The dairy crisis is being felt across the nation, in every region and on every American dairy farm. While we’ve been told the crisis is a byproduct of the economic downturn and decreased demand for milk worldwide, the culprit in this story isn’t the blind force of the market; it’s corporate greed.
Dairy’s Bad Actors
The dairy industry suffers from too much power concentrated into the hands of too few corporate players. In fact, today just two firms, Dean Foods and Dairy Farmers of America (DFA), dominate the dairy sector, controlling most of the milk processed and marketed nationwide. For example, DFA controls about a third of the nation’s raw milk supply, leaving farmers with little or no choice when selling their milk on the market. Meanwhile, Dean Foods controls 90% of the market for fluid milk (the processed milk sold in grocery stores) in Wisconsin, 90% in Michigan, 70% in New England and between 70 and 90% of the market in several other states.
This alone is a breeding ground for anticompetitive market conditions, but there’s more. Both Dean Foods and DFA are subjects of pending lawsuits, charged with colluding to prohibit other firms from entering the market and suppressing milk prices.
Dairy’s Ugly Underbelly
The forces of supply and demand have little to do with the prices milk processors pay America’s dairy farmers. Indeed, the price farmers receive is unrelated to retail milk prices at the grocery store and has no correlation to a farmer’s cost of production. Instead, fluid milk prices are dictated by the price of block cheddar cheese on the Chicago Mercantile Exchange (CME) through a set of complicated formulas.
In a June 2007 report, the Government Accountability Office concluded that the CME is ripe for collusion and price manipulation. The Commodity Futures Trading Commission (CFTC) is currently reviewing complaints of price manipulation by mammoth dairy processors and marketers. Back in 2008, DFA agreed to pay $12 million to settle charges by the CFTC that it manipulated prices to boost the value of its contracts. Such manipulation is the byproduct of unchecked corporate power in dairy markets.
But this is nothing new. In August 2006, a U.S. Department of Justice (DOJ) anti-trust task force released findings indicating anti-competitive behavior in the dairy industry. Yet action was never pursued and dairy farmers are still waiting for meaningful action on the matter.
3. U.S Government Accountability Office (2007). Spot Cheese Market: Market Oversight Has Increased, but Concerns Remain about Potential Manipulation. Report to Congressional Requesters. Washington, D.C., June 2007.