Justice official says “competition isn’t well served when one player controls 70 percent of the market”
Senators say dairy industry consolidation hurting farmers
Sen. Patrick Leahy and Sen. Bernie Sanders listen to testimony at the Senate Judiciary Committee hearing on antitrust issues in the dairy industry on Saturday in St. Albans. Photo by Terry J. Allen.
A lack of competition may allow dominant dairy processors to “exert power” and depress the price farmers receive for raw milk, according to Christine Varney, the assistant attorney general for the Antitrust Division of the U.S. Department of Justice, who spoke at a congressional hearing held in St. Albans on Saturday.
The largest dairy processor in the country, Dean Foods, buys 70 percent of the milk produced in the Northeast. Sen. Bernie Sanders, I-Vt., has asked the Department of Justice to investigate the Dallas-based corporation’s alleged anti-competitive market practices.
Sen. Patrick Leahy, D-Vt., who called the hearing as part of a congressional investigation into “anti-competitive” dairy industry practices, asked Varney if that level of industry buying power “bothers” her.
“Competition is not very well served when you have one player in the market who controls 70 percent of the market,” Varney said. “We look very carefully at the activity in a market when you have that kind of dominance.”
Varney explained to the audience of 100 people in the St. Albans City Hall that some dairy processors have become “vertically integrated.” These manufacturers not only process raw milk, but also may own parts of the supply chain “such as distribution of its products or supply of its inputs.”
“Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk,” Varney testified.
Varney said her division would pursue an investigation of anti-trust violations allegedly perpetrated by dairy processors and would examine complaints about a lack of transparency in the industry as a whole.
“Transparency is something we all need in order to understand how we can improve the production, the health and life of the dairy industry in the United States,” Varney said.
Leahy and Sanders reiterated that Dean Foods has reaped enormous profits this year at a time when dairy farmers are facing a rip tide of red ink and going deep into debt to stay afloat.
Milk prices, which have reached 30-year lows, hovering in the $11 per hundredweight range are not expected to reach $15 per hundredweight until next summer according to USDA economists.
Meanwhile the cost to produce raw milk in Vermont has remained high – at around $18 per hundredweight – partly because farmers must buy more grain here due to the state’s short growing season.
As a result of this whipsaw of low prices and high costs, agricultural economist Bob Parsons at UVM Extension has said Vermont could lose 150 farms in the coming year.
Willard Rowell, owner of Green Mountain Dairy in Highgate, testified on Saturday that his farm will likely lose $1.6 million this year. He and his family milk 900 cows. Last year their income was $2.5 million.
Paul Doton, who milks about 60 cows with his wife and son on their 200-acre farm in Barnard, says he is scraping by because he sells maple syrup, vegetables and does some custom mowing and snowplowing.
“Without this income, I would already be out of business,” Doton said. “Doton farm, much like many other Vermont farms, cannot hang on much longer. How long can we go on losing $4,500 per month? My answer is – not long at all.”
Dean Foods reported first quarter profits of $76.2 million this year, up 147 percent above its reported earnings in the same quarter in 2008, Sanders reported at the hearing.
Sanders said the corporation paid its CEO, Gregg Engles, $116.38 million over the last five years.
“What we are seeing in recent years is a growing concentration of ownership, specifically in dairy processing,” Sanders said. “According to the dairy industry press, one company, the largest milk producer in America, Dean Foods, controls approximately 90 percent of the milk market in Michigan, about 80 percent of the milk market in Massachusetts, 80 to 90 percent in Tennessee, over 80 percent in northern Alabama, over 70 percent in northern New Jersey and in New England about 70 percent.”
In 2001, Suiza Corp. bought Dean Foods, adopted the company’s name, and formed the largest dairy manufacturing corporation in the United States. The company sells milk and other dairy products under 50 “well-known local and regional brands and a wide array of private labels,” according to its web site.
Sanders asked Varney if she would pick up an investigation into the “far-ranging anti-competitive practices” of Dean Foods and Dairy Farmers of America. The 26-month probe, conducted by career investigators at the Department of Justice, was dropped in 2006.
“It is my understanding that in August of 2006 that team recommended action against some of the dairy industry’s biggest firms, including Dean Foods, Dairy Farmers of America and National Dairy Holdings,” Sanders said. “Unfortunately, under the Bush administration it was kicked over to the political people and they decided not to pursue that investigation or take any action. Can you give us assurance that you in fact will continue that investigation and if it leads you to the conclusion that action should be taken that in fact you’re prepared to take action?”
Varney replied, “I can give you every assurance that any investigation I undertake that leads us to believe there is evidence sufficient to prosecute will be prosecuted. There is no doubt that we will prosecute that kind of activity should we find it.”
The Senate Judiciary Committee will accept written testimony from dairy farmers through Sept. 30 at Dairy_Hearing@Judiciary-dem.senate.gov.
Anyone who cares to grasp Leahy’s and Sanders’s cynical manipulation of these hearings for personal political advantage should call up Dean Foods’ Annual Report (10-K) as filed with the SEC. Clear from that is that Dean Foods is attempting to balance between a supply of milk which is very heavily regulated by Mssrs Sanders & Leahy through the legislative process, and a very dynamic and changing marketplace. Our Senators wrongly accuse Dean of being a “monopoly.” It is not — if anything, it is a monopsony. In a monopoly, one seller dominates a market. While Dean is a large player, a 70% share does not even come close to being a monopoly. As the 10-K makes clear, Dean in turn sells almost half its output to three national food chains, anyone of which could drop Dean into second rank overnight by switching suppliers. It is true that Dean is the primary customer for many of the small farmers’ cooperatives through which farmers sell their milk — a monopsony exists where all the small sellers in a region have only one potential market. But Dean only very indirectly sets the price of the milk that it buys. In turn, most farmers have little choice in which cooperative they use for marketing. Farmers, dairy cooperatives, and Dean Foods itself all face a market with somewhat restricted choices. Dean has been very innovative in attempting to expand the market, improve the pricing, and increase utilization of milk and milk products. Sanders’ and Leahy’s grandstanding will not add one penny to farm income, and could seriously harm milk marketing.