Fixing Chicken : Planet Money Today on the show: A chicken index, some Wall Street investors, and an unlikely whistle-blower.

Fixing Chicken

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Hello, Dan Charles.


Hi, Sally Helm.

HELM: So you have a story for us, and it starts with a guy in Georgia.

CHARLES: His name is Arty Schronce. He worked for the Georgia Department of Agriculture for many years. He loved gardening. He wrote a column about it called "Arty's Garden." Every once in a while, he would star in a video about Georgia's native flowers.

HELM: And these videos, they look like they were recorded on a cellphone, standing in a city park. Arty's in this brown suit. He kind of, like, reminds me of a guy who would maybe do your taxes, maybe like collect the plate of money at church.


ARTY SCHRONCE: Even though it's a cloudy day here in Atlanta, I feel like I need sunscreen standing next to all of these sunny blossoms. And the fragrance is divine. Come with me and have a smell - whiff of this.

CHARLES: I have been trying like crazy to reach Arty Schronce.

AUTOMATED VOICE: Your call has been forwarded to an automated voice messaging system.

CHARLES: Hi. This is Dan Charles from National Public Radio.

I've left phone messages. I've sent letters. We never heard back. Honestly, considering what he went through, I can kind of understand if he wouldn't want to talk to journalists. He got in the middle of something way bigger than he expected.

HELM: Here's what happened. For years, Arty Schronce had this really nice job. He answered people's questions about agriculture in Georgia. He talked to local gardening groups.

CHARLES: And then, six years ago, he moved to a different department. He became director of Georgia's Poultry Marketing News, poultry like in chickens.

HELM: Chickens, yeah, poultry. And this not like a newspaper about chicken. It's a roundup of what is happening in Georgia's chicken economy.


HELM: So...

CHARLES: So I've got a copy of it here.

HELM: Yes.

CHARLES: Poultry Market News - and this is not an easy read. This is - you need a Ph.D. in chicken...

HELM: Yeah.

CHARLES: ...To figure this out. It says, the market is steady to occasionally weak to firm. Live supply is adequate.

HELM: I don't know what that means, firm and live. But there is a part that kind of jumps out at you. It's in bold. There's a list of chicken parts and prices. So line-run tenders are $1.69, whole breasts, 92 cents, et cetera.

CHARLES: And these are the official chicken prices for the state of Georgia, which is important because Georgia is a giant in the chicken world. It is so big the University of Georgia even makes inspirational videos about it.


UNIDENTIFIED PERSON #1: The state of Georgia is the No. 1 producer of chicken meat in the United States. And depending on what year you look at it, if you just took the state of Georgia and compared it to the rest of the world, we'd be the fifth-or-sixth-largest producer in the entire world. So there are a lot of people who...

HELM: OK. So Arty Schronce, he goes from commenting on spring flowers to being right in the middle of this huge industry in Georgia. And he's publishing prices that could affect not only Georgia but the fortunes of multibillion-dollar companies.

CHARLES: Companies like supermarkets, they used his index, fast food joints, Walmart did. Arty's index helped them to figure out what they should pay for chicken.

HELM: And then, about two years ago, Arty's job became a nightmare.


CHARLES: Hello, and welcome to PLANET MONEY. I'm Dan Charles.

HELM: And I'm Sally Helm. Today on the show, Arty's index goes bad. Some shadowy Wall Street investors become convinced that chicken companies are charging Americans too much for their chicken, and they try to expose the sham.

CHARLES: And Arty Schronce gets stuck in the middle.


CHARLES: That list of chicken prices it already publishes is called the Georgia Dock - D-O-C-K. It has been around for 40 years. So every week, Arty has the job of calling up the chicken companies. And we're talking about just a handful of huge companies like Tyson Foods, Pilgrim's Pride, Sanderson Farms. He calls them up, and he says, well, what are you selling your chicken drumsticks for this week? And he compiles those numbers, and he puts out the index.

HELM: Now, Arty Schronce is not like the only person in the country doing this. The U.S. Department of Agriculture publishes chicken prices, some other private companies do it. And the prices on these indexes, they're usually not too far apart. But then, a couple of years ago, things get weird.

CHARLES: So take a look at this graph.

