ST. ALBANS, Vt. (AP) — The head of the U.S. Justice Department's antitrust division said on Saturday she has launched an investigation to determine whether giant milk processors are unfairly squeezing the nation's dairy farmers, who are experiencing their lowest prices in more than a quarter century.

U.S. Assistant Attorney Gen. Christine Varney, testifying at a U.S. Senate Judiciary Committee hearing on the current crisis in the dairy industry, said she wanted to find out "why our cooperatives are the captive of one distributor."

That distributor, according to U.S. Sens. Patrick Leahy, D-Vt., and Bernard Sanders, I-Vt., is the giant Texas-based milk processor Dean Foods Co. Sanders noted that Dean controls as much as 80 percent of the milk markets in many areas of the country and 70 percent in New England.

Dean, which was not invited to testify, has denied it controls the milk market, but the senators said the milk processor is reaping huge profits while dairy farmers are suffering. Dean Foods says it buys less than 15 percent of the nation's raw milk.

Several Vermont farmers testified that they are seeing the toughest conditions they had ever seen, noting that 35 Vermont farms have failed this year alone.

A federal milk-supply-management system is urgently needed to stop the boom-bust cycles that have repeatedly wracked the industry, said organic dairy farmer Travis Forgues of Alburgh.

Most farmers produce as much milk as they can to pay their bills, he said. "This leads to chronic oversupply, depressing prices and farmers in too much debt to survive," he said.

Copyright 2009 The Associated Press.

This is another example of trying to find scapegoats for low milk prices. While it may assuage the conscience and stroke the egos of politicians to go after large companies, it really doesn’t address the underlying issue.

Dean Foods, the nation’s largest milk processor, must buy milk according to a federally mandated pricing formula.  In October, it must pay $12.35 per hundredweight for fluid milk, because that was the Class I price announced by the government on Sept. 18. The Class I price is determined by the advanced Class III price mover (involving milk used to make cheese) or the Class IV price mover (involving milk used to make butter and nonfat dry milk), whichever one happens to be higher for a particular month. 

The same pricing system that is giving us low prices today gave us record-high milk prices two years ago. Where were the conspiracy theorists back in November 2007 when the all-milk price reached $21.90?

The drop in milk prices is frustrating, no doubt about it. But the problem can’t simply be blamed on big corporate entities. The high milk prices back in late 2007/early 2008 created a situation where milk production began increasing 2 to 3 percent each month (over the same month a year earlier). The national dairy herd got up to 9.3 million by the early part of this year. Without a corresponding increase in consumer demand, adding that much supply was bound to create problems.

And, the problem is global in nature. We have already seen a precipitous drop in exports this year, since the countries that buy our milk powder, dry whey and lactose have less money to spend, due to a global economic recession. This has hit dairy farmers everywhere. Farmers in Belgium dumped milk recently in protest of low milk prices. Milk prices have collapsed in Australia and New Zealand.  

Dean Foods does not influence the price of milk in Belgium or New Zealand. The conspiracy theorists are just going to have to own up to the fact that a few U.S. milk processors cannot possibly be pulling the strings everywhere.

Look at what happened two years ago. Dean Foods had to lay off 600 to 700 workers when it found itself squeezed between record-high milk prices at the farm level and what many of the large retail outlets — and consumers — were willing to pay for that milk.

Why don’t the antitrust people look a little further down the chain at the concentration in the grocery industry?

None of this makes sense, other than providing politicians with the chance to say they “did something about it.”  Unfortunately, rather than doing something constructive, they are simply leading everyone on a wild goose chase -- Tom Quaife, editor