Top Antitrust Enforcer Supports More Scrutiny of Dairy Industry

By:  Lauren Etter
Wall Street Journal

ST. ALBANS, Vt. -- The Justice Department's top antitrust enforcer told a packed hall of dairy farmers here Saturday that increased concentration in the dairy industry merited a closer look by the department.

"Parts of the dairy industry have experienced extensive consolidation in recent years," said Assistant Attorney General Christine Varney. As a result, "the potential for an exercise of buyer power has increased."

Ms. Varney, who heads the Justice Department's antitrust division, testified at the St. Albans City Hall before a Senate Judiciary Committee hearing held by Vermont Sens. Patrick Leahy, a Democrat, and Bernard Sanders, an independent.

At issue is whether or not some of the largest players in the dairy industry, including Dean Foods Co. of Dallas, a large milk processor, and Dairy Farmers of America Inc., a Kansas City, Mo., dairy-farmer cooperative, are exercising too much power in the market and causing farmers' milk prices to be depressed. Mr. Sanders contends that Dean Foods controls up to 80% of the fluid-milk market in some regions of the country.

In a statement, Dean Foods says it buys less than 15% of the nation's supply of raw fluid milk and 60% of that comes from independents and cooperatives other than Dairy Farmers of America.

"To suggest that we control the raw-milk market, or that we are the cause of low milk prices, makes no sense. For most of the milk we buy, we pay a price that is regulated by USDA, plus premiums," Dean Foods said. The company said it hasn't been contacted by the Justice Department regarding this issue.

Dairy Farmers said in a statement that while it is a major player in the industry, its scope and influence are often "inflated and misrepresented." The cooperative said that in 2008, it marketed 61.2 billion pounds of milk, representing 32% of the total milk marketed in the country.

Dairy farmers nationwide are coping with historically low milk prices after a 36% drop in the past year to the lowest level in three decades. In 2007 and part of 2008, dairy farmers enjoyed high milk prices as a booming global economy boosted demand for milk around the world. Dairy farmers expanded their herds to cash in. Then, with the onset of the recession, demand for milk weakened and dairy farmers were left with an oversupply of milk, which depressed prices.

The dairy farmers that packed the town hall expressed frustration. "These are critically terrible times," said Kylie Quesnel, 28 years old, a dairy farmer near St. Albans.

"While it is difficult to point to one cause of the dairy farmer's plight, Dean Foods is posting record-setting profits" while "the prices for dairy farmers are at all-time lows," Mr. Leahy said.

At the hearing, both senators asked Ms. Varney what type of action the Justice department would be willing to take if regulators found anticompetitive practices in the industry. "There is no doubt that we will prosecute that kind of activity should we find it," she said.