Sanders calls for Dean Foods, DFA probe
By MICHELLE MONROE
Messenger Staff Writer
ST. ALBANS — At the Food City supermarket there are two brands of conventional, non-organic milk for sale. At Hannaford there are three and at Price Chopper five, creating plenty of choice for consumers, or so it appears.
In actuality all the local milk comes from just two milk plants, both owned by large agri-businesses.
Each gallon of milk bears a number identifying which bottling plant from which the milk came. At Hannaford every gallon of conventional milk is bottled in the same plant, the H.P. Hood factory in Barre. Hannaford sells three brands of milk: Hood, Booth Brothers and Hannaford. Booth Brothers is owned by Hood.
At Price Chopper, consumers will find Booth and Hood as well as Garelick Farms, Price Chopper and a label called Clear Value. Garelick, Clear Value, and Price Chopper brand are all bottled at the same plant in East Greenbush, N.Y. That plant is owned by Garelick Farms. While Garelick bills itself as “New England’s Home Town Dairy,” it is one of more than 50 local and regional brands owned by Dean Foods, the largest bottler of milk in the country.
Food City sells Hood and Booth Brothers milk, with identification on the bottles indicating both came from Hood’s Barre plant.
The two organic labels available at Price Chopper are from Dean Foods. Organic Valley is part of Dean Foods White Wave/Morningstar division and comes from the Morningstar plant in Delhi, N.Y. The Organic Cow began as a small cooperative of organic dairy farms and was once the Organic Cow of Vermont. It was purchased by Horizon Organic. Horizon was, in turn, purchased by Dean Foods.
Silk brand soy milk is also owned by Dean Foods.
With nearly all of the milk available in St. Albans’ grocery stores coming from two companies, U.S. Sen. Bernie Sanders, I-Vt, has cried foul.
Sanders has called on the Department of Justice (DOJ) to begin an anti-trust investigation into the dairy industry and Dean Foods in particular. On Thursday, Sen. Chuck Schumer, D-N.Y., and Sen. Russ Feingold, D-Wis., joined Sanders in sending a written request to Christine Varney, head of the anti-trust division at DOJ, calling to her attention certain aspects of Dean Foods and Dairy Farmers of America (DFA) history and operations.
In August 2006, career professionals from DOJ concluded a two-year investigation into the dairy industry and recommended action against Dean Foods, DFA, and National Dairy Holdings (NDH), according to Sanders. The senators are “asking Christine Varney to pick up wherever the investigation left off,” Sanders said.
In a lawsuit filed in April 2009 by Dean shareholder Richard Livermore against Dean Foods, DFA, NDH and multiple corporate officers, Livermore states the dairy antitrust team “recommended that the DOJ indict Dean Foods, DFA and NDH.”
The Bush administration did not pursue an indictment of the companies.
DFA is the largest dairy cooperative in the United States, representing 18,000 farmers in 48 states. It was created in 1998 by the merger of four dairy cooperatives.
Under the Capper-Volstead Act of 1922 farmers are allowed to join together in cooperatives to market their goods. The act also gives the Secretary of Agriculture the authority to prevent such cooperatives from becoming monopolies.
In addition to marketing milk, DFA is one of the largest milk processors in the country, owning bottling facilities around the country.
In 2001 Dean Foods, the second largest milk bottler in the country, was purchased by Suiza, the largest. The new company would take the Dean name but would be headed by Suiza CEO Gregg Engles.
Before approving the purchase, DOJ required the new company to divest itself of 11 bottling plants, presumably to bolster competition within the industry.
DFA together with two former executives from Suiza, created National Dairy Holdings (NDH) and purchased the 11 plants. NDH was now the second largest bottler of fluid milk in the U.S., behind the reconstituted Dean Foods. DFA recently sold NDH to a Mexican company.
Mid Am Capital, LLC., a subsidiary of DFA, supplied NDH with $400 million in start-up capital.
The DOJ also required DFA to give up its share in Suiza Dairy Group (SDG), a subsidiary of Suiza created by DFA and Suiza in 1999. DFA owned 33.8 percent of SDG.
Dean Foods bought DFA’s share in SDG with a $40 million promissory note that comes due in 2021 at which time it will pay DFA $96 million.
In a class action suit filed by dairy farmers in the southeast against Dean Foods, DFA and NDH alleging anti-competitive practices, Sweetwater Valley Farm et al. v. Dean Foods, et al., the farmers allege DFA has agreed to forgive the note as long as Dean Foods continues to renew a series of 20 successive one year agreements giving DFA the right to be the sole supplier of milk to various Dean Food bottling plants.
Because of previous anti-trust action against one of its founding co-ops, DFA is prohibited from entering into an agreement lasting more than one year.
Sweetwater et al. also alleges that if Dean does not renew the contracts, Dean will have to pay DFA up to $47 million in damages.
The St. Albans Co-op
St. Albans Co-operative Creamery manager Leon Berthaiume said the co-op sells milk to Guida Dairy and Oakhurst Dairy in Maine as well as Dean and Hood. However, he acknowledged that the amount of fluid milk sold by the creamery to Guida and Oakhurst is “very small.”
Co-op milk goes to the Dean Foods facilities in West Lynn and Franklin, Mass., Berthiaume said as well as the Hood facility in Barre. Agri-mark and Dairylea cooperatives also send milk to the Barre plant, Berthiaume said.
