Milk farm cooperative, processors fix milk prices

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Case in Point

January 4, 2011

Milk farm cooperative, processors fix milk prices  

Several Vermont dairy farmers alleged that the defendants engaged in price fixing and monopolization and conspired to restrain trade in violation of the Sherman Act. One of the processors has settled for $30 million, and suit against the other defendants is pending. Allen v. Dairy Farmers of Am., Inc.

In 1998, four dairy farmer cooperatives merged to form Dairy Farmers of America, Inc. (DFA), a cooperative of about 1,900 raw Grade A milk farmers that was responsible for locating processing companies to buy the milk and negotiating prices, among other things.

DFA created Dairy Marketing Services (DMS) to test and haul the milk to processors and control how much its member farmers receive above the federally mandated minimum price. DFA owns 50 percent of DMS and controls its operations.

Under previous antitrust agreements between the U.S. Department of Justice (DOJ) and DFA’s predecessor cooperatives, DFA was barred from having long-term contracts with Dean Foods Co., a large milk processing company in the Northeast. In 2001, however, DFA agreed to forgive a $40 million promissory note to Dean if Dean agreed to purchase all of its milk from DFA until 2021.

Also in 2001, Dean merged with another large milk processor, Suiza Foods Corp. Previous antitrust agreements between the DOJ and the companies’ predecessors required that Dean and Suiza divest 11 processing plants to an independent third party. DFA established a straw entity, National Dairy Holdings (NDH)—in which it eventually had an 87 percent ownership stake—to acquire the plants. NDH agreed to let DFA be the sole supplier of milk to its processing plants.

Many raw Grade A milk farmers in the Northeast were forced to join DFA and DMS if they wanted to sell to processors because so many bought milk only from DFA. DFA and DMS also threatened to withhold milk from processors that bought milk from independent farmers. After the merger with Suiza, Dean bought several independent dairy processors and then closed them down to eliminate them as competition.

DFA and DMS allegedly set prices paid for raw Grade A milk in the Northeast below market value and paid processors much more than they paid farmers, dramatically suppressing the amount farmers could demand.

Several Vermont dairy farmers filed a class action against DFA, DMS, and Dean, alleging price fixing, monopolization, and conspiracy to restrain trade in violation of the Sherman Act.

The federal government is investigating, and suits in other states are pending.

In December, Dean reported in its Form 8-K report to the Securities and Exchange Commission that it had agreed to pay $30 million to the Vermont plaintiffs and agreed to “other terms and conditions with respect to its raw milk procurement activities at certain of its processing plants located in the Northeast.” The settlement agreement has not been made public. Suit against DFA and DMS is pending.

Citation: Allen v. Dairy Farmers of Am., Inc., No. 5:09-cv-00230 (D. Vt. Dec. 9, 2010).

Plaintiff counsel: Andrew Manitsky, Burlington, Vermont; Benjamin D. Brown, Kit A. Pierson, Brent W. Johnson, Robert G. Abrams, and Gregory J. Commins Jr., all of Washington, D.C.; and J. Douglas Richards and George F. Farah, both of New York City.

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