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Tyson to pay $10.5m in cattle contract lawsuit

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Company breached cost-plus model contract for premium cattle raised for Whole Foods.

Tyson Fresh Meats, a subsidiary of Tyson Foods, will pay a cattle feeder $2.57 million in damages as well as another $8 million in punitive damages, a final judgment in New Mexico federal court has ordered.

In the case, Zia Agricultural Consulting alleged that Tyson breached a cost-plus model contract for cattle it raised using Non-Hormone Treated Cattle (NHTC) and Global Animal Partnership (GAP)-certified programs, a program only marketed by Whole Foods.

The cost-plus model identified projected costs to finish the cattle (i.e. feeding, bringing up to weight, providing medical care, and otherwise preparing the cattle for market) and then set the sale price to Tyson at that cost of finishing plus an additional premium per head.

According to the case, two representatives of Zia and Tyson agreed through e-mail communication to a premium pricing contract for cattle produced by Zia. However, Zia alleged that upon delivery of the cattle, Tyson paid using a different formula and also refused to purchase certain lots of the cattle. Tyson also delayed purchase and delivery, which caused Zia to incur costs associated with additional time on feed.

Zia invoiced Tyson for approximately $16.2 million, which included the actual costs pertaining to the 9,153 cattle plus a premium per head of $125 for GAP cattle and $100 for NHTC. Tyson purchased 7,654 cattle and paid Zia a total of $12.6 million.

Court documents relayed that because Tyson is the packer for the majority of this cattle sold by Whole Foods, Tyson “held significant leverage over Zia since the market for premium cattle is smaller than and not as fluid as the market for conventional cattle.”

“Due to the long production schedule and limited number of purchasers for premium cattle, Zia had to continue finishing the cattle on the feedlots in an effort to mitigate any damages caused by the Tyson defendants’ breach and recover costs as best it could,” court documents show.

Tyson argued that prior to the email exchange that established the contract, a verbal price agreement using the “Nebraska Weighted Average” plus a price per head premium had been established with Zia for the premium cattle.

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