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Dean Foods and the Milk Market Mafia

October 28, 2009

Earlier this month, a group of Northeast dairy farmers filed suit against Dean Foods, H.P. Hood, and the Dairy Farmers of America (DFA) for anti-competitive practices that have kept down the price farmers receive for their milk. In just the past year, Vermont dairy farmers have seen a 40% decline in the price they receive for milk, according to state data. As a result, Vermont has lost more than 250 dairy farms in the past five years, and this year the state is losing about six dairies a month.

The complaint against the dairy industry giants outlines how DFA coordinated exclusive supply agreements with Dean and Hood and then forced small farmers into marketing their milk through DFA (or its affiliate Dairy Marketing Services, which was also named in the suit). The small farmers allege that unless they joined DMS, they would be locked out of the market. Dean is facing a similar lawsuit brought by Southeastern dairy farmers two years ago, and also faces at least five private lawsuits relating to its commodity trading operations.

In a letter to the Department of Justice earlier this year, three U.S. senators called for an anti-trust investigation of Dean, DFA and other dairies. According to the letter sent by Vermont’s Bernie Sanders, Wisconsin’s Russ Feingold, and New York’s Charles Schumer, in 2006 Justice Department anti-trust regulators recommended enforcement action by the Department against Dean and DFA, but the Bush Administration Justice officials failed to act. The Senators point out that following Dean’s merger with Suiza Foods in 2001 (then the nations #1 and #2 milk producers), DFA was accused of conspiring with Dean to limit competition with eleven dairies that Dean was forced to divest as a condition of the merger.

The Senators observe that while the price dairy farmers are paid is historically low, the price consumers pay at supermarkets remains high. While consumers and small farmers get screwed, processors like Dean reap huge rewards: “The beneficiaries of this situation are increasingly consolidated corporate entities that exist between farmers and consumers,” says the letter. The Senators also note that Dean CEO Gregg Engles took home more than $116 million over the past five years.

In response to the recent lawsuit, Dean Foods told the Dallas Morning News that “We buy less than 15 percent of the nation’s raw fluid milk supply….” But milk is a regional business, and dairy farmers can not sell nationally, so the percentage of the national supply that Dean buys is irrelevant. According to data compiled by the three Senators, the Dean’s control of regional milk markets includes:

  • New England 70%
  • Massachusetts 80%
  • Northern New Jersey over 70%
  • Michigan 90%
  • Tennessee 80-90%
  • Northern Alabama over 80%

Lawyers for the small farmers say that the recent Northeast class action could eventually cover more than 10,000 farmers in eleven states. The lead law firm in the case is Cohen Milstein, Hausfeld & Toll, which previously led a class-action suit against MicroSoft for anti-trust violations, and won billions in settlements with banks and other corporations whose business dealings in Germany during the Nazis Holocaust contributed to the enslavement and deaths of millions.

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