the alleged price fixing will be notified. Whatever amount is settled on or is ordered by the court would be disbursed among consumers and retailers.

Charlebois believes the companies will settle out of court to avoid the negative publicity if the allegations are largely true.

With files from Reuters and the Canadian Press.

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• Email: arankin@postmedia.com

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