A federal dairy lawsuit is filed; perhaps a tsunami of justice will ensue
by Bethany M. Dunbar, November 20, 2009
When I started looking at the complaint in the federal lawsuit recently filed against dairy processors, a couple of names popped out at me.
Alice Allen of Wells River is one of the plaintiffs. As part of the Vermont-New Hampshire Milk Marketing Study Group, she has hosted meetings about agriculture policy in the Wells River area for years. One of these was in 2006. An assistant professor from Iowa came to talk about the local food group he had started out there 13 years before — to try to link farmers and consumers.
He had done economic studies that showed that farmers in his county produced $1.08-billion worth of food, while consumers in the same county bought $400-million worth of food, mostly shipped in from somewhere else. He decided to have a goal of capturing 10 percent of that for local farmers.
A full story about that meeting is posted on the Chronicle’s web site. I came away from that meeting excited about the ideas he had to link farmers and consumers.
The more the food is handled, processed, and shipped around, the more energy is wasted and the more money goes to middlemen instead of producers who could strengthen our rural economies if they could make ends meet.
Local food is not only likely to be healthier for people to eat — it’s healthier for the economy and the planet.
The other name that I noticed in the dairy lawsuit was Gary Hanman of Dairy Farmers of America (DFA). This giant dairy processor is named as one of the defendants in the lawsuit, which claims that milk handlers have been colluding to keep the price low for farmers in order to keep more income for themselves.
I remembered hearing Gary Hanman speak at a meeting of the St. Albans Cooperative Creamery and looked that story up.
Coincidentally, that was also in 2006. At that meeting Mr. Hanman talked about a “tsunami” of surplus milk. Turns out it was a rather convenient tsunami for some of the processors. In fact DFA might have even helped create the tsunami. According to a report I read recently, DFA might have even helped create the tsunami by importing great quantities of dairy products.
What’s wrong with this picture? Nothing if you are the CEO of a giant mega processor that is getting away with paying dairy farmers much less than the cost of making milk, while consumers are paying just as much as they ever did in the supermarkets.
To read the full story of that St. Albans meeting, check on the Chronicle’s web site.
Posted below is the story I wrote about the federal lawsuit. It’s likely to be a long time before this one is resolved. I will try to keep you posted.
Happy Thanksgiving everyone. I hope your tables are well laden with wonderful local foods.
Class action suit filed against dairy processors
by Bethany M. Dunbar, the Chronicle, October 21, 2009
BURLINGTON — A class action lawsuit has been filed in U.S. District Court against Dairy Farmers of America (DFA), Dairy Marketing Services (DMS), Dean Foods, and H.P. Hood for keeping farmers’ milk prices low.
Alice and Laurance Allen of Wells River and Garret and Ralph Sitts of Franklin, New York, have filed the complaint on behalf of roughly 9,000 dairy farmers in 11 states in the northeastern United States.
A similar suit was filed about a year ago in the southeastern United States, according to Benjamin Brown of Cohen, Milstein, Sellers and Toll, a Washington, D.C., law firm that is handling the case. Andrew Manitsky of Gravel and Shea in Burlington is listed as a co-counsel along with another attorney from the Washington firm.
The lawsuit claims that the defendants worked together to buy up dairy processing plants and force small cooperatives and independent farmers to deal with them, so they could control the raw milk market and therefore the price of milk paid to farmers.
Similar allegations have been discussed in the U.S. Senate Judiciary Committee recently. The U.S. Justice Department is considering some of the same questions about the dairy industry and a hearing was held on this subject in St. Albans recently.
Testimony at this hearing was that dairy farmers are getting milk checks that do not cover the cost of production, and many are going out of business. Meanwhile the CFO of Dean Foods made over $116-million in five years.
Alice and Laurance Allen operate Al-lens Farm, which was a member of Booth Brothers until 2006 and a member of the National Farmers Organization from 2006 until today. The Allens milk about 30 cows. The Allens and some other farmers in their area, on both sides of the Connecticut River, have hosted discussion meetings on wind energy for farms, local foods, and other related subjects.
The class action would include anyone who made and sold milk for drinking through DMS from October 9, 2005, to this month.
“Dairy cooperatives are associations of dairy farmers who agree to collectively market their Grade A milk. Dairy cooperatives are supposed to be owned, operated, and controlled by their member farmers,” says the complaint. It says that farmers not only didn’t control DFA, but meetings and deals were secret.
