Editor's note: This weekend, the head of the U.S. Justice Department's antitrust division announced an investigation into whether large milk processors are unfairly squeezing the nation's dairy farmers. The following commentary by Dairy Herd Management Editor Tom Quaife addresses that announcement.
On Aug. 21, we posted an article on our Web site entitled, “Conspiracy theories begin to bubble up.” It cited a couple of examples: (1) a gathering of up to 500 dairy farmers in Gordonville, Pa., where some of the speakers suggested that dairy prices are being manipulated by large processors and co-ops, and (2) an item on National Public Radio that suggested the same.
Conspiracy theories can get you in trouble, but we felt it was our duty to report these developments anyway.
Now, there’s word that the antitrust division of the U.S. Justice Department is launching an investigation into large fluid-milk processors, like Dean Foods.
It 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.