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Farm Women United

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Market Concentration

FWU Letter to Senator Gilllibrand (NY) in Response to GAO Report of Dairy Market Concentration

Farm Women United

“Taking Back Our Food Supply, One Farm Policy Project at a Time”

P.O. Box 113

Laceyville, PA 18623

Contact: Gerald Carlin

Chairman of Policy Development

570-267-7405

November 26, 2019


Senator Kirsten Gillibrand

478 Russel Senate Office Building

Washington, DC 20510


Dear Senator Gillibrand,


Farm Women United (FWU) would like to thank you for your concern about dairy concentration evidenced by your requesting that the US Government Accountability Office (GAO) look into dairy cooperative activities.


GAO-19-695R Dairy Cooperatives: Potential Implications of Consolidation and Investments in Dairy Processing for Farmers (Dairy Cooperatives) does touch on several important matters relative to dairy cooperative concentration. However, the report leaves many questions unanswered. Unnamed “dairy industry stakeholders” were interviewed by the GAO “including academics, farmers, and representatives from farm associations.” Too often, “academics” have demonstrated a vested interest in maintaining the status quo, harming dairy farmers, with the exception of academics such as Peter Carstensen (Professor of Law Emeritus, University of Wisconsin-Madison), Ronald W. Cotterill (Professor of Agriculture and Resource Economics, University of Connecticut), and John Ikerd (Professor Emeritus, University of Missouri-Columbia). It is unlikely that any of these were interviewed. Farmers interviewed were likely co-op leaders or others who would be inhibited to speak out frankly. Representatives from farm organizations would likely stay in the middle of the road and not say anything “controversial.”


We will touch on a few of the issues and concerns raised in this report.


1) On page one, paragraph one, the legislation referred to, but not mentioned by name, was the Capper-Volstead Act 1922. This Act was intended to give small farms greater market power, but, with consolidation and cooperative ownership of processing, it is now fair to say that cooperative-member dairy farmers have little or no market power.


2)  In the first paragraph on page 2, GAO states “For fluid milk processors, including dairy product manufacturers, that participate in the program, United States Department of Agriculture (USDA) establishes minimum prices that processors must pay to purchase fluid milk.” How, then, can any co-op sell milk under class prices in Order 1 and, thus, essentially force small co-ops to charge their dairy farmers punitive “market adjustment fees” in order to compete?


3) Also, on page two, paragraph one, GAO states “In addition to overseeing the Federal Milk Marketing Order (FMMO) program, USDA may notify the Department of Justice’s Antitrust Division, which is responsible for investigating and enforcing federal antitrust laws, in instances in which USDA believes that a cooperative’s market power has resulted in inappropriate price increases for consumers.” Can there be enforcement of antitrust laws if farmers have captive markets with no access to competitive markets?


4)  Page two, under Background, “Services that dairy cooperatives provide can include negotiating with dairy processors on behalf of farmers for price. . .” How has this worked? In the Southeast Milk Antitrust Litigation, Sweetwater Valley Farm, Inc., et al. v. Dean Foods Co. et al., Dairy Farmers of America (DFA) was found to have made a deal with Dean Foods to provide cheap milk below class prices. Similarly, Northeast Antitrust Litigation, Alice H. Allen, et al. v. Dairy Farmers of America, also found, among other things, that DFA colluded with fluid milk handlers in a way which was punitive to dairy farmers. An offshoot of the Northeast case is scheduled to go to trial soon, again highlighting the problems farmers face in the current milk marketing climate.


5) Footnote number five, on page three, states, “Another distinction is a cooperative’s tax-exempt status. As described in 26 U.S.C. 521, the objective of business conducted on a cooperative basis is not to generate earnings for the cooperative but to increase the income of the members.” Dairy cooperatives have been known to boast of large profits/earnings at the same time their members are suffering large losses. How can this be? Are these dairy co-ops still entitled to Capper-Volstead protections? Why are dairy farmers who are still able to ship to proprietary handlers paid more for their milk than their cooperative-member counterparts.


6) We believe cooperatives should make decisions based on “one member, one vote,” not rely on voting power based on production. Since cooperatives are not corporations, each member should get one vote. Imagine if, in our citizen elections, voters had more voting power based on income. Let’s say, one vote for every $25,000 of income. Unthinkable! A related issue concerns the matter of "block-voting" that has been and remains a problem for dairy farmers seeking democratic representation, as this practice is fraught with risk that the voice of independent-minded dairy farmers is suppressed by co-op "leadership," whose agenda is often diametrically opposite the "best interests" of the farmer-members. A glaring example of "block-voting" abuse occurred in 2000, with passage of component-pricing "Federal Order Reform" that, to this day, incredibly, excludes any consideration of the farmers' "cost of production" in the federal minimum milk price, but does enhance the bottom line of dairy product manufacturers with “make allowances.”


7) What percentage of co-op earnings are actually returned to members? Is there any public data on this?

The GAO report did not address the issue of milk-testing facilities being owned and controlled by Dairy Marketing Services (DMS), which is an arm of DFA. This provides potential leverage against farmers who question their co-ops' activities.


