Small Potatoes, Not: Suit Alleges OPEC-like Tuber Cartel

April 25, 2013 -- You, maybe, think the idea of a "spud conspiracy" sounds silly. America's grocers most assuredly do not.

Associated Wholesale Grocers, which according to its website represents 1,900 retail stores, claims that America's potato producers have conspired to fix spud prices in the $25 billion a year industry. Their complaint, filed in Kansas' U.S. District Court, demands unspecified treble damages for what they claim are violations of the Sherman Act and the Kansas Restraint of Trade Act.

The grocers allege that potato growers in 12 states, controlling 80 percent of total U.S. potato acreage, have engaged in a conspiracy to fix prices--using OPEC as their model. That makes everyone's French fries, hash browns and mash more expensive, driving up the prices on many more potato-associated products.

Reads the complaint: "Defendants analogized their potato cartel to the Organization of Petroleum Exporting Countries ("OPEC")—the notorious petroleum supply-reduction and price-fixing cartel composed of various foreign nations."

A request by ABC News for comment from the grocers' attorneys got no response. United Potato Growers of America (UPGA) give this statement to ABC News: "United Potato Grower's goal has been to help growers provide quality potatoes at reasonable prices to American consumers. We have always acted openly and within the bounds of the law. We are confident in our legal position and look forward to a favorable outcome in court."

The grocers allege that growers and shippers used both pre-harvest and post-harvest methods to control and reduce the supply of taters, to raise and stabilize prices. Their methods included a deliberate reduction of potato acreage, destruction of potato inventory, and a limitation of the number of potatoes available for sale, the result being a "dramatic increase in the prices of potatoes."

The suit recounts what it describes as the formation and operation, starting in 2003, of the defendants' "potato cartel." First, it alleges, growers in Idaho formed a cooperative to fix prices; then, growers in other states did likewise in a coordinated campaign.

The cartel, says the compliant, convened a meeting in November 2004 where "several hundred" growers from California, Colorado, Oregon, Washington, Wisconsin and Idaho gave a "standing ovation" to their leader when he laid out his price-fixing plan.

The suit quotes a 2007 article in High Country News—"The Sultans of Spuds"—that describes a meeting of the group:

"These men are the leaders of a little-known international cartel, and at meetings such as these, they fine-tune an elaborate system of production targets and quota transfers to control the price of the commodity around which their world revolves. It is a serious business, backed up with reconnaissance from satellites orbiting high above the Earth, and the organization's strict code of conduct allows for the use of what its members artfully refer to as 'punitive measures' against anyone who violates the rules."

In a 2006 survey of growers by "Spudman" magazine, 85 percent said that since the formation of the UPGA they had seen an increase in profits.

U.S. law—the Capper-Volstead Act—permits agricultural cooperatives to engage in a variety of practices that otherwise would be considered anti-trust. It allows producers, collectively, to process, prepare, handle and market their products, for example. The University of Wisconsin Center for Cooperatives, in a paper celebrating the 75th anniversary of the Act in 1997, calls it "the Magna Carta" of agricultural cooperatives, without which "a wide range of cooperative activities" would be prohibited outright.

The grocers contend that the groups being sued are not cooperatives within the meaning of the Act, and, further, that some of the price-fixing activities in which they are claimed to be engaged are not protected. UPGA, they allege, is nothing more nor less than "a scheme to manage and restrict the supply of potatoes."

Mark Patterson, professor of law at Fordham University and an expert on anti-trust, tells ABC News that even if the plaintiffs meet the Act's definition of a coop, it's not clear that limiting production is one of the activities permitted. "The statute," says he, "does not list that as allowed. You're allowed to market goods in such a way as to try to get a higher price," but the law is "just not clear" that a coop can restrict the quantity of goods to do that.

Moreover, he says, one coop cannot legally collude with another. So, while one coop's restricting output would be questionable, he says, an agreement between coops to do so would be "worse."

On the last point, Mark Grady concurs. Grady, a professor of law and expert on anti-trust at UCLA, says price-fixing within a coop is okay—privileged under the Act. "But there is no privilege between coops."