Feds File Antitrust Suit Over School Milk

MILWAUKEE (CN) - Dean Foods acquired monopoly power in school milk and fluid milk in three Midwestern states by buying the Consumer Products Division of the Foremost Farms USA dairy co-op, the Department of Justice says in an antitrust complaint.

Uncle Sam and the states of Wisconsin, Illinois and Michigan say that Dean Foods, a Dallas-based company that is one of the largest food and beverage producers in the United States, will reduce competition and harm consumers unless it is compelled to "divest all of the assets and interests it acquired as part of the acquisition."

Dean has made more than 100 acquisitions since 1996, and including two Foremost Farms dairy processing plants in Waukesha and De Pere, Wisc.

The Milwaukee Journal-Sentinel reported that Foremost wants to focus on wholesale markets "and get out of the retail milk business."

Dean, the largest seller of both school and fluid milk, and Foremost, the fourth largest seller of the two products, were consistently the two lowest bidders in the school milk markets. The elimination of Foremost will hurt customers and school districts throughout the tri-state region, prosecutors say. In some school districts, only Dean and Foremost bid on milk contracts.

The school milk market is of concern to antitrust regulators because many schools are required to offer milk to each student in order to receive federal reimbursement for meals for low-income students. And schools may depend upon special service contracts, including extra weekly deliveries, guaranteed emergency deliveries, specific delivery times and delivery to all schools in a given district.

These service contracts may also call for milk reordering, cooler maintenance services and retrieval of spoiled or damaged product, among other things. Dean's acquisition will prevent smaller dairy processors, especially those in less populated areas, to bid competitively, the feds say.

The acquisition also will affect grocery stores, convenience stores and other purchasers because of the loss of competition for fluid milk contracts, causing coordination among the remaining competitors and "anticompetitive 'unilateral effects'," according to the complaint.

Dean has called referred to Foremost's pricing "dangerous" and "irrational" and "'the most aggressive pricing' Dean had seen in 40 years," according to the complaint. But as a result of the acquisition, Dean will hold more than 57 percent of fluid milk sales in the region and will no longer have to worry about that competition. Only two other competitors have more than 5 percent of fluid milk sales in the region - Kemps, and Prairie Farms Dairy.

In addition to divesting assets, prosecutors want Dean ordered to notify the federal government and the plaintiff states "at least 30 calendar days prior to an acquisition" of any other school or fluid milk market.

According to Reuters.com, Dean was not required to provide notification of this acquisition because the value of the deal - $65.2 million - fell below the threshold.

Dean said will "vigorously contest" the complaint, in a statement on its Web site. Dean claims that "from the time of the acquisition almost a year ago, this transaction has benefited Wisconsin dairy farmers by providing a stable and growing outlet for their milk. In addition, the transaction already has produced important cost savings that will benefit customers and spur competition in and around Wisconsin. It promises to deliver even greater customer benefits once the De Pere and Waukesha plants are fully integrated into the Dean network."

The Department of Justice disagrees. Assistant Attorney General Christine Varney told Reuters, "The purpose of the department's lawsuit is to restore competition so that schools, grocery stores and other retailers in Illinois, Michigan and Wisconsin will pay lower prices for their milk."

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