A Broader Challenge Is Sustaining Milk Price
Volume 135, No.
1 Friday, July 2, 2010
The US Department of Justice and USDA brought their high-level look at competition in agriculture to Madison June 25. US Secretary of Agriculture Tom Vilsack presided; US Attorney General Eric Holder was a no-show. Dairy was in the spotlight for this one-day event, one of five workshops in 2010 focused on issues ranging from competition in the poultry industry to overall farm margins.
Some conclusions from the day:
1. Billed as a “Public Workshop to Explore Competition Issues in Agriculture,” the day focused on broad competition concerns, rather than competition in a given milk shed.
Christine Varney, assistant attorney general for antitrust in the US Department of Justice (DOJ), provided in her opening remarks the sum total of “competition” actions by the federal government: First, her department has moved on more than 100 school milk bid rigging legal actions in the past decade; second, DOJ has “unwound” the Dean Foods purchase of two Foremost Farms milk bottling plants and third, the department “will move to block any mergers that erode competition,” Varney said.
2. The University of Wisconsin Union Theater was packed with cooperative representatives and co-op member farmers for this federal workshop. This group collectively released their held breath when DOJ’s Varney verbally stated her support for cooperatives and the Capper-Volstead Act (which provides antitrust exemptions for cooperatives).
“We don’t have an agenda that is anti-cooperative,” Varney said. “We have a focus that is pro-farmer.”
3. The workshop struggled for focus. A panel of dairy producers cited low milk prices and federal milk price formulas as a competition concern; consolidation among fluid milk processors was noted; the low number of traders at the Chicago Mercantile Exchange spot cheese market was a frequent target; “big box” retailers were blamed for pushing down margins; cooperatives were alternately blamed and praised for their milk marketing efforts and USDA’s supposed “Cheap Food Policy” took a hit.
Clearly this was a workshop that resonated during a period of extended low milk prices, but would these concerns fill a workshop during a stretch of high milk prices?
4. Virtually absent was producer testimony alleging anti-competitive activity in a milk shed. Holding this hearing in Wisconsin, a state with about 100 licensed milk buyers, may be one reason.
“Dairy in the Upper Midwest has been most resistant to consolidation,” Wisconsin Secretary of Agriculture Rod Nilsestuen stated in opening remarks. Clearly some regions have few milk buyers, but that was not the focus of producer
testimony taken at this workshop.
5. Competition for milk among cheese makers was described as healthy by panelists. During a “market consolidation” panel , UW economist Brian Gould stated that “the cheese industry has seen increased, not decreased, competition” in recent years.
John Wilson, senior VP with Dairy Farmers of America, stated, “Competition is alive and well in the cheese arena.” Cal Covington, the recently retired CEO of Southeast Milk Inc. noted that this fluid milk marketing co-op has “multiple cheese makers bidding for (South East Milk’s) liquid UF milk for cheesemaking.”
6. Consolidation in milk bound for bottling is another story. Prof. Gould noted that in the last 35 years, the number of milk bottling plants has fallen 75 percent from 1,673 in 1973 to 319 in 2008. Cal Covington added that fluid milk consumption has been relatively flat during that time, meaning market share is earned by acquisition vs. sales growth.
But consolidation isn’t necessarily anti-competitive. Consolidation is driven by efficiencies gained from operating larger plants and servicing larger market areas. And consolidation is driven by the need to acquire a volume of sales for large customers.
7. Speakers described retailer pressure to consolidate as “real.” Louise Hemstead, chief operating officer with Organic Valley Cooperative stated, “We’ve seen it. Retailers want one supplier, one invoice.” Offering a diversified product line also helps build sales with large retailers, she noted. Covington said Southeast Milk “has struggled to supply a large enough volume and diversity of product to retail buyers.”
In the end, issues regarding consolidation and competition in the dairy industry are part of a broader challenge: sustaining a reasonable and stable price for fresh farm milk. The answer to this challenge is greater than policing mergers and acquisitions.
Sustaining a milk price (and sustaining dairy farms) will require innovations in milk pricing, clear price protection tools for farms, and most of all, a more dynamic dairy product mix, steeped in sophisticated marketing, packaging and branding.r
John Umhoefer has served as executive director of the Wisconsin Cheese Makers Association since 1992. You can phone John at (608) 828-4550; Fax him at (608) 828-4551; or e-mail John Umhoefer at