NFFC seeks more DFA oversight

The National Family Farmers Coalition (NFFC) returned to the national media this week, carrying its message that the Bush administration is stonewalling antitrust regulation against Dairy Farmers of America (DFA), the nation’s largest dairy co-op.

NFFC dairy subcommittee members emphasized their disappointment with the Bush administration and U.S. Department of Justice (DOJ) for failing to release a report on DFA antitrust investigations. Furthermore, NFFC said DFA’s structure, business practices and financial situation left the U.S. dairy industry in the position of facing a collapse similar to the U.S. housing market.

In July, NFFC asked the U.S. Senate judiciary committee to hold hearings on the matter, and organization leaders met with Senate staffers in recent weeks. However, with Congress set to recess and national elections just weeks away, such hearings are not likely until 2009, when a new administration takes over.

John Bunting, a New York dairy farmer and NFFC dairy subcommittee member, said DFA’s numerous joint ventures meant it should no longer be considered for cooperative exemptions under the federal Capper-Volstead Act.

Peter Carstensen, a University of Wisconsin-Madison law professor who specializes in antitrust law, said dramatic changes in the dairy industry structure – without corresponding changes in federal regulations – has left the dairy industry open to collapse if a single large entity, such as DFA, suffers a financial setback.

NFFC leaders also alleged DFA’s activities were not only negatively affecting dairy farmer milk prices and market competition, but also hurting dairy product consumers.
“There is no conflict of interest between the farmers’ best interest and the consumers’ best interest, said Bunting. “What happens in between becomes terribly important. DFA has virtual veto power over changes in federal milk marketing order system  and has limited or controlled access to processing plants by other co-ops. We need a complete investigation.
“In dairy,” we’re at the same point as we were last year in housing, and this bubble is going to implode,’ Bunting said.

“DFA exercises control through its exclusive arrangements for fluid milk,” Carstensen said. “This results in other regions being compelled to join because DFA controls access. We know that when farmers have competition for milk, they get better prices. When DFA exercises control, farmers get less for their milk. On the other hand, consumers continue to pay more.”

Paul Rozwadowski, a northern Wisconsin dairy farmer and NFFC dairy subcommittee chair, said the DFA investigation into corruption in the dairy industry is one of the largest in U.S. history. “The lack of enforcement of U.S. antitrust laws by the present administration has allowed big co-ops, like DFA, to take advantage of Capper-Volstead laws, pushing through their proposals on milk marketing orders by bloc voting and manipulating prices at the Chicago Mercantile Exchange. All this leads to a price paid to dairy farmers that does not reflect their cost of production and is causing many of them to go out of business, and leaving the rest of us without enough money to pay our bills and we are barely surviving. It is very difficult to plan for the future under these circumstances. It’s also forcing consumers to pay a lot more for dairy products.”

Carstensen said structural changes would not come without pain, but could head off bigger problems later.
“We’re trucking milk long distances with a complex system of balancing,” he said. “It’s within the realm of possibility that DFA and some of its partners could go into bankruptcy and be unable to deliver on some of their contracts. We would lose the present organization of the market, and it would become quite chaotic. I’m not sure how it would work out from there. That’s what concerns me, and especially how farmers would be assured of being paid. Right now, so much of their money flows through a single cooperative, and may even be pledged as collateral by that co-op for their bank loans, so if that co-op would suffer some kind of financial reversal and go into bankruptcy, there would be enormous financial chaos and transferring payments back to farmers.”

“Public intervention now, before a big collapse, is essential,” he continued. “We need to have some system for balancing milk supply and access to processing facilities. Cash flow from buyers to farmers must be protected. It won’t be easy. USDA and DOJ have sat on their hands for years while these problems have grown. We’re going to have serious difficulties making appropriate restructuring  of both of industry organization ownership and  allocation of responsibilities. There will be some pain.”

“DFA could be broken into self-standing structures, because they do perform valuable, necessary services, and without them a lot of people would be without milk,” Bunting said. “But, I hope what we would end up with greater transparency.”

Patty Lovera, assistant director of Food and Water Watch, charged that dairy’s changing structure is affecting more than market competition.

“As the structure of the dairy industry has changed, production methods have also changed,” Lovera said. “A lot of these methods are ones consumer are not comfortable with or are not happy about. The more consumers learn, the more they are turning to other products, like organic milk.”
She cited use of recombinant bovine somatotropin, herd size and pasture availability. “There’s a reason milk cartons and labels show ‘happy’ cows on pasture. It’s a perception being put out by the industry when, in fact, the reality is the way the milk has been produced has changed. As a consumer group, we’re very supportive of calls to have the Senate take a look at what’s going on in the dairy industry.”