Libor Chickens

Are you familiar with the Libor scandal? Sixteen global banks have been accused of (and many have paid massive fines for) manipulating the London InterBank Offered Rate. The Libor index is utilized to determine the interest rates that establish payments on a very large number of variable rate loans around the world.

If you happen to have a credit card, a personal home mortgage, or an automobile lease with an interest rate that varies with “market conditions,” the odds are high that your rate varies with Libor’s daily fluctuations. Indeed, it’s possible that you have been influenced by the Libor manipulation scandal without even knowing it.

Such illicit price manipulation activities are not simply a banking phenomenon. Would you believe, for instance, that poultry producers are now accused of utilizing a Libor type price manipulation conspiracy for chickens?

Given that few of us are experts in poultry pricing, it may be helpful to explain this conspiracy by defining a metric called the Georgia Dock Chicken Index. Each week, the Georgia Department of Agriculture estimates the cost of producing a pound of chicken. It then distributes this cost estimate (or “Index”) throughout the industry, and firms utilize it to determine the prices of chicken purchase transactions across the United States.

So how is this Index allegedly manipulated? Well, it is calculated by taking an average of the individual cost estimates that are provided by eight to eleven chicken producers. And if those producers intentionally overstate their individual cost estimates, the Index is inflated as well, and the prices for selling chickens are likewise overstated. Naturally, higher chicken prices inevitably mean more revenue for chicken producers.

Can the situation be rectified? Well, no; at the moment, it cannot. Apparently, the Director of the Dock Chicken Index at the Georgia Department of Agriculture says that he is frustrated because “I was told I could not make any changes without clearing them with the Advisory Board.”

So who sits on this Advisory Board? Representatives of the chicken producers!

My goodness. Is there anything that we consumers can do, or anywhere we can go, to escape the type of Libor price manipulation scheme that is allegedly being employed in the meat production industry?

Hey, perhaps we can avoid meat entirely and simply eat fruit. Fruit producers aren’t manipulating their prices … are they?

Well, actually … they are indeed doing so. Apparently, there is a “banana cartel” that is engaging in price fixing schemes across Europe. It seems as if there may not be a single sector in the entire global economy that is free of price manipulation.