Dairy Farmers Ask Feds to Fix a Broken System

The US Department of Agriculture (USDA) and the Department of Justice (DOJ) held another joint public hearing on anti-trust issues in farming on June 25 in Madison, Wisconsin. This hearing – the third of five scheduled for this year – focused on dairy farmers, who, it’s fair to say, are in a state of overwhelming crisis. As Secretary of Agriculture Tom Vilsack noted at the hearing, the United States has lost more than 46,000 dairy farms in the last ten years – more than 40 percent of the total.

Just as with hog and poultry farming, consolidation in the dairy industry has done immeasurable damage to independent family farmers, consumers and the environment. The dairy market, though, is even more complicated than the market for chicken or pork, due to a 70 year old system of federal price setting for milk that adds another thick, murky layer of inscrutability.

This price setting scheme, the Federal Milk Marketing Order (FMMO) system, was enacted by Congress in 1937, in the wake of the Depression, to ensure that dairy farmers could earn a living and would thereby be encouraged to go on producing milk for the nation. Because milk is highly perishable, modern refrigerated transportation was still in its infancy, and there was often only one local milk dealer, before the FMMO system was established farmers were generally forced to accept whatever price was offered. Today, however, the FMMO system has become a weapon used by huge dairy companies to accomplish that same nefarious goal – paying farmers as little as possible.

Between 2007 and 2009 the price US dairy farmers received for their milk was cut roughly in half – from $21.70 per hundred pounds to just $11.30. During that same period, the farmers' costs dramatically increased: feed and fuel prices rose by 35 percent and 30 percent, respectively; the logical result of paying a lot more to produce a product that you're now getting 50 percent less for – well, you do the math.

Tens of thousands of farmers went out of business and tens of thousands more are saddled with insurmountable debt. Over the last two years alone, over 100 dairy farmers have found themselves so desperate that they have taken their own lives. As Patty Lovera of Food & Water Watch, who attended the hearing, put it, “The dairy industry doesn’t work for consumers, who pay more than ever at the grocery store, or for small and mid sized farmers, who are paid less for milk than it costs to produce. It’s time for the Department of Justice to bust up the milk monopolies so more of the consumer dollar reaches dairy farmers.”

At the June 25 hearing in Madison, farmer after farmer recounted how these past two years of selling their milk below the cost of production have robbed them of perhaps 25 years of the equity they'd built up in their farms – which, of course, are also their homes. As in the case of hogs and poultry, dairy farmers are subject to abuses arising from a lack of competition – that is, just a few huge companies own and control most of the product and the facilities to process and market it, giving them tremendous power to set prices. These are classic anti-competitive practices that anti-trust laws were designed to address and that are the subject of this year’s joint USDA-DOJ hearings.

Federal government concerns about monopolistic consolidation in the dairy industry go back more than 40 years; in 1965 the Federal Trade Commission stepped in to stop a merger between Dean Foods and Bowman Dairywhich, the commission found, would give control of nearly a quarter of the milk sold in the area of Chicago to the newly-created business. Despite decades of concern, however, today these anti-competitive practices define the dairy industry – where just one company – Dean Foods – currently controls 40 percent of the nation’s fluid milk supply.

In January of this year, the US Department of Justice filed a lawsuit against Dean Foodschallenging its purchase of Foremost Farms' Consumer Products Division that the government claims eliminates competition in the sale of milk in three states – Illinois, Michigan and Wisconsin. While quite a few farmers want market order reform, with a long history of controversy over how the government gets the information they use to set prices, it’s essential that prices not be based on data or systems that can be easily manipulated. Huge dairy processers who buy and pool milk from tens of thousands of dairy farmers have an obvious interest in buying that milk at the lowest possible price. Today the FMMO system – originally created to ensure dairy farmers a living wage through price protection – basically acts as a fig leaf for Dean and other dairy behemoths, providing cover for their anticompetitive practices.

Meanwhile, federal investigations point to collusion to drive down milk prices paid to farmers by the dairy giants, including Dean Foods (which owns Horizon, Garelick, Tuscan, Purity, Friendship, Deans and numerous additional brands of milk, soymilk, and other foods) and the Dairy Farmers of America – which buys, bottles, processes and distributes dairy products from 18,000 farmers and owns Borden Cheese and other brands. What’s the solution? In the short term, many of the farmers who attended the Madison hearing want the USDA to set a floor price for milk – perhaps $18 per hundred weight – just to stop the bleeding and protect them from the continuing free fall in prices they've endured in recent years.

As a longer term fix, many believe that milk prices should reflect production costs, plus a reasonable profit. Of course, the devil’s in the details; how those production costs will be determined – and what a “reasonable profit” is – are sure to be the subject of intensive lobbying and debate – especially in the context of the 2012 federal Farm Bill, the subject of congressional committee workand industry lobbying already well underway.

Responses to "Dairy Farmers Ask Feds to Fix a Broken System"

  1. lvorst

    Thank you very much for a great article, covering the serious issues currently facing the dairy industry. You are absolutely right that the FMMO is antiquated, is being manipulated, and needs to go. However, I would like to cite a contradiction of logic c

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