HELM: Yes.

CHARLES: So this line is chicken prices according to the USDA's price index.


CHARLES: And this line is the Georgia Dock price index. So these are Arty's numbers.

HELM: OK. So I see what's happening here. I mean, basically, so the two lines are going along pretty similar for many years. And then it looks like late 2015, early 2016, the USDA numbers...

CHARLES: They fall off a cliff.

HELM: ...They're - yeah, they're going down.

CHARLES: And look at Arty's numbers. They just, like, stay way up there.

HELM: Yeah. It looks like maybe like 30, even 50 percent higher than the USDA numbers.

CHARLES: Yeah. The USDA is saying chicken's cheap. Arty's saying chicken is expensive.

HELM: And this, of course, is a big mystery. This is the mystery that started this whole story because if different price indexes are telling us different things, which one is telling the truth? And why would one of them be lying?

CHARLES: One of the people who's looking at this graph and scratching his head is Len Steiner. He's 1,200 miles away from Arty. He's way up in New Hampshire. And he is a consultant to big companies that buy a lot of chicken, hundreds of millions of pounds of it every year, like big chain restaurants. Len looks at this graph, and he sends a note to his clients about it.

LEN STEINER: We were pointing that out that the Georgia Dock is really overpriced compared to the USDA 12-city market average that was at the time.

CHARLES: And did you have any thoughts on that or an explanation for it? What did you think was going on?

STEINER: You know, sometimes it doesn't matter what my thoughts are. You know, you just notice that - hey, this is not moving the way it used to move. Something has changed here.

HELM: Len tells his clients watch out because this could cost you a lot of money. Now, here's why.

CHARLES: So big restaurants and supermarkets, they want to lock in a supply of chicken for like five years, but they can't lock in a specific price. So what they do is they write a contract that lets the price go up and down. It's based on some indicator of the market.

STEINER: Then, we say - rather than negotiate week to week on what the price of chicken should be, why don't we just tie it to this indicator?

HELM: That indicator could be Arty's index, the Georgia Poultry Market News. Or it could be another index.

CHARLES: And think about what happens when Arty's prices all of a sudden are way higher than everybody else's. If you're paying for chicken based on Arty's prices, you're suddenly paying a lot more than you have to.

HELM: And who's pocketing that extra money? Well, it would be the chicken producers. They benefit if chicken prices are higher. And, remember, Arty's index has chicken prices higher than all the others, those graph lines going far apart. So what's going on?

HELM: We wanted to ask Arty about it.


SCHRONCE: Perhaps no tree is as beloved as our native Flowering dogwood.

HELM: But we couldn't.

CHARLES: We do know this. The federal government got a tip that there was something fishy going on with this Georgia price index. So the U.S. Department of Agriculture, the USDA, sent three of its people down to Georgia to talk to Arty Schronce to watch how he compiled his index.

HELM: And after that visit, for some reason, the USDA decides to stop posting Arty's index on the USDA website.

CHARLES: It was a hint to anyone paying really close attention that maybe this index, the Georgia Dock, those numbers were off.

HELM: And you know who can smell a bad price from a thousand miles away? Oh, Wall Street.

STEPHANIE STROM: I had across investors. They weren't sort of talking about it freely, but they would talk about it.

CHARLES: This is Stephanie Strom.

STROM: I'm a former journalist from The New York Times. And I covered the food business for many years.

HELM: So around this time, Stephanie Strom was getting tips about chicken from some Wall Street contacts, investors. They're in New York watching the markets like they do. And they see something that they think is going to be a big deal, a glut of chicken.

STROM: You had a huge oversupply of chicken, more chicken than they believed people would eat. And so they were betting that the price of chicken was going to fall.

CHARLES: Yeah, they were betting that the price of chicken was going to fall and that poultry producers are going to be losing money.

STROM: Right. Exactly.

CHARLES: They thought the stock was overvalued.

STROM: They thought the stock was overvalued, and so they shorted the stock.

CHARLES: These Wall Street investors will make a ton of money if those chicken company stocks fall.

HELM: So they're just sitting there in New York waiting for the oversupply of chicken to hit the market, which they think is going to cause prices to collapse.

