If you think you’re paying too much for a gallon of milk these days, it could be the result of an elaborate price-fixing scheme, according to a recent class action that charges the dairy industry with federal antitrust violations, among other claims.
The case was instigated by the animal advocacy organization Compassion Over Killing whose research revealed that, between 2003 and 2010, more than 500,000 young cows were slaughtered under a “dairy herd retirement” program, in an effort to reduce the supply of milk and inflate prices. The group also alleges that the program “bought out smaller farmers and instructed them to kill their entire dairy herds, unfairly increasing the profits of agribusiness giants.”
Cooperatives Working Together aka Big Dairy Front Group
Front groups tend to give themselves a warm and fuzzy name and claim to represent the little guy, but in reality are doing the bidding of big business. Enter Cooperative Working Together, the main defendant in the price-fixing lawsuit.
According to its website, CWT “is a program designed exclusively by America’s dairy farmers for the benefit of America’s dairy farmers.” Nice job, getting the word farmer in there twice. However, its leaders are anything but.
The program was started by the National Milk Producers Federation, a powerful trade group whose mission you gotta love: “Connecting Cows, Cooperatives, Capitol Hill, and Consumers.” This lobbying association represents 32,000 dairy producers in 31 cooperatives. (The dairy industry is a complex web of interlocking cooperatives, trade groups, and mega-corporations.)
CWT’s “herd retirement” program, aka, sending cows to slaughter, was funded by its members, who represent 70 percent of the dairy industry. According to the complaint, each member agreed to pay assessments to CWT, which would then in turn pay some members to prematurely retire their herds, to “strengthen and stabilize” raw farm milk prices for all members of CWT. And of course, CWT got a nice cut of the action too. In 2009, for example, CWT membership generated $219 million for CWT, while the group spent $217 million on herd reductions.
According to the complaint, the cow-killing scheme was a huge success in reducing the supply of milk and increasing prices paid by consumers:
CWT financed ten rounds of herd retirements from 2003 to 2010, during which CWT was responsible for removing over 500,000 cows from production, reducing the nation’s milk supply by approximately 10 billion pounds…. By the end of the program in 2010, it was responsible for a cumulative increase in milk price revenue of $9.55 billion.
Furthermore, even though the program ended last year, economic research demonstrates its impacts into the future, such that “dairy farmers are still significantly profiting from previous herd retirements.”
The complaint concludes that “by manipulating the supply of raw farm milk through herd retirement, price competition has been suppressed and prices have been supported at artificially high levels throughout the United States.”
USDA Manipulating Dairy Prices for Decades, Also by Killing Cows
Wondering where the dairy industry got the crazy idea to kill cows to raise prices? It may have come from Uncle Sam himself. The federal government has a long and sordid history of dairy price supports, most of which is so complex you need a PhD in economics to even begin to understand it.
But in a nutshell, the dairy industry (like most of agribusiness) does not base its production decisions on normal supply and demand principles. This is largely thanks to the U.S. Department of Agriculture making a habit of purchasing surplus dairy products when supply gets too high. Guess where all that excess cheese, butter, and milk goes? Yup, it gets dumped on the poor through USDA’s food assistance programs such as school lunches.
According to a 1989 General Accounting Office report on dairy pricing:
In 1988, USDA spent approximately $1.16 billion to purchase 9.7 billion pounds of surplus dairy products. In 1987 and 1988, over half of the surplus dairy stocks were distributed through domestic and foreign food assistance programs.
But it seems this program got too expensive, so in 1985, Congress authorized the “Dairy Termination Program” – a more honest description than “herd retirement.” It removed a staggering 12 billion pounds of milk over an 18-month period, and the USDA took “bids” from farmers on how much they were willing to be paid to slaughter their cows. To help pay for the program, producers were assessed a fee, much like how the CWT program operated. One big difference being the feds lost money on the operation. And, of course, federal government programs are not subject to anti-trust laws, while private entities are.
By the end of the program, some 1.6 million dairy cattle were either slaughtered or exported, more than three times the number alleged in the current class action. The GAO report concluded that the Dairy Termination Program resulted in both lowered milk production and lower dairy surplus purchases by the federal government. (Remember, the main concern was how USDA was spending too much money buying up excess milk.) However, these positive economic effects appeared to be temporary and GAO predicted that Congress would once again have to come up with new ways to curb overproduction by the dairy industry.
Fast forward to today and that’s exactly what Congress is still doing. On the table right now are several proposals to manipulate dairy prices. For example, “The Dairy Security Act of 2011” (H.R. 3062) would replace the current dairy price supports called the Milk Income Loss Contract (or MILC – how cute) with a new program called the Dairy Market Stabilization Program.
But wait, there’s more. The Dairy Producer Income Protection Act of 2011 (S. 1714) is not to be confused with The Dairy Advancement Act of 2011 (S. 1682) or The Federal Milk Marketing Improvement Act of 2011 (S. 1640).
The current state of federal dairy policy is so complex it took a convoluted diagram in this Congressional Research Service report to explain it, and even then … Suffice to say, the government is deeply involved in dairy pricing and that’s not going to change anytime soon given the high stakes and powerful lobbying.
Big Dairy on the Defense
The antitrust class action complaint was filed against several huge players in the dairy industry, including the National Milk Producers Federation aka Cooperatives Working Together. Also named are the Dairy Farmers of America (another massive trade group) and three huge cooperatives: Dairylea Cooperative, which calls itself the “largest milk-marketing organization in the Northeast,” selling more than six billion pounds of milk annually; Land O’Lakes, the second largest cooperative in America, producing 12 billion pounds of milk annually with $11 billion in sales in 2010; and Agri-Mark, representing 1,300 dairy producers in New England and New York State.
Cooperatives Working Together has denied any allegations of price fixing. The formal response from CWT contains three predictable parts:
Part 1, claim to represent family farmers: “Cooperatives Working Together was created in 2003 as a self-help initiative to assist family dairy farmers and members of dairy cooperatives who were losing money producing milk.”
Part 2, denial: “The program was designed and has always been operated in a manner fully consistent with the anti-trust laws of the United States.”
Part 3, shoot the messenger while seeking to marginalize: “The lawsuit filed yesterday in California at the instigation of a west coast animal rights group is without merit.”
CWT can’t even get its facts straight. Compassion over Killing is in fact based in Washington D.C., with an office in Los Angeles. But “west coast animal rights group” sounds so much more nefarious. It’s common for Big Agribusiness to attempt to marginalize groups that expose animal harm; name-calling is so much easier than responding to the merits of the allegations.
Cheryl Leahy, Compassion Over Killing’s general counsel, makes no secret of her organization’s concern for animals: “The dairy industry has consistently shown its lack of regard for animal welfare and the environment,” she said. “Now it’s milking its own consumers by unlawfully jacking up prices. The dairy industry must be held accountable for these illegal profits.”
Let’s hope so.
The Seattle-based law firm that filed the case, Hagens Berman, is interested in hearing from consumers who purchased milk or milk products from 2004 to the present. You can contact them here. Also Compassion Over Killing has posted additional information about the case here.
Michele Simon is a public health lawyer specializing in industry marketing and lobbying tactics. She is the author of “Appetite for Profit: How the Food Industry Undermines Our Health and How to Fight Back” and president of Eat Drink Politics, a consulting firm. Her website is Appetite for Profit.