Dairy Industry Is Focus of Third DOJ-USDA Workshop

The Department of Justice and Department of Agriculture held the third in a series of public workshops exploring competition, market concentration, and antitrust issues in agriculture on June 25 in at the University of Wisconsin-Madison.

The opening panel, which included Sen. Herb Kohl, Sen. Russ Feingold, Secretary of Agriculture Tom Vilsack, Assistant Attorney General for Antitrust Christine Varney, and Wisconsin Gov. Jim Doyle, presented a united front regarding concern for dairy farmers and a commitment to investigate and remedy antitrust concerns.

Feingold focused on the increasing spread between retail prices for milk and the prices farmers receive. Both Vilsack and Varney acknowledged the impact that falling milk prices have had on farmers—faulting those falling prices for the steep decline in the number of dairy farmers over the last ten years. Kohl stated that competitive markets are essential for preservation of the dairy industry and indicated that legislation will be considered if the agencies' enforcement efforts prove insufficient.

Varney summed up the tenor of the panel by stating, "We are keeping a watchful eye on this industry."

Goals Include Improved Price Stability, PSA Enforcement

In terms of concrete measures by the agencies, Vilsack referred to the recent increased staffing and activity of the USDA Dairy Industry Advisory Committee, which is studying pricing volatility in the dairy industry. He indicated that the committee is seeking a consensus approach to improving price stability for dairy farmers.

Additionally, Varney again touted the formation of a joint task force between DOJ and the USDA. While details of the task force were not discussed, she indicated that it would include a focus on enforcement of the Packers and Stockyards Act. Varney also indicated that DOJ continues to investigate pricing issues in the dairy industry. She stated that DOJ has dedicated attorneys to investigating the dairy industry. In chairing subsequent panels, other DOJ attorneys made it clear that they have been actively studying pricing mechanisms for the dairy industry.

Consolidation and Pricing Transparency Dominant Topics of Workshop

Two general topics dominated discussion during the opening panel and throughout the workshop: 1) consolidation throughout the dairy supply chain; and 2) pricing transparency and the possibility of price manipulation through the Chicago Mercantile Exchange.

Consolidation in the Dairy Industry

The workshop discussed consolidation at every level of the supply chain. By suing Dean Foods to unwind its acquisition of milk processing plants in Wisconsin, DOJ has taken the position that consolidation of milk processors has created anticompetitive effects in some geographic markets. According to many panelists, including famers, academics, and government officials, declining processing options have undermined the ability of farmers to obtain competitive bids for milk, particularly milk sold for fluid milk.

Kohl blamed consolidation by processors for steep declines in the prices farmers receive for milk. "Consolidation means we need strong antitrust enforcement now more than ever." That sentiment was echoed by many during the workshop.

Panels also discussed consolidation by farmer cooperatives, retailers, and farms. Stating that the DOJ has a "pro-farmer agenda," Varney echoed others on the opening panel in emphasizing the agency is not opposed to cooperatives and believes they often are pro-competitive.

Nonetheless, other panels examined whether consolidation of cooperatives has limited farmer choices. Representatives from Land O'Lakes and Dairy Farmers of America explained the need for large cooperatives given the increasing scale of retailers. On the other hand, some producers and representatives of smaller cooperatives faulted increasing concentration of cooperatives for diminishing the bargaining power of farmers in some markets.

Varney indicated the DOJ will block mergers that "substantially limit competition." "Big is not necessarily bad," she said, but market participants will have to adhere to the pro-competitive rules of the Supreme Court.

Pricing Transparency

Both Feingold and Kohl expressed concern about the Chicago Mercantile Exchange's use of the spot cheddar cheese market as a pricing reference price for milk. That concern was reiterated throughout the workshop, with many panelists nothing that it is a thinly traded market that may be conducive to manipulation. While DOJ did not allege price manipulation, it is apparent the issue is being examined.

The workshop, including the opening panel, indicated near consensus that milk pricing should be reformed to diminish the impact of the spot cheddar cheese market.

Alternative proposals were diverse, however. Stephen Obie of the Commodities Futures Trading Commission noted that a bill currently pending in Congress would give the CFTC greater enforcement and investigative power. Several panelists, including Kohl, advocated for more price reporting of milk prices in one form or another.

Final 2010 Workshops to Focus on Livestock Industry, Price Margins

USDA and DOJ have two more workshops scheduled for 2010.

The next workshop, focusing on the livestock industry, will take place in August in Fort Collins, Colorado. The final workshop is scheduled for December and will focus on price margins.

Faegre & Benson will continue to attend and monitor the workshops and other activities related to competition and antitrust in the agricultural industry that are occurring throughout the country, such as recently released USDA proposed regulations that affect the livestock industry and enforcement of the Packers and Stockyards Act.