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Farmers Want Industry Probe

By Scott Kilman and Lauren Etter | The Wall Street Journal

Dairy farmers, stung by a price-depressing glut of milk, are pressing federal antitrust regulators to investigate competition in the industry.

A group of dairy farmers is slated to meet with antitrust enforcers Thursday in Washington, and Christine Varney, chief of the Justice Department's antitrust division, is scheduled to appear Saturday at a Vermont hearing of the Senate Judiciary Committee, which is populated with several Democrats from big dairy states such as Wisconsin, Minnesota and New York.

US Dairy farms
Associated Press

Darrell Kraus tries to move his herd of dairy cows so they can be milked in Barnhart, Mo., in March. A drop in the price of milk has hurt dairy farmers.

The price of milk began a historic run-up in 2007, and dairy farmers raced to cash in by expanding their herds. Then, the global recession doused foreign demand for milk in 2008, contributed to an oversupply.

In the past year the price farmers get for their milk has dropped 36%, to the lowest level in three decades.

Between early 2007 and December 2008, U.S. farmers added about 190,000 milk cows, an increase of 2%, according to industry economists. In August, farmers on average were paid $11.80 for every hundred pounds of milk, down from $18.40 in August of last year.

Dairy farmers have long complained that they have too few buyers and too little competition for their milk. The industry is dominated by two players: Dean Foods Co. of Dallas, which is creating a national brand in what had been a fragmented industry, and Dairy Farmers of America Inc., a Kansas City, Mo., cooperative that buys milk from farmers and sells some of it to Dean Foods.

In a statement, Dean said it "does not control dairy prices or the dairy market. The numbers that have been reported by various media are grossly inaccurate. We buy less than 15% of [the] nation's raw fluid milk supply."

Dairy Farmers of America said in a statement: "The national scope and size of our cooperative brings about scrutiny. We understand that and we invite open dialogue with those who want to understand our business better."

Andy Gilbert, a third-generation farmer in Potsdam, N.Y., who owns 800 milk cows, said farmers are struggling and he is borrowing to pay his bills. "I don't know any dairymen who are covering their cost of production," he said. "It's a stress on all of us. You sweat blood over it."

Consumers are benefiting. The federal Bureau of Labor Statistics said in its monthly Consumer Price Index report released Wednesday that retail dairy prices in August were 10.4% lower than they were a year ago.

The Bush administration's Justice Department cleared the way for the 2001 merger of the nation's two biggest dairy processors. From this, Dean Foods emerged in a strong position in several regions in the market for bottled milk.

Democratic Sens. Charles E. Schumer of New York and Russell D. Feingold of Wisconsin and independent Bernard Sanders of Vermont signed an August letter to the Justice Department's antitrust division complaining that Dean Foods controls at least 80% of the fluid-milk market in Michigan, Massachusetts and Tennessee, and has 70% of the New England market.

"Based on our research and conversations with agricultural economists, we believe that one reason for Dean Foods' recent profits may be its ability to exercise monopoly pricing power in many parts of the country," the senators' letter said.

Among other things, the lawmakers asked Justice officials to "reconsider" the 2001 Dean Foods merger and resurrect what the senators suspect was a two-year antitrust investigation into the dairy industry by Justice that stalled.

Some dairy farmers are irked that Dean Foods' lower cost of milk supplies helped to increase the company's net income for the second quarter ended June 30 by 31% to $64.1 million, on sales of $2.7 billion.

A Justice Department representative, citing agency policy, wouldn't comment on whether any investigation actually occurred earlier this decade or whether anything else is in the works.

The Obama administration is planning a nationwide series of listening sessions next year to hear from farmers concerned about market concentration in everything from genetically modified seed to meatpacking to dairy.

It is far from clear whether Justice investigators could mount a successful probe of dairy concentration. Many economists doubt that Dean Foods -- which benefits from being able to buy plentiful supplies of cheap raw milk to make everything from bottled milk to cheese to ice cream -- is to blame for this year's depressed milk prices. Indeed, the company's market clout wasn't enough to stop the prices farmers received for their milk from hitting record and near-record high levels in 2007 and 2008.

"Concentration has nothing to do with the recent price fall," said Mary Ledman, a dairy economist at Keough Ledman Associates, Libertyville, Ill.

—Evan Perez contributed to this article.

Write to Scott Kilman at [email protected] and Lauren Etter at [email protected]

Printed in The Wall Street Journal, page A3


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