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.

Bob Wellington testifies

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and the Vermont National Guard in two-year period

Please note: This is the first in a series of stories about federal budget earmarks (also known as appropriations requests) made by Vermont’s congressional delegation.

Soldiers prepare to use an XM312 machine gun. General Dynamics in Burlington received a $10 million earmark to manufacture the guns through Rep. Peter Welch, D-Vt.

Like his compatriots in Congress, Rep. Peter Welch, Vermont’s second-term Democratic congressman, brings home the bacon, i.e. cold, hard cash from Washington.

Since he took office in 2007, Vermont’s lone U.S. House representative has requested $98.5 million in federal budget earmarks for Vermont, according to information from Welch’s web site and Taxpayers for Common Sense, a nonprofit, nonpartisan budget watchdog group based in Washington, D.C. (Earmarks are allocations of revenue directed to a specific project or recipient, according to FackcheckED.org, without adherence to the “competitive allocation,” a.k.a. bidding, process, as the Office of Management and Budget puts it.)

Welch directed $49 million out of $69.8 million, or 70 percent of his total earmarks, toward defense-related spending in 2008 and 2009, according to public information gathered by TCS.

Of that, $13.5 million was earmarked for the Vermont National Guard. The rest of the money was given to defense contractors in Vermont, including $10 million to General Dynamics in Burlington for the manufacture of XM312 machine guns.

Though Welch says “his highest priority is to help Vermont’s community-supported organizations succeed,” his single largest earmark category is defense contracts with private companies.

In several e-mails, Paul Heintz, communications director for Welch, writes that the congressman “particularly focuses on projects that will bring jobs to Vermont” and “supports the Vermont National Guard. The congressman’s defense appropriations do just that – bring jobs to Vermont – and those jobs are tremendously important to communities all over Vermont, including Waterbury, Northfield, St. Albans and St. Johnsbury.”

In 2008 and 2009, Welch earmarked $36.1 million for private military contracts. That figure represents more than 50 percent of his $69.8 million in total requests. For FY2010, he will not have any defense appropriations requests, according to Heintz.

“After he was appointed in January to the Committee on Standards of Official Conduct, Congressman Welch decided out of an abundance of caution to not seek defense appropriations for businesses in 2010 because of the possibility the committee might investigate the defense appropriations process,” Heintz wrote in an e-mail.

The following earmarks were sponsored by Welch in 2008 and 2009:

$10 million, XM312 machine guns, General Dynamics, Burlington

$2.5 and $2.4 million, lithium and zinc batteries, Energizer Battery Company, St. Albans/Bennington

$2 million and $2.4 million, medical shelter systems, Mobile Medical International Corporation, St. Johnsbury

$2.4 million and $1.6 million, Kiowa helicopter “warrior health system,” Goodrich Corporation, Vergennes

$2.4 million, wireless sensors for Navy aircraft, Microstrain, Williston

$2.4 million, boat trap system for port security, Moscow Mills Manufacturing Services, Waterbury

$2.4 million, water purification system, Seldon Laboratories, Windsor

$2.4 million, field deployable fleet hydrogen fueling, Northern Power Systems, Barre

$1.6 million, merino wool socks for the Marines, Darn Tough Socks, Northfield

$1.6 million, New England manufacturing supply chain initiative, Vermont Manufacturing Extension Center, Randolph Center

Rep. Peter Welch's earmarks for 2008, from TCS.

The Vermont National Guard is the next biggest earmark winner. In the last three years, Welch has helped to make $18.6 million (including $5 million in FY2010) available to the Guard for 17 military tractors, a security system for the Ethan Allen Range, renovation of a 1928 farmhouse for residential housing, a training center and a Readiness Center.

Transportation comes in third place at $17 million. Welch has approved spending for Burlington ($3.375 million) and Rutland ($3.323 million) airports and nearly $6 million on buses and equipment for the Chittenden County Transportation Authority, in addition to streetscape projects in St. Albans and Springfield.

Altogether, appropriations requests for everything else — police departments, conservation efforts, historic preservation projects, homeland security, human services, energy, agriculture, small business development, and educational and cultural programs – get the smallest wedge of the pie. In 2008 and 2009, these funding categories represented just 19 percent of Welch’s total requests. This year, they’ll be closer to 53 percent of the total.

Where does Welch fall in Vermont’s three-man congressional lineup? Dead last. In 2009, Sen. Patrick Leahy obtained 113 earmarks worth $248.5 million; Sen. Bernie Sanders secured 39 requests worth $106.8 million; and Welch sponsored 29 totaling $32 million, according to the Center for Responsive Politics (opensecrets.org). Many of the defense requests Welch signed onto are co-sponsored by Leahy and other members of Congress.

Rep. Peter Welch's earmarks by category, 2008-2010, data from TCS.

Among his peers in the House, he ranks 156^th for the total amount of money he has requested as a co-sponsor and 291^st out of 435 representatives as a solo sponsor, according to Steve Ellis, vice president of programs for TCS.

Despite its small population, Vermont does well for itself in the national standings. It ranked 7^th for earmarks per capita, $131.94 for each resident in 2009, according to TCS.  Alaska, which holds the No. 1 position, delivered $331.94 per person last year; the national average was $41.06.

TCS reports that nine of the top 10 states on the list each have a member on the Senate Appropriations Committee (in our case it’s Leahy).

Within the context of the earmark system, however, Welch’s appropriations requests are a drop in the national discretionary spending bucket. In 2009 alone, the committee approved 11,286 earmarks totaling $19.9 billion in funding requests tacked onto the budget bill.

Rep. Peter Welch's earmarks for 2010, from TCS.

Rep. Peter Welch's earmarks for 2009, from TCS.

Of the $3 trillion FY 2008 budget, $2 trillion was committed for programs like Social Security and Medicare, Ellis says. Discretionary spending accounted for $1 trillion, and that figure included $550 billion for the Department of Defense. The $18 billion in congressional budget earmarks came out of the remaining $450 billion.

“That’s more money than the entire Department of the Interior and the Department of Commerce combined received in funding in 2008,” Ellis says. “Somebody here (in Washington) can argue it’s not a lot of money, but to any regular person, $18 billion is a hell of a lot of money.”

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