STROM: And, yet, when you went to the grocery store, the price of chicken was either stable or even going up slightly, which was probably driving these guys crazy.

CHARLES: You know, this is not my world.


CHARLES: I don't know what these guys are like. You talk about the hedge fund guys. Is there a type?

STROM: They tend to be very confident and very confident in their investment decisions. And when they don't go the way that they think they're going to, they work very hard to figure out why their thesis - because there's always a thesis behind the investment - didn't go that way and then to persuade you, the reporter, that they were always right and that whatever these other factors are really don't matter or other people are stupid is what usually it comes down to.

CHARLES: And I'm assuming these are mostly guys?

STROM: They - in this case, everyone was a man, yes (laughter).

HELM: So these very confident hedge fund dudes are trying to figure out why prices of chicken and supermarkets are not falling. And they start looking really hard at how those prices are set, and they realize a lot of them are linked to Arty's index. So maybe that's the answer.

CHARLES: So they go to Stephanie Strom and they tell her about it. Now, she is a little wary because Wall Street is always trying to get reporters to write stuff so that Wall Street can make money. But then Stephanie hears just by accident that the USDA also had some problems with Arty's index.

STROM: I was probably having lunch with somebody about something completely unrelated - oh, yeah, you know, the USDA looked into that. That was when I decided it was a story because it wasn't just a bunch of guys trying to make money off of a trade. It was a government regulator that also had the exact same questions about this pricing index.

HELM: And, possibly, this index might be taking money out of the pockets of chicken eaters across America.

CHARLES: Children who need chicken fingers to survive.

HELM: Barbecuers (ph) just throwing chicken on their barbecues.

CHARLES: It is the most popular meat in America.

STROM: That was why it was a good story because if Mrs. Smith is paying more for chicken than she really should be just to keep, you know, the executives at a chicken company fat and happy - right? - then that's of interest.

CHARLES: So she writes her story. The headline is, "You Might Be Paying Too Much For Your Chicken." It gets a lot of attention, but nothing like what happens next - the chicken bombshell.

HELM: It's a memo. It's really a memo. And we should tell you that, for this story, we are relying on a lot of documents...

CHARLES: Big pile of documents.

HELM: ...Memos included. And those documents - there was a lawyer at a private firm who unearthed them from government agencies using open records laws.

CHARLES: He won't tell us who he was working for, but there are clues that point toward hedge funds. So one day in November, 6 o'clock in the afternoon, this lawyer gets a new document released by the Georgia Department of Agriculture.

CHARLES: A memo from Arty Schronce. And it wasn't addressed to anybody. At the top, it just says, notes for meeting. We don't know if there was actually a meeting.

CHARLES: Again, we don't have any comment from Arty, unfortunately.

HELM: Just that flower tape.

CHARLES: This memo is three pages of Arty Schronce's doubts about his own work. He says he was thrown into the job with no training. When he calls chicken companies and asks for their prices, they're not really taking him seriously. They're like, put down whatever you did last week. And it seems from the memo that Arty feels personally hurt by this.

HELM: But most importantly, he says he does not believe what the companies are telling him, or as he puts it in his memo, he has come to question the validity of some of the information provided.

CHARLES: Arty does not trust his own index. You see, the way the Georgia Dock was set up, the companies just tell him a price. Arty's not asking for invoices to actually verify that the sales happened at that price. And up till now, nobody thought that was necessary.

HELM: And then Arty - quiet Arty, lover of gardens - he says just blow this thing up. The state of Georgia should not be putting this index together, he says. Get rid of it entirely, or maybe transfer it to a private company. Let them take responsibility for it.

CHARLES: Basically, this Schronce memo, as people started calling it, confirmed what the hedge funds had thought was happening - that the poultry companies were making up prices and manipulating the Georgia Dock.

HELM: Chicken price fixing.

CHARLES: And this is being confirmed from the inside.

HELM: It's a big deal. And within a day, that memo is in the hands of a reporter from The Washington Post. And when the Post publishes it, the stocks of companies like Tyson, Sanderson Farms - they drop immediately by about 5 percent. That is billions of dollars in losses.

CHARLES: Or profits if you're short-selling.

