In an antitrust class action, a milk drinker claims major dairy companies and trade groups – including the National Milk Producers Federation, Dairy Farmers of America and Land O’Lakes – have fixed the price of raw milk for almost a decade by manipulating the milk supply through “herd retirements.”
Lead plaintiff Mark Petersen says the industry-wide scheme illegally inflated the price of fresh milk products, killed 500,000 young cows and brought the defendants more than $9 billion in unfair and illegal profits. According to the federal complaint, “defendants sought to and successfully manipulated prices throughout the dairy marketing chain by reducing the supply of milk across the nation – thereby increasing wholesale prices of dairy products and, through marketing order regulations, increasing farm prices of milk.”
Petersen, who sued on behalf of thousands of dairy consumers from 26 states and the District of Columbia, says the National Milk Producers Federation and its co-conspirators formed Cooperatives Working Together (CWT), a national dairy industry trade group, to manipulate milk prices for its members’ benefit.
The CWT includes almost 70 percent of the nation’s milk producers, who finance its programs by paying assessments based on productivity, according to the complaint.
“Indeed, CWT’s primary activity since inception has been to increase the profitability of dairy producers through coordinated herd retirements,” the complaint states. “Through this program, dairy producers can submit bids for the price at which they will sell their herd to slaughter prematurely. CWT provides a formula through which farmers can calculate their bids essentially based on subtracting the price the farmer can recoup by selling them at auction as slaughter cows from their market value as producing dairy cows, with CWT paying the difference.
“CWT then reviews and tentatively accepts bids subject to farm visits by CWT auditors who supervise the tagging of the herds for removal. The producers are then required to ship their cows for slaughter within 15 days after completion of the audit. CWT makes payment within 30 days of receiving verification that all cows have gone to slaughter. In 2009, for example, CWT membership assessments generated $219 million in revenues for CWT, which spent $217 million on herd reductions.
“The purpose and effect of the herd retirement program was to reduce the supply of raw farm milk in order to increase its price, which in turn increased the price paid by consumers for milk and other fresh milk products.
“By all accounts, the herd retirement program was a huge success for CWT and its members. 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. According to studies commissioned by CWT from Dr. Scott Brown at the University of Missouri, the program resulted in a raw farm milk price increase of $0.85/cwt by 2007 and $1.75/cwt by 2010. By the end of the program in 2010, it was responsible for a cumulative increase in milk price revenue of $9.55 billion. Further, Dr. Brown’s studies indicate that ‘each herd retirement round has effects that extend forward years into the future,’ so that dairy farmers are still significantly profiting from previous herd retirements.
“By manipulating the supply of raw milk through herd retirement, price competition has been suppressed and prices have been supported at artificially high levels throughout the United States. As
a result, indirect purchasers of milk and other fresh milk products have paid supracompetitive prices.”
Petersen says CWT sponsored 10 herd retirements between 2003 and 2010, giving dairy producers incentives to sell all their cows and reduce milk output. According to a CWT survey cited in the complaint, “only 12 percent of those retiring their herds through the CWT program planned on engaging in dairy farming again.”
What’s more, Petersen says, in 2009 CWT changed its policy, requiring participants to the herd retirement program to cease dairy production for one year.
He says “the program in effect put smaller farmers out of business, while unfairly increasing the profits of agribusiness giants.”
Petersen adds: “In total, CWT was responsible for removing 506,921 cows from production, resulting in the removal of 9.672 billion pounds of farm milk …”
CWT ended its herd retirement program in October 2010, finding that it “has reached a point of diminishing returns,” according to the complaint. The complaint cites a recent analysisby Scott Brown of the University of Missouri, a farm policy expert, which showed that CWT’s herd retirement program, combined with export assistance programs, helped raise farm-level milk prices by $1.75 per hundredweight (a unit equal to 100 pounds) and milk price revenues by more than $9 billion. Brown noted that “the beauty of CWT herd retirements is that the impact of each herd retirement lasts several years.”
Petersen adds: “The CWT herd retirement program raised farm prices of milk, and thus raised the price of the key input into a broad range of dairy products. Higher prices of farm milk subsequently resulted in higher retail prices of milk and other fresh milk products and harmed consumers of those products. Consumers of milk and other fresh milk products paid higher prices for dairy products than they would have paid had CWT not enacted its herd retirement program.”
He says the defendants are not entitled to antitrust immunity under the Capper-Volstead Act, which does not apply to restraints on production.
Petersen seeks class certification, restitution and punitive damages for antitrust violations and unjust enrichment.
He is represented by Daniel Gustafson with Gustafson Gluek.
Named as defendants are the National Milk Producers Federation aka Cooperatives Working Together, with over 40,000 producer members, Dairy Farmers of America, Land O’Lakes, Dairylea Cooperative and Agri-Mark.