Until 2000, the Co-op had a long-standing market in the Stop and Shop grocery chain, which had a bottling facility in Readville, Mass., at which it bottled its own private label milk as well as other private labels.
In 2000, Stop and Shop hired Garelick, which had been included in the creation of Suiza Dairy Group and was now partially controlled by DFA, to bottle its private label milk. Garelick took over the remaining years of the Co-op’s contract with Stop and Shop.
Sen. Patrick Leahy, D-Vt, began raising concerns about Suiza’s purchasing of production facilities throughout New England. Suiza was closing plants, reducing productive capacity in the region, Leahy argued. Among the plants Suiza eventually closed was a former Garelick bottling facility in Bennington and Seward’s Dairy in Rutland.
Leahy raised many of the same issues currently being raised by Sanders, pointing out that while the price paid to farmers per gallon of milk dropped 44 percent between 1999 and 2000 the price to consumers dropped only 6 percent.
“Vermont farmers are not getting a fair share of the retail price of milk, while giant corporate processors are raking in windfall profits as they raise prices ...,” Leahy said at the time.
Leahy drafted the Farmers and Ranchers Act of 2000, asked the Clinton Justice Dept. to investigate and wrote letters to New England’s attorneys general urging them to conduct anti-trust investigations as well.
Gary Hanman, then the head of DFA, visited St. Albans and suggested DFA was interested in “folding” the Co-op into DFA.
The Farmers and Ranchers Act of 2000 didn’t pass and Suiza reached a settlement with the states of Massachusetts, Vermont and Connecticut that prevented the company from buying the Readville plant or entering into an exclusive agreement with Stop and Shop in which Stop and Shop would only sell Suiza milk.
The St. Albans Coop was not folded into DFA, but it did acquire one-third ownership of Dairy Marketing Services (DMS), a joint marketing venture created by DFA and Dairylea, a Syracuse, N.Y-based cooperative.
Berthaiume did not directly answer the question of whether all of the Co-op’s milk was marketed by DMS.
Interestingly, while Suiza and DFA were buying Stop and Shop, Dean Foods was purchasing Land o’ Lakes fluid milk operations in the upper mid-west.
A year later Suiza bought Dean Foods and changed its name.
When multiple sellers face just one buyer, it is called a monopsony. In their letter, Sanders et al., cite Dean’s market share for fluid milk as being as high as 90 percent in Wisconsin and between 70 and 90 percent in several other states. Dean controls 70 percent of the fluid milk market in New England. Farmers in those states and regions face, in essence, one buyer.
Dean is the top dairy processor in the southeast, followed by National Dairy Holdings and DFA.
Traditionally, the southeast is an area that does not produce enough milk to fulfill demand, leading to relatively high prices for farmers as bottlers in the region compete for their milk. However, in recent years the supply of milk has fallen while the price paid to farmers has also fallen.
Dean Food and DFA have used the full-supply agreements between DFA and Dean “as a club” to force independent cooperatives and farmers to market their milk through DFA, DMS, and the Southern Marketing Agency, limiting farmers access to the best markets for their milk and charging farmers unnecessary fees, according to the two lawsuits filed by farmers against Dean, DFA, DMS, and SMA among others.
In January 2003, Dean told independent farmers in the southeast they would have to market their milk through DMS in order to sell to Dean, according to Sweetwater et al.
Since 2002 a small independent cooperative has had its sales to Dean processed by DFA, allowing DFA to monitor prices paid to the cooperative and forcing the members to pay fees and penalties to DFA, according to the suits.
In 2005, NDH, which was partially owned by DFA, purchased the bottler Dairy Fresh Corp. Independent farmers were told they’d have to join DFA if they wanted to continue to sell to the plant, according to court documents.
In 2001 and 2003, DFA told a small bottling plant it would no longer continue to balance milk for the plant if the plant made a supply agreement with independent farms, according to Sweetwater Valley Dairy.
Sweetwater also alleges that DFA threatened another cooperative, Southeast Milk, Inc., with an end to its balancing agreement if SMI continued to pay its producers a higher over-order premium than DFA was paying its farmers.
In his letter Sanders also cites reports that DFA wrote to Calvin Covington, head of SMI, and threatened to get exclusive contracts with the cooperative’s customers if SMI did not merge with DFA.
Sanders, Feingold and Schumer are urging Varney to investigate these allegations as well as whether Dean and DFA have engaged in similar activities in other parts of the country.
In 2003, Bob Wellington of Agri-mark told the Senate Judiciary Committee: “Despite being sued repeatedly by the Department of Justice, various state agencies and private parties, and despite being subject to numerous permanent injunctions prohibiting predatory and anti-competitive behavior, DFA has persisted in flouting these injunctions and employing predatory tactics to gain a stranglehold on dairy production and producers throughout the Midwest. DFA is probably the most blatant antitrust recidivist in the history of this country.”
Anti-trust investigations is one piece of the long-term solution to the problems facing Vermont’s dairy farms, according to Sanders, but he believes it is one which can attract the support of the general public.
“The fight to protect family-based agriculture has a lot of support from people who’ve never set foot on a dairy farm,” Sanders said. Anti-trust investigations have the potential to lower milk prices paid by consumers, but Sanders said consumers are also interested in purchasing “fresh, locally grown, good-quality food.”
Other pieces of the solution include a growth management plan and a revision of the milk pricing system, Sanders said.