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Vermont Senator Bernie Sanders Targets Dean Foods, Dairy Antitrust
Vermont U.S. Senator Bernie Sanders is focus-
ing his substantial energies on the lack of competi-
tion in farm milk procurement and fluid milk pro-
cessing.
Sanders – the only “Independent” serving in
the United States Senate – is pressing the United
States Department of Justice (DOJ) to open a new
investigation by the Antitrust Division into dairy
practices. Key areas that Sanders wants Antitrust
investigators to dig into include:
* Farm milk procurement.
* Dean Foods’ massive share of fluid milk
sales in numerous regions of the country.
* Whether Dean Foods’ spectacular profits in
2009’s first half were unduly gained at the expense
of dairy farmers and consumers.
Dean Foods controls an estimated 70% of all
fluid milk distributed in New England. Sanders
charges that undue control by Dean Foods in numer-
ous markets around the United States has allowed
the company to unduly profit in early 2009 by prop-
ping up charges for packaged fluid milk sold to
supermarkets and other buyers. These excess profits
were taken during a period when milk prices paid to
dairy farmers declined by nearly 50 percent (com-
pared to 2008 levels). Statements by Dean Foods’
CEO Gregg Engles, at a dairy processors conference
in England earlier this year, indicated that Dean
Foods owned about 37% of the nation’s fluid milk
volume. Engles bragged at that same forum that
Dean Foods’ market share exceeded the next five
largest fluid milk processors’ combined volumes.
Dean Foods’ control of farm milk prices tracks
back to an arrangement with Dairy Farmers of
America (DFA). In early 2003, Dean Foods dumped
all of its 2,500+ dairy farmers supplying raw milk to
the firm. Those producers’ milk markets were
pushed into marketing their milk with Dairy Market-
ing Services (DMS) – a joint venture controlled by
DFA. DMS has dumped undue marketing costs on
the backs of dairy farmers.
In public and private communications, Sanders
is demanding that the new head of DOJ’s Antitrust
Division, Christine Varney, reopen antitrust investi-
gation into dairy. Varney is a critical figure in the
growing swirl of dairy antitrust charges. She inher-
ited an Antitrust Division that, during both the Bill
Clinton and George W. Bush administrations, was
intentionally asleep at the switch on dairy matters.
In late August 2006, a DOJ antitrust task force com-
pleted a two-year investigation into competitive mis-
deeds by Dean Foods and DFA. That Antitrust task
force, which included representatives from about a
dozen and a half states’ Attorneys General offices,
recommended indictments against both Dean Foods
and DFA. But top-level DOJ appointees squelched
those recommended indictments, thanks to top-level
political contacts enjoyed by Dean Foods and DFA.
Recent events – including spectacular profits
recorded by Dean Foods so far in 2009 and a new
administration in the White House – set the table for
demands by Wisconsin Senator Russell Feingold and
Sanders that DOJ refocus on competition problems
in dairy. In February 2009, during her confirmation
hearings held by the Senate Judiciary Committee,
Varney promised that she would be open to review
of mergers and acquisitions already approved by
DOJ. Feingold, publicly and privately, has commu-
nicated anti-competitive practices to Varney’s atten-
tion – including the April 1, 2009 Dean Foods’ pur-
chase of Foremost Farms’ consumer division. Crit-
ics charge that Dean Foods’ purchase of Foremost’s
fluid division leaves virtually no competition for
school milk contracts in the eastern half of Wiscon-
sin.
Political practicality:
Join farmers’ and consumers’ interests
Bernie Sanders is not a native Vermonter, he
can’t hide a classic Brooklyn (New York City) accent.
But Sanders’ origins as a city fellow haven’t been a
problem for Vermont voters, who’ve elected and re-
elected the 68-year old ball of populist spirit to a
series of public offices since 1981. Sanders was elect-
ed as U.S. Senator from Vermont in 2006. Prior to the
Senate seat, Sanders served as Vermont’s lone Con-
gressional representative for 16 years. Bernie rode his
popular, nine-year tenure as mayor of Burlington –
Vermont’s largest city – to Washington, D.C.
