Antitrust Head Says Dairy Industry Needs Reform

DOJ to Investigate Processors

Steve Taylor
New England Correspondent

ST. ALBANS, Vt. — The head of the U.S. Department of Justice’s Antitrust Division told farmers and politicians what they wanted to hear when she came to the heart of Vermont dairy country last weekend.

Christine A. Varney promised “critical evaluation” of the concentration of milk processors across the country. She vowed to take whatever action appears warranted if it is found that federal antitrust laws are being broken by corporations and cooperatives.

Varney appeared at a hearing conducted by Vermont’s two U.S. senators, Patrick Leahy (D) and Bernie Sanders (I). Leahy chairs the U.S. Senate’s Judiciary Committee, which holds power over antitrust legislation, and also sits on the Agriculture and Appropriations Committees. Sanders has been increasingly outspoken lately on the issue of concentration in the dairy processing industry, which he believes is directly harming Vermont’s 1,100 dairy farms and those elsewhere across the country.

“The antitrust division is aware of the current upheaval in the dairy industry,” Varney said as she noted that the Justice Department and USDA will jointly conduct workshop sessions in 2010 to examine whether competition has been diminished in recent years by a wave of takeovers of smaller regional milk companies by larger corporations, plus sole-source supply contracts forged between powerful processors and large dairy cooperatives.

Antitrust lawyers examine two areas when seeking to find if federal laws are being broken, Varney explained.

First, they look at “buyer power” to see if “monopsony” conditions exist. They will try to determine if there are so few buyers that the buyers don’t have to compete and are thus able to offer low-ball prices which sellers have no choice but to accept.

Then the investigators will examine vertical integration situations where manufacturers become involved in other areas of the supply chain beyond their core business in ways that hinder competition.

Sen. Leahy said that more than 70 percent of the milk in New England is purchased and processed by Dallas-based Dean Foods, an entity whose name came up continually during the hearing. Varney said that fact is a cause for concern to her.

Leahy: “What tools do you have to deal with that?”
Varney: “We have a number of investigative tools, such as subpoenas, and we have the power to prosecute if the facts warrant.”

Sen. Sanders raised the issue of lack of transparency in the federal government’s administration of milk marketing orders.

“The Federal Milk Marketing offices won’t give out data on who buys farm milk and how much,” he said. “The public and the Congress have a right to know information about the industry.”

Varney agreed the dairy industry lacks transparency and that reform is needed.

Sanders wondered if a cooperative could lose its Capper-Volstead Act exemption from antitrust laws if it acts against the interests of its member-farmers. Varney responded by saying some cooperatives have expanded far beyond anything ever envisioned when Capper-Volstead was enacted three generations ago, and that she was prepared to work with Congress on a review of the law “in the current context.”

While Varney’s appearance in Vermont attracted a media swarm and close to 200 farmers, state political leaders and dairy industry figures from New England and New York who seemed mostly enthusiastic about her message, some observers back in Washington wonder just how far the Obama Administration will let her run in pursuit of antitrust malfeasance.

A recent New York Times account described reluctance in other federal agencies to go along with the Antitrust Division’s aggressive moves in such areas as air transport, railroads and telecommunications. Some in the Obama team may prefer the benign attitude toward antitrust of the Bush years, especially in light of the current recession, the Times report suggested.

But she can expect Leahy and Sanders to keep the heat on, particularly as it relates to Dean Foods, which they repeatedly attacked during the session.

Leahy spoke of a “breakdown of competition” and Dean’s “overwhelming market dominance.”

Sanders said Dean controls 90 percent of the milk market in Michigan, 80 percent in Massachusetts and 70 percent in New England, and while farmers’ incomes have been plummeting Dean has reported profits for the first quarter of 2009 that are up 147 percent over the corresponding period a year ago. He offered special scorn for Dean CEO Gregg Engles, who Sanders said has raked in $116 million in pay over the past five years “while dairy farmers are going out of business.”