Dairy Talk: DFA’S Reality Check

April 2, 2013 08:33 PM
Jim Dickrell

I’ve attended dozens of cooperative annual meetings during my 30-plus years covering the dairy industry. Typically, the co-op’s high-powered CEO will brag up the co-op’s performance if things went well during the past year, or he’ll blame volatile commodity markets beyond his control if they didn’t.

The Dairy Farmers of America (DFA) annual meeting held in March will forever stand out in my memory for not following this usual, pre-ordained script. Driving the agenda was DFA’s settlement of two large lawsuits that will tap the cooperative’s pocketbook to the tune of $216 million.

That’s a lot of cash. To put it in perspective, DFA’s export sales equate to about $300 million annually.

For members, fortunately, DFA had bankrolled enough cash reserves to pay these settlements. Nevertheless, the co-op’s 2012 net income of $83.2 million becomes a reported $132.8 million net loss.

As striking as these numbers are, it was refreshing to hear DFA CEO Rick Smith present an up-front, unvarnished analysis of what led to those huge, painful legal settlements. He made no apologies nor did DFA admit to any wrongdoing, at least in the legal sense. He did say DFA lost a sense of its mission and its responsibility as the largest dairy cooperative in the U.S. DFA’s annual sales top $12 billion.

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"We did not act like we appreciated our responsibility and the expectations we created," he told the delegates and guests at the meeting. "Some of this was clearly avoidable. When you seek out the spotlight [as DFA did in its early years of exponential growth], sometimes that spotlight gets hot."

That spotlight attracted the attention of The New York Times and The Wall Street Journal. More importantly, it commanded the focused attention of the Commodity Futures Trading Commission (CFTC) and the subpoena power of the Department of Justice. That was followed by class action lawsuits brought by dairy farmers and the public.

The CFTC suit was settled in 2008, and the Department of Justice never brought charges. But the class action suits took their toll—to the tune of the aforementioned $216 million.

While still pleading innocent, Smith and the DFA board felt the settlements would put an end to the millions upon millions paid to attorneys and cap the risk of possibly even higher court-imposed penalties if DFA lost.

It’s easy to forget that DFA is still a young cooperative, formed in 1998 and celebrating just its 15th year of incorporation. Early on, DFA’s primary mission was to take over the world—or at least the U.S. milk market. The driving vision was to control enough of the market so that the co-op could better dictate milk prices to processors. That never happened—nor will it ever.

DFA, now well-schooled in the harsh worlds of the markets and the courts, is maturing. That’s a good thing—and a well-remembered lesson for us all.

Jim Dickrell is the Editor of Dairy Today. You can contact him at dairytoday@farmjournal.com.

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