Milk’s positive image has been taking a shellacking on many fronts for several years now. Should humans drink it? Is it safe?
But those controversies pale in the face of the huge fight that is brewing over record-low prices for milk being paid to farmers. Across the country, dairy operators are going broke and selling off their herds at an accelerated rate. In Vermont—which once had more cows than people—32 dairy farmers have gone out of business since January, compared to 19 last year.
A group of farmers in the Southeast, including Virginia, have filed a huge antitrust suit against the people who buy and process their milk. Several members of the U.S. Senate have written the Department of Justice telling them to look into anti-competitive practices in the industry. The Senate Judiciary Committee held a hearing in mid-September to explore concentration in the dairy business. And the Justice Department has sent very strong signals that the dairy industry is at the top of its list of investigations for antitrust violations.
In August 2008, farmers received an average of $18.40 per hundred pounds of milk; in August of this year, they were receiving $11.80. The cost of milk at the supermarket still does not reflect the significant drop in price paid to the farmer. Between January and August, according to the U.S. Department of Agriculture, there was only a 31 cent drop in the average price of a gallon of whole milk, from $3.80 to $3.49. So while farmers took a 36 percent hit, consumers have seen less than a 10 percent drop.
Hard Times Made Harder
There has been a decreased demand for milk because of the worldwide recession, but many experts say concentration in the dairy industry has exacerbated the difference between what farmers are paid and what consumers pay.
According to Chris Galen, spokesman for the National Milk Producers Federation, the dairy farmers’ trade association, “The degree of red ink, at least this spring, was as wide a gap as we’ve recorded over the past 40 years. Milk prices are 25 to 30 percent below the cost of production.” Part of the problem is the high cost of feed and fuel.
Mike Stiles, a third-generation dairy farmer in Clear Brook, Virginia, is a typical dairy farmer whose bills each month are $12,000 to $15,000 higher than his monthly income. Right now he is using his savings and retirement money to keep farming. “That’s not good,” he said. “The big question is how much longer can we do this, or do we want to do it?”
While acknowledging that there is a reduced demand for milk, Vermont senator Bernie Sanders, who is leading the call for tighter scrutiny of the dairy industry, says the real causes for unsustainable prices for milk at the farm are anti-competitive practices brought about by the decades-long consolidation of milk processors and wholesalers. Dean Foods is the largest fluid milk processor, controlling about 40 percent of the buying market nationally and much more in certain states, according to Sanders and others.
In a statement, Dean Foods said it buys less than 15 percent of the nation’s supply of raw milk. “To suggest that we control the raw-milk market, or that we are the cause of low milk prices, makes no sense.” But the company’s figure is misleading because it includes not just fluid milk, but also the milk used for manufactured products like ice cream, cheese, and powdered milk. Dean Foods does not specify its share of the fluid milk market.
The country’s largest milk cooperative, Dairy Farmers of America (DFA), which controls at least one-third of the nation’s milk supply and as much as 90 percent in the Southeast, has only said, “The national scope and size of our cooperative bring about scrutiny.” Dairy cooperatives were established to help farmers receive a fair price for their milk, but, ironically, members of DFA are among those who have filed the lawsuit in the Southeast.
“Basically, it means farmers end up not having a lot of options for selling their product,” said Sanders. “While milk prices have plummeted, profits at Dean have soared this year”—up 35 percent for the first six months of 2009. “You have to be dumb not to see the connection.”
The Department of Justice has been aware of this problem at least since the second term of the Bush administration, when career employees at the department conducted a two-year investigation into dairy industry competition. The chief investigator recommended that the Justice Department take action. Political appointees in the department shelved the project. People in the dairy industry, who were interviewed during the investigation, confirm the facts but have requested anonymity because they could be subpoenaed to testify again.
The new political appointees in the Justice Department have signaled that antitrust violations in agriculture, particularly dairy, are high on their list of investigations. In August, the Justice Department and the Department of Agriculture announced a series of workshops starting next year to explore competition issues affecting agriculture.
Remarks made at the mid-September Senate Judiciary Committee in Vermont by Christine Varney, chief of the antitrust division at the Justice Department, make the department’s interest clear. In her testimony, Varney said, “Parts of the dairy industry have experienced extensive consolidation in recent years, with fewer processors and therefore fewer buyers of dairy products. As a result of consolidation, the potential for an exercise of buyer power has increased.”
Varney also said that agriculture has become more vertically integrated over the last 15 or 20 years. (Vertical integration involves ownership at multiple stages or contractual commitments. In this context, that would include collecting, processing, and distributing fluid milk and milk products.) Varney added that “a careful review of these arrangements is merited.”
At the Vermont hearing, Patrick Leahy, chairman of the Judiciary Committee and the state’s senior senator, said, “As I think about the gap between retail and farm prices, I cannot help but think back to 2001 and the Dean Foods merger with Suiza Foods”—the number one and two companies in the industry. “That merger created the largest milk processing company in the world, and I continue to be disappointed that the Justice Department, under the previous administration, approved it. Just as I had feared eight years ago, it seems that market dominance has translated into overwhelming power in the dairy industry.”
Some farmers are not waiting for the government to act. The group in the Southeast has filed two lawsuits against Dean Foods of Dallas and Dairy Farmers of America of Kansas City. They charge the companies with “unlawful activities designed to artificially and anti-competitively reduce the price paid [to producers] for Grade A milk” in 17 states. They seek hundreds of millions of dollars in damages and reform of the system.
The Fate of Local Dairies
For small dairy farmers, the alternative to dealing with big business is to sell directly to consumers. Clear Spring Creamery in Clear Spring, Maryland, an organic dairy, milks 30 cows. “We dictate the price—$6 for a half gallon—for all the milk we sell directly at farmers markets,” said Clare Seibert, who owns the farm with her husband, Mark. “The [price of the] milk we sell through an organic wholesaler is affected somewhat.”
But nothing like how milk from conventional producers has been affected. Organic Valley, a cooperative that sells milk in many large grocery stores throughout the Capital foodshed, has reduced the price it pays producers for milk from $26 to $25 per hundred pounds; it has also instituted quotas that reduce the amount of milk it will buy from farmers by about 7 percent. But these slightly lower prices for organic milk have nothing to do with market concentration. Instead, there is a surplus of organic milk because many people can no longer afford it.
Farmers have received temporary relief from the federal government, which has raised the price for some milk products by about $1 per hundred pounds. Additional funding was passed by Congress at the end of September.
“If you do not have fair prices, you are going to see more and more farmers being driven out of business,” said Sanders. “There will be a need to import more from all over world. People want local, fresh, good quality. We are going exactly in the wrong direction.”
Marian Burros was on staff at The New York Times for 27 years and still writes for them. She has lived in the Washington area since 1959 and remembers when there were no farmers markets. At one time or other, she worked for The Washington Post and the late lamented Washington Star and Washington Daily News. She was also a consumer reporter for D.C.’s WRC-TV. The author of 13 cookbooks, she has been writing about small farms and the pleasures of local food since the 1980s.
Look for products from local dairies like these at grocery stores and farmers markets. Some even offer home delivery.
Clear Spring Creamery
Clear Spring, MD
South Mountain Creamery
Middletown, MD www.southmountaincreamery.com
Trickling Springs Creamery
Trickling Springs milk complimentary of Roy’s Orchard and Market, Sperryville, Virginia.