US regulators examine dairy industry competition

Dairy farmers frustrated with ever-eroding profit margins and possible antitrust violations in the industry will get a chance Friday to voice their concerns to federal regulators in "America's Dairyland."

U.S. Agriculture Secretary Tom Vilsack and Assistant Attorney General Christine Varney, the department's chief antitrust investigator, were scheduled to host the roundtable discussion in Madison, Wis., a state where dairy is a $26 billion a year industry.

Regulators in the Obama administration have promised to be more aggressive in enforcing antitrust laws at a time when large agricultural companies have purchased smaller competitors and consolidated market share. Dairy farmers complain that while customers pay more than ever for milk and cheese in the store, the money producers receive is flat.

"The pricing system and the marketing system are simply not getting that money back to the farmer, where it is direly needed," said dairy analyst Pete Hardin, who publishes industry newsletter The Milkweed. "The consumer is paying very liberally at the store for dairy products. At the farm, the farmer is getting milk prices that were akin to what he was getting 30 years ago."

Milk prices have fluctuated wildly. A chart that Hardin intends to present based on USDA data shows prices farmers are getting for milk are roughly the same that they got in 1979.

"They want to know who's making all the money," said U.S. Sen. Russ Feingold, D-Wis., who plans to attend the hearing.

Dairy farmers, other elected officials, experts in the field, lobbyists and others were scheduled to participate in the hearing that could help determine how the Obama administration redraws its antitrust policy.

The hearing is the third of five planned by the departments of Justice and Agriculture. Previous ones focused on crops, hogs and poultry.

The DOJ antitrust division has done virtually nothing in the past 15 years to stop market consolidation in the dairy industry, Hardin said.

During that time large companies like the nation's largest dairy Dean Foods, a Fortune 500 company with brands including Horizon Organic and Land O'Lakes milk, have expanded their market share to about 40 percent nationwide, Hardin said.

Adding to the consolidation is the growth of the Dairy Farmers of America, a co-op that has 17,000 members, Hardin said. Farmers are pressured to join the co-op or not be in a position to market their product, he said.

The DFA has contractual ownership relationships with Dean and the nation's other two largest milk processors - National Dairy Holdings and HP Hood - resulting in a restricted market for dairy farmers, said Peter Carstensen, a University of Wisconsin-Madison law professor and expert in antitrust law and competition policy.

That arrangement has led to antitrust lawsuits against Dean and DFA, including one filed in January by DOJ.

U.S. Attorney General Eric Holder and Vilsack have said at previous hearings that they're looking at developing broad policies to ensure big companies don't have too much sway over prices they pay farmers and charge consumers.

Four DFA representatives were scheduled to participate in Friday's hearing. The group's vice president, John Wilson, issued a statement saying it was natural at a time when dairy prices are down to question the system.

"A very small but vocal minority distorts the reality and value that today's cooperative structure brings to dairy farmers," Wilson said.

In April, the DFA was sued in federal court in Illinois by a dairy producer, cheese distributor and cheese manufacturer alleging that the co-op engaged in a conspiracy to manipulate the cheddar markets at the Chicago Mercantile Exchange.

In October, Northeast dairy farmers filed a federal class-action lawsuit against Dean Foods, HP Hood, the DFA and its marketing co-op, alleging that they monopolized the milk market in their area and forced producers to join the co-op or its marketing affiliate to survive. Dean and DFA were also sued in 2007 in a class action lawsuit alleging that they engaged in price fixing to lower prices paid to farmers in the Southeast.

DFA and Dean have denied they engage in price fixing and called the lawsuits baseless.

In January, the Department of Justice office, along with attorneys general from Illinois, Michigan and Wisconsin, filed an antitrust lawsuit against Dean Foods, alleging it purchased a smaller dairy company in Wisconsin, Foremost Farms, to quash competition.

Dean Foods, which according to the lawsuit has acquired more than 100 smaller companies since 1996, has called the complaint unsound. Dean gained 57 percent market share in parts of Michigan, Illinois and Wisconsin through the deal.

(Copyright 2010 by The Associated Press. All Rights Reserved.)

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