“DFA’s management does not disclose the details of its financial transactions to its members, thereby avoiding oversight and accountability. Because DFA is not a publicly traded corporation or a union, it is not legally required to publicly disclose such information.”
The complaint says that in 1996 Carole Knight was elected to the regional board of DFA’s predecessor, Mid-American Dairymen. She began asking questions about what deductions from her milk check were being used for. Management had her ejected from the board.
“She subsequently filed suit and won a $450,000 verdict and attorney’s fees,” the complaint notes.
Dairy cooperatives allow farmers to work together to get a better price through a federal law called the Capper-Volstead Act.
“The Capper-Volstead Act grants dairy cooperatives antitrust immunity with respect to price-fixing agreements with other dairy cooperatives ‘provided, however, that such associations are operated for the mutual benefit of the members thereof,’” says the complaint.
The 67-page document offers an explanation of the federal milk price system and a background of mergers and sales that, the plaintiffs argue, forced most farmers to deal with DFA and DMS or lose their market for milk completely.
The complaint says DFA was created in 1998 by merging four cooperatives, and it currently has about 1,900 members in the Northeast.
In 1998 DFA began investing “significant amounts of its producers members’ monies and equity and incurred significant amounts of debt to acquire stakes in many fluid Grade A milk processing plants.”
Robert Wellington, senior vice-president at Agri-Mark, testified before the Senate Judiciary Committee that “DFA simply used its economic muscle to buy up market outlets for milk even though it does not have the local milk supply to service that milk,” according to the complaint.
“DFA greatly strengthened its position in the Northeast in 1999 by forming DMS, a marketing agency, with Dairylea Cooperative,” the complaint says.
It says that DMS hauls table milk to the processors for its members. “DMS determines how much its member farmers and member cooperatives receive for the fluid Grade A milk,” the complaint says. It says DMS sells about 16 billion pounds of milk produced by 9,000 farmers in the Northeast.
DFA owns 50 percent of DMS and controls DMS’ operations, the lawsuit says.
The milk industry needs balancing plants to take milk at times when supply of fluid milk exceeds demand. There are seven balancing plants in the Northeast, the complaint says, and five are owned and controlled by DMS cooperatives.
In July 1997 Suiza entered the New England market when it bought Garelick Farms, and in July 1998 Suiza bought West Lynn Creamery in Massachusetts. Suiza then bought Cumberland Farms and two others. By 2000, Suiza controlled 70 percent of the fluid milk processing in New England, the complaint says.
Suiza had entered an agreement with DFA, then it closed several of the plants. In 2001, Suiza and Dean Foods merged.
“Dean, Suiza, and DFA agreed that Dean would buy out DFA’s 33.8 percent stake in Suiza for $166-million.”
Dean and Suiza were ordered to divest 11 plants, the complaint says, but the plants were sold to a third party “owned and controlled by another member of the conspiracy,” National Dairy Holdings, created by DFA and two former Dean executives.
“Upon information and belief, DFA and its subsidiaries provided more than $400-million in financing to NDH.”
After Suiza and Stop and Shop in Readville, Massachusetts, merged, the St. Albans Cooperative Creamery was forced to join DMS in order to maintain its market for fluid milk.
In February 2003, St. Albans issued a statement saying it had reached a marketing agreement with DFA.
“This is not a merger of these two organizations. This is an annual marketing and membership agreement,” says the statement. Later, St. Albans joined DFA and over-order premiums paid to farmers decreased significantly, according to the complaint.
In November 2002 Hood and NDH tried to merge. Objections were raised by state attorneys general, and the merger was restructured to a stock exchange. NDH sold all its Northeast fluid bottling plants to Hood. DFA became 50 percent owner of NDH and 15 percent owner of Hood.
Agri-Mark is the only cooperative that supplies fluid Grade A milk to Hood that is not a member of DFA or DMS, the complaint notes.
It says independent farmers have been forced to join DFA or DMS in order get a market for their milk, and the complaint says Dean’s CFO has bragged that low milk prices for farmers have created “the perfect sunny day” for the $12-billion corporation.
No hearing date has been set yet.
E-mails to the defendants yielded only one immediate answer. A statement from DFA denies that the cooperative has hurt farmers by its actions.
“We are continuously looking for additional ways to increase dairy farmer pay price and net returns, not suppress them, and have been successful in doing so,” says the statement issued by Monica Massey, vice president of communications for DFA.