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Independent Farmers Feel Squeezed By Milk Cartel

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Independent Farmers Feel Squeezed By Milk Cartel

Business

Independent Farmers Feel Squeezed By Milk Cartel

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ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block.

The price of raw milk paid to farmers has dropped to its lowest level in 40 years. Dairy farms are going under across the country. A few dairy farmers have grown so desperate they have taken their own lives.

SIEGEL: Now, the Department of Justice has indicated that it will enforce antitrust laws more aggressively. And one of the first areas it plans to examine is the dairy industry.

As NPR's John Burnett reports, criticism is growing that dairy giants are trying to monopolize the industry to the detriment of farmers and consumers.

JOHN BURNETT: Most of what we know about the dairy business is here in this supermarket: gallon jugs of whole, 2 percent and organic milk; blocks of cheddar, Swiss and Monterey Jack; cartons of chocolate chip ice cream.

Ms. SHORTY MILLER (Dairy Farmer): We're standing here in Brookshire's Grocery in McGregor, Texas, in front of the dairy case. Borden is 3.99 a gallon. Oak Farms, which is bottled locally, is 3.49 a gallon, and that's a sale price. It needs to be on sale.

BURNETT: Shorty Miller and her husband own a small dairy in central Texas. Like nearly every other dairy farmer in America, she's angry. Milk prices in the supermarket have come down only slightly, but the price she gets for the raw milk from her Holsteins has dropped nearly in half.

How long can your dairy hold out being squeezed the way it is?

Ms. MILLER: Depends on how long the bankers will work with us. If we want to put up everything we've worked 40 years for, we can hold out a little longer. But do we want to? I don't think the American public realizes where the milk comes from, or what they're going to do if we don't have fresh milk.

BURNETT: As the dairy industry concentrates into fewer and fewer players, some farmers complain it's killing off independents and reducing options for consumers who want to buy locally. And they're speaking out.

Debbie Windecker, a dairy farmer from upstate New York, drove all the way to this rally in Dubuque, Iowa, earlier this summer.

Ms. DEBBIE WINDECKER (Dairy Farmer): The system is broke. If we're going to go out of business, we're going to go out fighting and saying at least we tried to expose that there's corruption, there's stuff going on that needs to be looked at.

BURNETT: Earlier this month, distraught dairy farmers packed a room in Tomah, Wisconsin, to implore their elected representatives to do something. Their comments were broadcast on local radio station WCOW - Cow 97.

Rebecca Goodman and her husband run a 120-year-old dairy in Sauk County, Wisconsin.

Ms. REBECCA GOODMAN (Dairy Farmer): We all worship at the altar of the free market. That's what we're taught as good Americans. But I don't know what is free about a handful of companies controlling the process from beginning to end.

BURNETT: Two entities have come in for the harshest criticism. Dairy Farmers of America, or DFA, based in Kansas City, is the nation's largest dairy cooperative. It buys milk from 18,000 farmer-members and presumably tries to get them the best price. DFA owns about a third of the nation's raw milk supply.

Dean Foods is a Fortune 500 company headquartered in Dallas. With brands like Horizon Organic and Land O'Lakes milk, Dean buys from DFA and bottles more than a third of the nation's milk.

Mr. PETE HARDIN (Editor/Publisher, The Milkweed): My name is Pete Hardin. I live in outside of Brooklyn, Wisconsin. I edit and publish The Milkweed, which is a monthly dairy marketing and economics report.

BURNETT: In the 30 years Hardin has been writing about the dairy industry, he's chronicled the decline of the family farm and the rise of Big Milk. Hardin believes the fundamental problem with the dairy industry is a lack of honest competition and too little government oversight.

Mr. HARDIN: That's why we have reached, in my opinion, the point we have reached where farm prices are so abysmal. And we know the money is in the marketplace. We see what the consumer's paying for these dairy products. If the farmer would get a fair share of that, we wouldn't be having this discussion.

(Soundbite of a milking machine)

BURNETT: Let's take a minute to see how milk gets from the barn to your kitchen. That's a milking machine. It's attached to - well, you know what it's attached to.

The raw cow's milk is gathered in a tank. Then a milk hauler takes the farmer's milk from the barn to a fluid milk plant, where it's pasteurized and bottled. Or, he trucks the raw milk to a different plant that makes it into cheese, butter, ice cream or yogurt.

Unidentified Man #1: How are you doing today?

Unidentified Man #2: I'm great. And you?

Unidentified Man #1: You got everything you needed?

BURNETT: The processor then wholesales the milk or dairy products to the supermarket, where you buy it.

Unidentified Man #3: Paper all right for you?

BURNETT: The place in our cow-to-consumer chain that's causing the most grief these days is the processor: the middleman.

As businessmen, they want to buy raw milk at the cheapest price from the co-op and sell it at the highest price to the grocery store.

Let's rejoin farmer Shorty Miller at the dairy case in her local supermarket.

Ms. MILLER: Dean Foods, which is the largest fluid processor in the U.S., at their last annual meeting, they said: Hey, we've got super profits because we're buying the milk so cheap.

BURNETT: Dean's fluid milk profits jumped 35 percent in the first two quarters of this year. In May, Dean's CFO bragged to analysts that cheap raw milk had created, quote, "the perfect sunny day" for the $12 billion corporation. This, at a time when Shorty Miller is losing 45 cents on every gallon of milk from her cows, because the price she gets doesn't cover her cost of production.