HELM: And this was really the end of Arty's index. Within a month, the Georgia Department of Agriculture decides not to publish it anymore.

CHARLES: Now, they did try to replace it with a new price index - a better one with prices that were not just reported by poultry companies but also verified by checking in with their customers. The people setting up this new price index, this better one, arranged a conference call to introduce it.


UNIDENTIFIED PERSON #2: Before you ask your question, please make sure that you say both your name and affiliation...

HELM: Only one chicken producer called in, but there were half a dozen people from Wall Street, and they really piled on.


SCOTT REED: It's Scott Reed (ph). I'm a private investor. My question is, by measuring contract prices only...

MOSHE ZUCKER: Hi, this is Moshe Zucker at Point72 Asset Management. Just a question back to the mix. So you stated earlier...

UNIDENTIFIED PERSON #3: It's a two-part question. How many chicken companies signed the attestation affirming that the price...

NOAH GILLESPIE: My name is Noah Gillespie (ph). I'm an attorney for (unintelligible).

CHARLES: Noah Gillespie is actually the attorney who filed all those requests for documents - the documents we've been relying on - the government's internal emails about the Georgia Dock, also the Arty Schronce memo.

HELM: And he and these other Wall Street guys, they have a lot of skeptical questions about whether this new price index is going to be honest. After that conference call, a bunch of the poultry producers decided they didn't even want to participate anymore. They never submitted any prices to this new index. It never launched.

CHARLES: So six months after the USDA first sent people down to look at Arty Schronce's work and figure out what he was doing with this poultry price index, that index is gone. And the state of Georgia is out of the price index business.

HELM: Remember, the hedge fund guys thought that if the Georgia Dock went away, poultry prices would fall - but they don't.

CHARLES: And that is the mystery that remains. And there are two theories to explain it.

HELM: One theory is big supermarkets had just been ignoring Arty's index once it got weird. They were negotiating more reasonable prices on their own. If that's what happened, maybe nobody got hurt.

CHARLES: But there are other people who say, no, that handful of big companies that controls the chicken business - they were fixing prices. In fact, they still are. A bunch of the big chicken buyers, like supermarkets, are suing all those big poultry producers, accusing them of propping up prices in all sorts of ways, not just feeding fake prices to Arty Schronce.

HELM: The poultry companies say they've done nothing of the sort. That case could take years to resolve.

CHARLES: But there's a bigger point here. Everywhere you look in the economy, people rely on indicators like Arty's chicken price index. There are lists of prices that people are paying for things like grain, housing. And I never really thought about where those numbers come from.

HELM: Some of the time, those numbers are really solid. Like, the stock market - those transactions are open for everyone to see. Or if you're in the beef or pork business, there's actually a legal requirement that you have to report how much you're paying for the animals you buy.

CHARLES: But in other industries, it's just private companies making private deals. And if you're trying to figure out, what are they actually paying, what is that thing worth, it takes some serious detective work.

HELM: Sometimes it takes a guy sitting in his office in Georgia, making calls to big companies who could tell him any price they want.

CHARLES: Arty Schronce is now retired from the Georgia Department of Agriculture. Nobody celebrates him as a whistleblower. Hopefully, somewhere, he's peacefully tending his garden.


SCHRONCE: If you're looking for an evergreen vine that will provide color and fragrance, consider the Carolina Jessamine.

CHARLES: Call us, Arty. We want to hear your version of this story.


CHARLES: We post every episode of PLANET MONEY on Facebook. If you have thoughts about the show, leave a comment on the post. You can also find us on Twitter and Instagram - @planetmoney. Or email us -

HELM: Today's show was produced by Megan Tan. Our editor is Bryant Urstadt. Alex Goldmark is our supervising producer. I'm Sally Helm.

CHARLES: And I'm Dan Charles. Thanks for listening.


HELM: Dan, why is it called the Georgia Dock?

CHARLES: Well, actually nobody knows. I asked the Georgia Department of Agriculture this. By the way, it's Dock, not...

HELM: D-O...


HELM: Not document, but dock like water?

CHARLES: Or dock where your ship comes in. I have no idea. I asked them and they said they don't know either. It's been around for so long, nobody knows. It just is that way.

HELM: Huh (ph).

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