(CN) – The 1st Circuit upheld a lower court’s injunction to stop alleged price-fixing of milk in Puerto Rico. The island’s two fresh-milk processors complained that the commonwealth’s milk-regulating agency forced them to “subsidize” a competitor through unfair price fixing.
Vaqueria Tres Monjitas and Suiza Dairy, which buy raw milk from Puerto Rico’s dairy farmers and process it for consumer use, have been feuding with the Milk Industry Regulation Administration for the Commonwealth of Puerto Rico, or “ORIL” by its Spanish acronym, since at least 1985.
That’s when the regulator allowed Industria Lechera de Puerto Rico (INDULAC) to produce a non-refrigerated milk substitute that competes directly with fresh milk and has since gained a huge market share.
Historically, ORIL’S regulatory structure has kept the price of fresh, processed milk low, while setting the price of raw milk high “based on ORIL’s determinations regarding the farmers’ costs of production and their reasonable expectations of profits,” Judge Juan Torruella wrote for the San Juan-based three-judge panel.
But since INDULAC entered the market, ORIL has required the processors to sell their surplus milk to the company at a low price, only to be undercut at market by a cheaper milk product that the fresh milk producers say is now driving them out of business.
“Essentially, by mandating that plaintiffs pay a high price for raw milk and then requiring them to sell the surplus of that same milk to INDULAC at a substantially lower price, ORIL created a scheme in which Tres Monjitas and Suiza were forced to subsidize INDULAC, their competitor,” Torruella wrote.
The fresh milk processors sued the regulator and INDULAC, asking the court to force the agency to rethink its regulatory policy. They said the regulator was violating their constitutional rights by forcing them to sell their surplus milk to a competitor, among other things.
The district court agreed and granted the injunction, and ORIL appealed.
“While the defendants’ goals were to maintain stable milk production and pricing, their regulatory and market practices had the effect of creating a dire and unsustainable situation in Puerto Rico’s milk industry,” the panel said. “The low price of INDULAC’s (non-fresh) milk allowed it to dominate the market … and though the demand for fresh milk was dwindling, Tres Monjitas and Suiza were required to purchase all raw milk produced by dairy farmers at an inflated price, and to sell the ever-increasing surplus to INDULAC at a deflated price.”
The panel affirmed the district court’s granting of the injunction, saying that while the “administrator could have rationally decided that INDULAC’a operation would provide a stabilizing effect, the measures that it took appear to have been specifically engineered to achieve the opposite result – the benefit of INDULAC to the detriment of the milk processors and, ultimately, the milk market.”