The GAO Report also failed to mention the use of Ultra-filtered (UF) milk or Milk Protein Concentrate (MPC) by dairy cooperatives. Some dairy cooperatives hold "import licenses" to import dairy ingredients or products which directly compete with their own members' milk. Though the Food and Drug Administration (FDA) has never approved Ultra-filtered milk or MPC for use in Standardized cheese, they did make clear on August 11, 2017, that they will not enforce these Standards. Some dairy co-ops use UF milk and/or MPC to increase yields, knowing full well, that in doing so, they create an "oversupply," which lowers members' prices. GAO-01-326, Dairy Product Imports, Domestic Production, and Regulation of Ultra-filtered Milk, March 5, 2001, looked into this matter. Though the dynamics have changed with domestic production of MPC, the reason for dairy co-ops' using it remains the same: UF/MPC extends yields of dairy products and suppresses farm milk prices in order for dairy co-ops to “compete.” Unfortunately, USDA and the FMMOs do not collect or maintain data on how much UF milk, MPC, or other “innovative products” are produced and used. This is considered "proprietary information." Again, dairy farmers suffer because there is a lack of transparency.


Joint ventures between dairy cooperatives and manufactures of bean, grain, nut beverages or other “dairy alternatives” clearly work against dairy cooperative members.


We do know that the US Department of Justice (DOJ) did investigate DFA in 2006, with the help of 20 state Attorneys General. The investigation mysteriously ended with no action taken. What part did President George W. Bush’s connections with Dean Foods and Attorney General John Ashcroft’s close ties with DFA leadership play in stopping this investigation? In 2010, Christine Varney, Assistant Attorney General heading up President Barack Obama's DOJ's Anti-Trust Division, held field hearings looking into market concentration and co-op activity. She abruptly ended the hearings and dropped out of public view. What pressure, political or otherwise, caused the cessation of these hearings and investigations?


We ask you, Senator, to show the courage so often lacking in our political leadership and convene these investigations. Especially now, with the Dean Foods bankruptcy and potential sale of Dean’s assets to DFA, even more concentration seems likely, further destroying our farming communities. The Dean bankruptcy points to the immediate need for field hearings by your office to get answers and define solutions.

 

Furthermore, several New York State FWU members would like to meet with you to discuss these pressing issues. The negative, cumulative effect these flagrant federal injustices have on New York's struggling dairy farming families has evolved into a humanitarian crisis. Dairy farmers face mounting insolvency on their already cash-strapped farms leading to increased bankruptcies, heart-rending family break-ups, and increased farmer and rural suicide.


With your obvious concern for the well-being of dairy farmers, we are entreating you to put the highest priority on field hearings and meeting with our New York members to explore critical, emergency interventions to deliver dairy farmers and rural economies from despair.

Action to relieve the dairy farmers' suffering cannot happen fast enough. I am available to assist in any way to facilitate your meeting with our New York State members who ask only to be heard and given a chance to present solutions.


Sincerely,

Gerald Carlin, FWU Chairman of Policy Development


Press Release about GAO Report and Senator Gillibrand Letter

Farm Women United

“Taking Back Our Food Supply, One Farm Policy Project at a Time”

FOR IMMEDIATE RELEASE

Contact: Tina Carlin

FWU Executive Director

570-267-7405


December 2, 2019


Farm Women United (FWU) has issued a letter to Senator Kirsten Gillibrand (D-NY), a member of the US Senate Committee on Agriculture, Nutrition, and Forestry, concerning GAO-19-695R Dairy Cooperatives: Potential Implications of Consolidation and Investments in Dairy Processing for Farmers (Report).


The GAO Report was requested by and addressed to Senator Gillibrand. Dated September 27, 2019, the report touched on several important matters relevant to dairy cooperative concentration but left many crucial questions unanswered. “The Report was short, shallow, and appeared to be muzzled as it did not reach any real conclusions,” remarked Gerald Carlin, FWU Policy Development Chairman. The FWU letter to Senator Gillibrand addressed compelling issues brought out in the Report, as well as some other urgent, unresolved concerns negatively impacting dairy farmers that were not mentioned in the Report.


The recent Dean Foods bankruptcy raises serious red flag concerns about further consolidation in the dairy industry and the continued loss of competitive markets for dairy farmers. “When Dean Foods dropped 100 producers in 2018, dairy farmers affected had few if any options for alternative markets. Many dairy farmers took a pay cut in order to move their milk. This process could soon be repeated on a larger scale,” said Abbey Campbell, former cooperative president/general manager and FWU member. “Action must be taken now to ensure that affected farmers are treated fairly and have real business sustaining options.”


FWU is requesting an opportunity for its New York members to meet with Senator Gillibrand to discuss these pressing issues and to further urge the Senator to hold field hearings, in New York, to explore critical emergency interventions needed to deliver dairy farmers and rural communities from the crushing despair suffered over the past five years of unrelenting low milk prices.


The full text of Farm Women United’s letter and a link to the GAO Report can be found at www.farmwomenunited.org under the Market Concentration tab.

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