As Sanders tries to kindle dairy antitrust
flames, the core of this issue presents a unique
opportunity to build upon a long-term, practical
political philosophy, which The Milkweed editor first
heard Bernie detail at a dairy farmers’ meeting in
Morrisville, Vermont about dozen years ago. That
simple practicality: agricultural issues must be
couched as consumer issues, in order to generate
adequate political support. Stated more simply:
farmers alone don’t have enough political clout to
win an issue; dairy farmers must network with con-
sumers’ interests to be effective. What better issue
to work Sanders’ “farmers and consumers” strategy
than Dean Foods’ spectacular 2009 profits that
allegedly are derived from depressing farmers’ milk
prices and holding up consumers’ milk costs?
Schoolyard tactic: whip the biggest bully
Targeting Dean Foods is a classic underdog
tactic: pick out the biggest bully in the schoolyard
and thrash that bully. Until this point, virtually no
political figures have seriously taken on Dean Foods.
Sanders’ targeting Dean Foods is well-aimed.
In both private meetings and public statements, Fein-
gold and Sanders helped bring DOJ Antitrust Chief
Christine Varney up to speed on Dean Foods’ control
of the fluid milk business, and and they have plead-
ed with her for a serious Antitrust investigation.
Meanwhile, Sanders has been publicly egging
on Dean Foods’ CEO Gregg Engles with a well-pub-
licized exchange of letters. On July 20, 2009,
Sanders wrote Engles inviting the CEO to meet with
financially-struggling Vermont dairy farmers.
Engles’ July 24, 2009 reply passed on the invite to
meet with Sanders and Vermont dairy producers.
Engles’ letter noted:
“As you know, dairy processors do not set price
of milk paid to dairy farmers. The price that farmers
receive for the milk they produce is set primarily by
the United States Department of Agriculture. Dean
Foods purchases this milk at regulated prices under
the USDA’s Federal Milk Marketing Orders. Adding
to the complexity is the fact that we and other
processors are just one part of a complicated system
that stretches from the farm to the grocery shelf.”
Sanders’ July 27, 2009 reply to Engles July 24
letter was a classic. Bernie ripped into Engles’
deflection of milk pricing responsibility, noting that
the U.S. Department of Labor’s minimum wage law
does not determine all wages in America. Sanders
further ventured:
“Dean Foods’ significant influence over the
price of milk goes beyond its position as a dominant
processor. What must also be considered is the
exclusive arrangements it has with established dairy
cooperatives across the country that limit the ability
of dairy farmers to get the best price for their milk in
an open and competitive market. By limiting the
group of cooperatives from which it will buy milk in
New England, Dean Foods is controlling the market
on a number of different levels.”
Sanders is tireless. And he’s intent upon seeing
an honest probe of Dean Foods’ actions in dairy by
the Antitrust Division of the U.S. Department of Jus-
tice. Stay tuned. Bernie Sanders has his sleeves
rolled up and he’s going after one of the big “bullies”
in the dairy industry.
by Pete Hardin
4 — The Milkweed • August 2009
On August 6, 2006, three United States Sena-
tors wrote a formal letter to the head of the Antitrust
Division of the U.S. Department of Justice, request-
ing that investigation alleged, anticompetitive
actions by Dean Foods – the nation’s largest fluid
milk processor.
(The Milkweed has reproduced the entire letter
from these three senators to the head of the DOJ
Antitrust Division on the adjoining page.)
Senators Bernard Sanders (I-VT), Russell
Feingold (D-WI) and Charles Schumer (D-NY)
jointly signed the four-page request to Christine Var-
ney, the Assistant U.S. Attorney General who heads
the Antitrust Division. The formal request to Varney
follows months of spade-work by Feingold and
Sanders. The two have attempted to reverse more
than a decade of federal antitrust laxity in dairy
antitrust matters.
In February 2009, Feingold grilled Varney (pub-
licly and privately) during her Senate confirmation
hearing on dairy matters. Feingold has been a long-
term critic of dairy antitrust matters. However, 2009
represents the first time in many years that his politi-
cal party controlled both Senate and White House.