One senator has gone on the offensive.

Senator BERNIE SANDERS (Independent, Vermont): Dean Foods controls about 90 percent of the milk supply in Michigan, 80 percent in Massachusetts, over 80 percent in Tennessee...

BURNETT: Bernie Sanders is the Independent from Vermont, which has lost 32 dairy farms so far this year.

Sen. SANDERS: ...and 70 percent in northern New Jersey. That's not a free market.

BURNETT: A Dean's spokesperson insists it is a free market. There are lots of milk buyers besides Dean, and the price of raw milk is set by the marketplace, not one company.

But there's no denying that Dean is the embodiment of corporate bovinity.

Over the past decade, through mergers and acquisitions of co-ops and dairy processors, both Dean and DFA grew bigger and bigger. Then, the goliaths linked arms: DFA entered into a hundred percent, full supply agreement with Dean.

So as Dean came to dominate regional markets, any dairyman that wanted to sell to one of Dean's 50 brands had to go through DFA, whether they wanted to or not.

Think Elsie the Cow as Gordon Gekko.

(Soundbite of mooing cows)

Mr. JOHN HARRISON (Owner, Sweetwater Valley Farm): This is our nursery facility and we just - we keep about a hundred babies on milk all the time.

BURNETT: John Harrison owns Sweetwater Valley Farm, an 800-cow operation near Philadelphia, Tennessee, that sells milk and makes cheese. Harrison and 16 other dairymen are suing DFA, Dean Foods and others in federal court for allegedly engaging in anti-competitive and predatory behavior. The lawsuit claims what DFA has effectively done is create an illegal milk cartel in the Southeast.

Harrison says it was different before DFA came into existence in 1998.

Mr. HARRISON: There was still a lot of competition. You had Kroger's that had independent milk, Mayfield in Athens, Purity in Nashville, Country Delite in Nashville. Well, as DFA came in and began tying up all those supply contracts, those things disappeared. The net effect was that you had no other option. If you were dissatisfied or wanted to make a change, you had no option to go sell your milk.

BURNETT: Rather than enjoy the benefits of being part of a farmer-owned co-op, Harrison says DFA has artificially depressed prices for raw milk.

Mr. HARRISON: The milk market does not function in the Southeast as a true market.

BURNETT: The observation is echoed by Peter Carstensen, an antitrust expert at the University of Wisconsin Law School who closely watches the dairy industry.

Professor PETER CARSTENSEN (University of Wisconsin Law School): Where there is a competitive market for buying milk, dairy farmers are paid more. When DFA comes to dominate a market, then farmers are paid less. Monopolists behave like monopolies.

BURNETT: Now, dairymen are not saying that all their problems can be traced to the gigantification of their business. Farming is more complicated than that. Prices for animal feed, equipment and land have gone through the roof. And most significantly, today, there's a surplus of milk on the market, most agree, because of too many milk cows and a shrinking export market.

Rick Smith, the CEO of Dairy Farmers of America, laments the desperate straits his members are in, but he says some context is in order.

Mr. RICK SMITH (CEO, Dairy Farmers of America): In 2007, we had record prices. Farmers had record income. What we're really seeing is how this volatility in this industry at both ends is very destructive.

BURNETT: Smith said there's been no collusion with Dean Foods. In fact, Dean has been a good customer for DFA's members. He also said DFA does not force dairymen to join the co-op. But he agreed that when he took over the co-op in 2006, it was time for a change.

Mr. SMITH: We want to have a culture that exhibits integrity and passion, quality. And we recognize that in some places, not in all, our image needs work. I think the size and scope of DFA in some quarters was perceived as threatening. And thus, in the last few years, we have worked very hard at being more collaborative and much more transparent.

BURNETT: Well, good luck with that. Milkmen have been gaming the system for years.

Back in the 1980s, prosecutors in two dozen states got 100 convictions or guilty pleas for milk processors who were charged with bid-rigging on school milk contracts.

(Soundbite of auction)

BURNETT: Last year, the Commodity Futures Trading Commission fined DFA and two top former executives $12 million for trying to inflate cheddar cheese prices. The scene of the crime was the dairy pit at the Chicago Mercantile Exchange.

(Soundbite of auction)

Unidentified Man #4: ...First call, second call, third, final call.

BURNETT: The antitrust division of the Justice Department spent two years investigating anti-competitive conduct in the dairy industry. Congressional and legal sources tell NPR that in 2006, investigators recommended charges be filed against Dairy Farmers of America and Dean Foods, among others, for violating the Sherman Antitrust Act. Under President Bush's Justice Department, the case was shelved.

Earlier this month, three senators sent a sharply worded letter, asking the new antitrust division to re-energize that investigation.

The call for government oversight comes most urgently from independent farmers like John Harrison, the Tennessee dairyman and plaintiff. He says they filed their civil lawsuit against the dairy giants because the Justice Department wouldn't file theirs.

Mr. HARRISON: We need to be ensuring that there are functioning markets everywhere. And a functioning market to me means multiple buyers and multiple sellers. And that's what DOJ is charged with doing. And we don't have that.

BURNETT: Several sources quoted in this story say they're being interviewed by Justice Department lawyers as they collect information and decide whether to reopen the case against big milk.

John Burnett, NPR News, Austin.

BLOCK: There is more about big milk and dairy farmers at npr.org. You can also subscribe there to our business story of the day podcast.

(Soundbite of song, "Milk Cow Blues")

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