Dean Foods, one of the largest milk companies in the world and owner of the Garelick Farms, Borden and Horizon Organic milk brands, is poised to pay dairy farmers in New England and New York roughly between $2,000 and $3,000 each.
The revised settlement approved by U.S. District Court judge Christina Reiss struck a requirement that the milk company buy 10 percent to 20 percent of its milk from independent sources, rather than exclusively from the two major milk cooperatives in the region. Dean Foods does not admit any wrongdoing in the settlement.
Dean Foods isn’t the only player in the milk industry that has faced the legal ire of the region’s dairy farmers. Originally, the lawsuit also named the milk company Hood and the region’s two largest milk cooperatives as defendants. The suit against Hood was thrown out, but dairy farmers still are continuing legal action against the two cooperatives, Dairy Farmers of America and Dairy Marketing Services.
The suit alleges that Dean and the two milk cooperatives conspired to create a closed market that kept milk prices artificially low. Benjamin Brown, one of the lawyers from a Washington D.C.-based firm representing the dairy farmers, said the three entities created an unfair system where farmers had no choice but to go through a middleman to sell to the biggest milk buyer in the region.
“If you lived next to a Dean plant and wanted to sell your milk there, you couldn’t do it without contracting through Dairy Marketing Services as a middleman,” said Brown.
Dairy farmers have few options of where to sell their milk. Many independent milk processors in New England were bought up by Suiza, the milk company that eventually merged with Dean Foods.
Both Dairy Marketing Services and Dairy Farmers of America once had ownership stakes in Suiza. When it merged with Dean, the milk cooperatives exchanged ownership for the milk contracts that dictate that dairy farmers must go through the two cooperatives to sell to Dean. Such an arrangement can cause a conflict of interest and create conditions where the cooperatives don’t have an incentive to bargain for the highest milk prices, said Brown.
“You really don’t have a strong voice for the farmers, and that’s a problem,” Brown said.
Many dairy industry observers have long suspected that milk prices have been artificially deflated by large milk companies like Dean. The lawsuit is part of a wave of antitrust legislation involving Dean Foods.In March, the U.S. Justice Department reached a settlement with the dairy giant, requiring the company to divest a milk processing plant in Wisconsin and some other holdings in the Midwest. The agreement also stipulates that Dean Foods must inform the Justice Department before making any purchase of milk processing plants valued at more than $3 million, according to a Justice Department press release.
There’s been a shift in tone in the Justice Department, said Mark Kastel, executive director of the Cornucopia Institute, a food industry watchdog. Under the Obama administration, the Justice Department has created a separate office within its antitrust division to handle agricultural cases. The idea of pursing antitrust cases has been unpopular in the Clinton presidency and both Bush presidencies, said Kastel.
“That word was almost expunged from the vernacular of this country,” he said.
Liliana Esposito, a spokeswoman for Dean Foods, said the milk company chose to settle the dispute in order to move on.
“We’re confident we conducted our business lawfully and fairly,” Esposito said.
But the settlement might have the effect of creating adversaries out of what were close allies. Dairy Marketing Services and Dairy Farmers of America, the two cooperatives named in the suit, had objected to the initial settlement, saying it would have negatively impacted the farmers that are cooperative members.
Meanwhile, some advocates for dairy farmers see the antitrust settlement as a missed opportunity. Peter Hardin, a farmer and the publisher of the dairy newspaper Milkweed, believes the plaintiffs settled for a fraction of what they could have won from Dean Foods. Worse, one-third of that $30 million could be eaten up by legal fees, he said.
“To Dean foods, $30 million is nothing,” Hardin said.
More importantly, the public lost an opportunity at full disclosure of the business dealings of Dean Foods, he said. There long have been rumors of strong-arm tactics against farmers who have gone against the milk company, and a day in court might have brought some sensitive Dean Foods documents to light.
“Go to court, go to court; get some of the documents into the public arena,” Hardin said.
Desperate timesThe recent antitrust interest surrounding Dean Foods has been fueled in part by the dire condition of the milk market during the prolonged economic downturn.
During the worst days of the recession, milk prices plummeted while production costs soared. Demand for milk exports dropped at the same time that high oil prices and demand for biofuel raised feed prices. For the first time, the organic milk market slowed its growth and organic milk companies began cutting ties with dairy farmers that only recently had been lured into converting to organic. Conventional milk farmers, many who were barely surviving during the country’s boom years, got the brunt of the downturn even worse. The bottom fell out of conventional milk prices as export demand dried up.
Farmers already on the margin suffered greatly in recent years, said Ed Staehr, executive director of NY FarmNet, a farmer-support program connected with Cornell University. The program’s hotline received some 6,000 calls in 2010 from people seeking mental health and financial counseling for New York dairy farmers.
It’s all too easy for a farmer to bring his or her work home, he said. That can be difficult when the farm isn’t doing well.
“You can’t separate the family and emotional issues from the farm,” Staehr said.
The results can be disastrous. Last year in Copake, N.Y., in 2010, a farmer shot half his herd before taking his own life. The farmer chose to shoot only the cows that needed milking apparently because he didn’t know who else would take care of them.
George Beneke was that farmer’s veterinarian. Now retired, Beneke has dealt with many stressed dairy farmers in the region during his 41 years on the job. He was quick to point out that many emotional factors most likely led to the Copake farmer’s choice to take his life, but economic stress certainly played a part.
Beneke had never seen anything like the conditions that have confronted the region’s dairy farmers in recent years.
“It was devastating,” he said. “It was the largest downturn I’ve ever seen.”
Many farmers took the hard times personally, he said. Even though they used good stewardship to boost milk production by one-third from the previous generation, they found themselves sinking deeper and deeper into debt. And this happened during a time when consolidation and suburban sprawl isolated them from their peers.
“They don’t have the community that they used to have. They’re not going to sit around the potbelly stove and discuss the Boston Red Sox and their favorite cow,” Beneke said. “These guys are going it alone and they’re not doing very well.”
An unclear landscape
Milk prices have climbed again, buoyed by an increased demand from countries like China and India for U.S. milk.
But there’s little guarantee the milk market will become much more competitive for New England dairy farmers, even if the pending antitrust actions force Dean Foods to change its business practices.
The milk giant is in trouble, with stock prices dipping from $46 a share in 2007 to just over $7 a share today. Dean CEO Gregg Engles is embattled; he recently was ranked 338th by Chief Executive Magazine, dead last among his peers for wealth creation.
According to dairy industry observers, Dean is trying to sell off what it consolidated under Suiza. Some wonder if the milk giant is making itself more attractive for an eventual sale, but Dean spokesperson Esposito only would say that she had no information to offer about the subject.
Even if Dean loses its grip on the dairy market, that’s no guarantee that the business landscape will get easier for dairy farmers, said Cornucopia’s Kastel. There’s nothing stopping another major company coming in and repeating the same practices that some found objectionable with Dean.
“Meet the new boss. He’s the same as the old boss,” said Kastel, quoting a song lyric from the rock band, the Who.