The Chicago Mercantile Exchange, Dean Foods, large food retailers and the farmer’s share of retail prices were the center of much of the discussion on dairy competitiveness and consolidation at a USDA/Department of Justice (DOJ) hearing this morning here in Madison.
The hearing, the third of five being held on consolidation in American agriculture, drew hundreds of producers and dairy industry professionals.
USDA Secretary Tom Vilsack noted that dairy farms numbered 110,000 a decade ago but are approaching 60,000 today. At the same time, the top 10 food retailers now control 82% of food retail sales compared to 65% a year ago.
“With these hearings, we need to determine whether the playing field is as fair and as level as it needs to be,” he says. Vilsack says he also concerned about the impact the loss of farms have on rural communities. “Ninety percent of our highest poverty counties are in rural America.”
Christine Varney, Assistant Attorney General for Antitrust for the U.S. Department of Justice (DOJ), says her agency is “here today to learn about the forces buffeting this important economic sector, and what the government might be able to do to help.”
DOJ, she says, “is keeping a watchful eye on the industry.” DOJ recently filed suit against Dean Foods for its purchase of two fluid milk processing plants in Wisconsin from Foremost Farms USA, noting it now has greater than a 50% market share in Wisconsin and Upper Michigan. It has also filed suit in more than 100 school milk bid rigging schemes, which she says leads to higher prices for school children.
There was recognition, too, that consolidation in the retail food industry is driving dairy cooperatives to grow larger as well. Rod Nilsestuen, Wisconsin Secretary of Agriculture, notes that Wal•Mart has gross revenues of $408 billion in 2008, Krogers had gross revenues of $77 billion and Kraft had gross sales of $40 billion. In contrast, Land O’Lakes Cooperative had gross sales of $10.4 billion and $3.2 billion in dairy sales. “Big box retailers can exert incredible pressure—they want to buy from a small number of large suppliers,” he says.
The farmer’s share of the retail dairy dollar was also repeatedly brought up. Ed King, a registered Holstein breeder with 900 cows from upstate New York, noted that farmer share has dropped from 38% in 2007 to 25% in 2009. “Processors and retailers are flexing their muscle, and there’s been a feeding frenzy for lower prices on the farm,” he says. “We need competitive provisions in contracts because farmers have no control in this process.”
Other speakers noted that though less than 1% of cheese is traded on the Chicago Mercantile Exchange (CME), it is used as the basis for setting minimum prices under the Federal Milk Market Orders. There is general agreement that the CME is thinly traded, and many allege this makes the market prone to manipulation.
Cooperative leaders were fearful that the hearing were being held as a pretense to gut the Capper-Volstead Act, which gives cooperatives their ability to collectively bargain on the behalf of farmers. Sec. Vilsack said that was not the case. But Dairy Farmers of America had some 70 members in attendance, with many testifying on behalf of the DFA during the open mike session.
The hearing will continue through the rest of today. Look for continuing coverage of the hearing this weekend at DairyToday.com.