By Dan McLean
The CEO of the nation's largest milk processor declined an invitation to speak to Vermont dairy farmers about plummeting milk prices and said milk processors "do not set the price paid to dairy farmers."
That rejection prompted a sharply worded reply from Sen. Bernie Sanders, I-Vt.
Sanders blames Dallas-based Dean Foods Co., which he says controls 70 percent of New England's milk market and 40 percent of the U.S. market, for helping suppress milk prices to generate massive profit gains.
In a phone interview Monday, Sanders said he was pursuing an anti-trust investigation of the dairy industry through the U.S. Justice Department -- which, he says, could lead to the breakup of Dean Foods.
Sanders said he is also weighing whether to pursue subpoenas to force Dean Foods executives to testify before a Senate committee. "If these people don't come forward voluntarily, I think a subpoena is entirely appropriate," Sanders said.
Dean Foods responded Friday to Sanders' letter, citing the "cyclical nature of the dairy industry" as the cause for the volatility in milk prices. Prices paid to dairy farmers have fallen by 40 percent in a year, causing heavy debt loads and the consideration of selling more farmland.
"I wholeheartedly agree with the statement in your letter that it is in Dean Foods' best interest when America's family dairy farms continue to thrive," Dean Foods Chairman and CEO Gregg Engles wrote to Sanders. "Along with our customers and consumers, we need these farmers' businesses to be healthy over the long term. This, however, is an issue much larger than just Dean Foods.
"Dairy processors," Engles wrote, "do not set the price of milk paid to dairy farmers. The price that farmers receive for the milk they produce is set primarily by the U.S. Department of Agriculture. Dean Foods purchases this milk at regulated prices under the USDA's Federal Milk Marketing Orders."
Sanders and Vermont Agriculture Secretary Roger Allbee said that is incorrect. Milk processors set the price, they said, the federal government just sets the minimum price. Sanders compared the milk price arrangement to minimum wage.
"To argue that the USDA sets milk prices for farmers would be analogous to arguing that because the federal government establishes a minimum wage for workers, the Department of Labor determines all wages in America," Sanders' written reply to Engles sent Monday said.
Although revenue decreased at Dean Foods for the first quarter of 2009, the company's profits more than doubled, compared to the same period one year earlier. Dean Foods earned $76.2 million for the three-months ending March 31. That's up from $30.8 million.
Dean Foods sells its products through more than 50 brands. http://www.deanfoods.com/brands.aspx" target="_blank">Garelick Farms is the most common brand sold in New England, according to the company's Web site.
"Favorable dairy and energy commodities" are part of the reason profits surged, the company said in its earnings statement. As CEO of Dean Foods, Engles has averaged a $21.3 million compensation package in each of the past six years, according to Forbes.com.
"This is Economics 101. If you are paying substantially less for your product, your profit goes up," Sanders said Monday.
Milk's price drop and the profits at Dean Foods appear to be connected, Allbee agreed. Dean Foods has a "responsibility to explain what their whole price operation is." Aside from Sanders invitation, the Vermont Milk Commission, which Allbee chairs, is inviting milk processors to Vermont to discuss a mandatory fee to aid farmers.
Farmers were paid $11.28 per hundredweight for milk delivered to Middlebury last month. That's down from $18.91 in June 2008 -- a 40 percent decline, according to state data. A hundredweight is 11.6 gallons. The June price was well below the level needed to break even: $17 to $18 per hundredweight, according to Vermont farmers.
The global recession has played a large role in the collapse of milk prices, said Bob Wellington, an economist for Agri-Mark Inc. Some of the dip has been passed along in lower milk prices for consumers, according to Vermont Milk Commission data.
Sanders maintains that Dean Foods' market practices "have a significant impact on the well-being and long-term viability of family dairy farmers." He said the company's market share, which approaches 90 percent in some states, gives them "an extraordinary degree of control."
"For him to suggest they have no control over milk price is absolutely absurd," Sanders said.
Dean Foods and Lynnfield, Mass.-based HP Hood LLC, which sells under Hood and Booth Bros. brands, are the largest processors of milk serving Vermont, Allbee said.
"We currently have a situation where the supply of milk remains at a level that exceeds demand, both in this country and abroad," Engles wrote. "At Dean Foods, we are focused on creating increased demand for our products, which in turn creates additional demand for milk and additional markets for farmers."
Sanders invited the CEO to come to Vermont to speak with the state's dairy farmers. Engles, instead, has offered to speak with Sanders by phone, prompting Sanders to renew the invitation. Dean Foods declined to comment further.