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Senators challenge processor practices

By Carol Ryan Dumas | Capital Press

Concerns about anticompetitive practices by dairy processors were at the heart of a U.S. Senate Judiciary Committee hearing Sept. 19 in St. Albans, Vt.

Dean Foods was the bull's-eye.

Committee Chairman Sen. Patrick Leahy, D-Vt., said dairy producers are facing a crisis of epic proportions. "The current crisis only serves to illuminate the industry's structural issues," he said in a prepared statement for the hearing.

Today's structure of consolidation, fewer processors and a national market has led to a breakdown in competition, with farmers not getting their fair share of retail prices "while corporate processors appear to be raking in profits as they continue to raise prices to consumers," he said.

Leahy targeted Dean Foods and its alliance with Dairy Farmers of America, saying Dean's market dominance has translated into overwhelming power in the dairy industry.

"As I think about the gap between retail and farm prices, I cannot help but think back to 2001 and the Dean Foods merger with Suiza Foods," he said. "That merger created the largest milk-processing company in the world, and I continue to be disappointed that the Justice Department under the previous administration approved it."

Even in this year of unprecedented hardship for dairy producers, Dean Foods is posting record-setting profits and paying huge executive salaries, Leahy said.

In a prepared response, Marguerite Copel, Dean Foods' vice president of corporate communications, said, "Dean Foods 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 percent of the nation's raw fluid milk supply from only 9,000 of the 58,000 U.S. dairy farmers. We buy 60 percent of our milk from independents and cooperatives other than DFA.

"In addition, it's important to note that we are only one of many processors, and processors are only one part of a complex system that includes producers, cooperatives, government agencies and retailers. To suggest that we control the raw milk market, or that we are the cause of low milk prices, makes no sense."

DFA also responded with a formal statement: "While DFA is a major player in the dairy industry, our scope and influence is often inflated and misinterpreted. For example, in 2008, DFA marketed 61.2 billion pounds of milk for members and non-members -- representing just 32 percent of the total milk marketed in the country.

"DFA was formed to help better position dairy farmers in a consolidating industry, and as such is able to supply national processors such as Dean Foods. However, less than one-third of all of the milk DFA markets (member and other) is sold to Dean Foods via a supply agreement. Supply agreements with customers -- Dean Foods and others -- are negotiated to the benefit of our members. They ensure a home for our members' highly perishable daily milk production, allow us to negotiate service charges to cover costs, and create efficiencies by allowing for the closest milk to be transported to the closest market."

Disputed actions

Committee member Sen. Bernard Sanders, I-Vt., said in his prepared comments that although there are a number of reasons for this year's decline in milk prices, one of the biggest is the industry is increasingly dominated by larger and larger corporations that have sprung up and squeezed farmers to produce more and get paid less.

Modern dairy farmers have very few choices of where to sell their milk, and, as a result, they have little to no leverage to bargain for good prices. From cooperatives to large processors and large retailers, the farmers' interests are not represented, he said.

"A look at the numbers makes this painfully clear. In the last year, the farm price of milk has plummeted from close to $19 per hundredweight to just over $11 per hundredweight," he said. "Dean Foods reported $76.2 million in profits for the first quarter of 2009, up 147.4 percent from its $30.8 million in the first quarter of 2008. Let me say that again: Dean Foods more than doubled its profits while the price of its commodity tanked.

"It is clear to me that companies like Dean Foods don't care that dairy farmers are slowly but surely being forced out of business, squeezed to death by rock-bottom prices," he added. "These companies, in fact, love low farm milk prices. Low farm milk prices mean lower input costs and a higher bottom line."

Dean Foods' Copel said, "We understand farmers are hurting and, as a leading beverage company, we want to be part of the solution. That's why we are supporting the livelihood of thousands of farmers, paying the highest regulated price for raw milk under the current system, investing in new products to create more demand, giving back to communities and advocating for changes in the current system."

While supply management and a restructuring of the arcane pricing system need to be addressed, antitrust violations must be rooted out, Sanders said.

"If we are to truly solve the problem of unfair dairy prices, we need to tackle the damaging anticompetitive practices that have been allowed to grow in the dairy industry under the incompetence and corruption of the last administration and, frankly, for over three decades," he said.

Staff writer Carol Ryan Dumas is based in Twin Falls, Idaho. E-mail: [email protected].

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