In focusing on Dean Foods, the letter from the
three senators brings together several dairy issues of
recent vintage: low farm milk prices, seemingly high
consumer costs, and record profits reported by Dean
Foods during the first two quarters of 2009.
The letter stated:
“The beneficiaries of this situation are increas-
ingly consolidated corporate entities that exist
between farmers and consumers. Dean Foods, the
nation’s largest processor, reported $76.2 million in
profits for the first quarter of 2009, up 147.4% from
its $30.8 million in the firs quarter of 2008. Since its
merger with Suiza Foods in 2001, Dean Foods has
seen its profits skyrocket, enough thatover the last
five years it has paid its CEO Gregg Engles $116.38
million. Based on our research and conversations
with agricultural economists, we believe thaton rea-
son for Dean Foods’ recent profits may be its ability
to exercise monopoly pricing power in many parts of
the country.
“It is our understanding that Dean Foods con-
trols large portions of the market for fluid milk in a
number of regions of the United States.
We understand that it controls approximately 90%
in Michigan, about 80% in Massachusetts, 80-90%
in Tennessee, 70% in New England, over 80% in
Northern Alabama, and over 70% in northern New
Jersey. Without such concentrated market condi-
tions, farmers would have greater options as to
where they sell their product and would likely see
higher prices on the farm and consumers may even
see more competitive prices in the store.”
The letter from Senators Sanders, Feingold and
Schumer details seven specific areas of competitive
concerns in dairy – references that show a tremen-
dous degree of research by the Senators and their
staffs.
The letter’s concluding sentence is classic
Bernie Sanders logic: linking producers and con-
sumers interests: “While we do all that we can to
ensure that dairy farmers receive a fair price for their
product, we hope that your department will create a
competitive market for them so that they will be able
to sell their product at a price they deserve.”
--Sanders (VT), Feingold (WI) & Schumer (NY)
Senators Seek Antitrust Scrutiny of Dean Foods
Summer 2009: Vermont Senator Bernie Sandersjawbones USDA Secretary Tom Vilsack about themilk price crisis.
Letter to DOJ Requesting Antitrust Investigation of Dean Foods
Announcement of Dean Foods’ big, second-quarter profits is sure to add
more fuel to the fire now being kindled by some U.S. Senators.
Dean Foods reported net income of $64.1 million for April-June 2009.
That’s a 31 percent gain from second quarter profits in 2008. The company’s 31
percent profit increase accompanied a 14 percent decline in net sales. Overall
sales declined, as raw milk costs tumbled precipitously, compared to the second
quarter in 2008. Dean Foods’ net income for the first half of 2009 totals $140.4
million – nearly double the figure for January-June 2008. Net sales for the sec-
ond quarter of 2009 totaled $2.681 billion,
Dean Foods’ dairy processing profits have gained increased scrutiny by
many in dairy … and now three influential U.S. Senators have joined in the fray.
Common complaints: Dean Foods’ massive market shares in some states/regions
of the country allow the firm to maintain prices charged to retailers at a time
when material costs (farm milk) have plunged.
Fluid milk volumes increased by 2.4 percent during the second quarter –
aided by two acquisitions. The remaining dairy trade saw fluid volumes decline
by about one half of one percent, according to comments made by senior Dean
Foods’ personnel during a teleconference with investment analysts on August 5.
That teleconference yielded two interesting insights from CFO Jack Callahan:
1) Dean Foods has a significant dairy acquisition under contract, which
will likely not be announced until the fourth quarter of 2009.
2) Dean Foods is projecting that the Class I (fluid) milk price mover could
climb all the way up to $13 per cwt. by late 2009. Callahan stated: “In our for-
ward outlook for 2009 release contemplates, Class I low prices going back up
approaching 13, $13 plus so you know by the end of the year so that, that is cer-
tainly considered in and how in our forward outlook and in general going back
to some of Gregg’s comments earlier is about the health of the dairy industry and
back to that $13, $14 where the dairy farmer has a more economic return as is
that a equilibrium point overall for the industry and we anticipate moving
towards that direction in the coming months.”
5 — The Milkweed • August 2009
Dean Foods Announces Big Profitsfor April-June 2009 Quarter: $64.1 Mil.