Milk Price-Fixing Hurts Taxpayers,|Farmers Say in Antitrust Complaint

BURLINGTON, Vt. (CN) - The Dairy Farmers of America and its marketing division conspired with Dean Foods to corner the Northeast milk market, fixing prices and shuttering bottling plants to reap "hundreds of millions of dollars in profits" while driving dairy farms out of business, dairy farmers say in a federal antitrust class action. Senator Bernie Sanders, D-Vt., said the conspiracy is costing taxpayers nationwide: Congress has approved and sent to the president a bill requesting $350 million in aid for dairy farms.

Vermont's "bedrock dairy industry is on the brink of collapse," said Senator Patrick Leahy, D-Vt.

The class includes as many as 9,000 DFA members in 11 Northeast states.

The farmers say Dairy Famers of America and its marketing affiliate, Dairy Marketing Services, avoid oversight and accountability to members because they are not publicly traded or a union. But with stakes in processing plants, DFA diverted "millions of dollars" in profits to its management and outside business partners, the farmers say.

The class claims the cooperative neglects its duty to member farmers, by arranging that the bottling plants buy milk from farmers at the lowest possible price and sell it to grocers at the highest price.

The dairy cooperative suppresses milk prices to avoid competition from the few dairy operations it does not control, the class claims.

Through a "string of unlawful mergers acquisitions and closures of bottling plants," the DFA gained control of 90 percent of the Northeast bottled milk market, allotting or enabling Dean Foods to control 70 percent of it, and another 20 percent to co-defendants HP Hood, which is partly owned by DFA, according to the complaint.

While the raw price for skim milk paid to New England dairy farmers has dropped from $1.29 a gallon in May 2004 to $0.96 a gallon in November 2006, the processors' margin increased from $0.64 to $0.78, according to the complaint.

The class claims that Northeast dairy farmers make less than Midwest dairy farmers, even though a greater proportion of Northeast raw milk is converted to the more valuable fluid class 1 milk compared to Midwest raw milk, which is used to make cheese.

The farmers say that to gain access to milk-bottling plants they are forced to join the DFA, which over the years has squashed or bought out competitors. Once the become a member of DFA or DMS, farmers must pay "fees to them in order to continue marketing fluid Grade A milk to their own customers at prices [the defendants] fixed," according to the complaint.

Senator Leahy, who ushered the dairy aid bill through the Senate, said Vermont dairy farmers are "not getting their fair share of the retail price of milk, while corporate processors" raise prices for consumers to rake in profits.

In Connecticut alone more than 50 dairy farms have gone out of business since 2007, and there are 30 percent fewer farms than in 1990, the class alleges.

The class claims that the defendants have repeatedly thwarted antitrust safeguards set by the Justice Department. For example, the class claims, the Justice Department told Dean to divest 11 of its bottling plants to an independent competitor as a condition of its merger with dairy giant Suiza, but Dean gave the plants to an entity it created and controlled.

The farmers say Dean, a $12 billion corporation, bought the Stop & Shop supermarket chain to close down its Readville, Mass., bottling plant, thereby killing a competitor and forcing a former Readville customer to join DMS to get access to a bottler.

The lead plaintiffs, Alice and Laurance Allen dba Al-lens Farm, and Garrett and Ralph Sitts, seek treble damages and injunctive relief. They are represented by Andrew Manitsky with Gravel & Shea.

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