thomasjasengardner Thursday, November 5, 2009

1338 words

Junior

Life Science Communications

Agricultural Journalism

Professor Kyle Stiegert

Agriculture and Applied Economics 215

Rewrite 2

Got Milk?
The United States Department of Justice will meet in Madison on June 7th to hold

workshops about America’s dairy industry. Dairy farmers filed anti-trust charges against milk

processors with conspiring to manipulate milk prices. “I lose $3,000 every day and almost

$100,000 a month,” said Aerome Wagner of Wagner Dairy Farms. The United States

Department of Agriculture and the USDOJ will jointly hold information meetings where industry

stakeholders are invited to participate.

According to Wisconsin Senators Russ Feingold and Herb Kohl, the loss of income to

dairy farmers and the loss of dairy farms is the result of price fixing among milk processors and

retailers However, some pundits believe the economics of supply and demand have determined

the loss of farm income and the continuing disappearance of the family farm. Still, both point of

views admit, that the buying power of commercial food corporations plays a major role in farm

losses.
 The Department of Justice and USDA will hold public workshops in Wisconsin to

discuss the lack of competition in local dairy markets. Since 1960, Wagner’s dairy farm has

been part of the Stoughton community. He admits that it “would be nice to go fishing” and let

his five sons take over the farm of 1250 cows. However, because of low milk prices for farmers,

he “can’t keep up with the feed bill” if he retires, said Wagner.

The Chicago Mercantile Exchange Daily Livestock reports that corn, which typically

went to feed livestock, is now destined for ethanol production. According to the Food and

Agricultural Policy Research Institute, “the amount of corn grown for livestock feed, human

food, seed and high fructose corn syrup remains steady, but the percentage of the feed corn

siphoned off for fuel alcohol increased dramatically.” Lora Berg of Farm Industry News, said,

“Livestock producers may face tighter corn supplies, especially in areas where ethanol

production is concentrated.” The supply and demand of corn for ethanol has raised the feed

price for dairy farmers and contributed to lower farm profits.

Milk prices averaged under $11 a pound in 2009, compared to almost $17 a pound in

fiscal year 2008, according to the trade journal Wisconsin Agriculture Connection.

“The processors set artificially low prices for milk,” said Wagner. He added that milk

co-ops “absolutely made a lot of money from farmers dividends.” From his Washington D.C.

office, Feingold said he believes there is increasing financial disparity between farmers,

processors and retail outlets. For 28 years, he believed that, “ There has been a growing spread

between retail and farm prices with the margins of the middlemen and retailers increasing and

the farmers’ share decreasing,” he said.

 A farmers’ decreasing profit margin is influenced by fixed costs such as fuel prices,

fertilizer, feed, and operating equipment. “Many farmers have quit” because of increased

operating costs according to Wagner. Nearly 20 years ago, Wisconsin had almost 70,000 dairy

family farms according to the USDA. Today there are only 14,000 dairy farms according to the

Wisconsin Milk Marketing Board farmland statistics. Farmer suicides, culled cows, and factory

farms have reduced the number of small family farms.

Feingold believes that other government regulatory agencies should take a role in the

investigation of dairy price fixing. “Discussion should go beyond DOJ and USDA and also

bring in the Federal Trade Commission and the Commodity Futures Trading Commission,” he

said. The FTC is responsible for investigating violations of the Clayton Anti-trust Act. The

1914 legislative act gives FTC the authority to investigate validated suspicions of business

monopolies and imperfect competition. Wisconsin Senator Herb Kohl believes processor

monopolistic competition, consolidation, and corporate mergers is an area of legitimate concern

for dairy farmers and consumers. Dairy farmer Paul Rozwadowski believes that the archaic

price system established by the Federal Milk Marketing Order, is inappropriate for 21st -century

milk appropriations. “Today’s farmers should get a fair price for milk,” he proclaimed from his

home in Stanley, Wis.

In March of 2009, he joined four other dairy farmers and filed a class action suit against

dairy processors on behalf of farmers from 25 states. He alleges in Wisconsin court documents

that collusion between milk processors has misappropriated millions of dollars from dairy

farmers by swindling farmers with less pay then the market price for milk. Milk processors have

systematically cut the price they pay to dairy farmers, “and in many cases farmers are paid less

then what it cost to produce the milk,” he explained.

 Next year, Christine Varne, Assistant Attorney General with the Antitrust Division of the

Federal Department of Justice will hold workshops with farmers, ranchers, processors, consumer

groups, agribusinesses, government officials and academics across the country to help her

department understand the issues facing American farmers. Rozwadowski said he wants a

discussion to influence changes in the Federal Milk Marketing Order Program.

Varne wrote that , “These workshops will evaluate a series of issues, ranging from the

effects on competition of concentration in relevant sectors, including dairy, with concerns about

buyer power, and the economic impact of vertical integration, including contractual relationships

between producers, distributors, and retailers.” Parts of the dairy industry have experienced

extensive consolidation in recent years, with fewer processors and therefore fewer buyers of

dairy products, she explained. UW Agricultural Economics Professor Kyle Stiegert will attend

meetings with the anti-trust department in December 2009. The Nebraska native said he would

help explain the economics of scale in the dairy industry.

“The milk processors set prices artificially low,” Wagner said. Milk prices have not kept

up with production costs, increased competition, and regulation, according to Robert Cropp,

UW- Professor Emeritus of Economics. He attributes the loss of farm income to the economics

of supply and demand. He explained that exports of milk are half of what they were. The price

differential in milk prices can be attributed to the world recession, according to Cropp. “In 2008,

we exported 11 percent of our milk. The world recession put exported milk back in the domestic

market,” he said from his campus office.

The devaluation of the American dollar on the world market hinders exports of milk

products. Mitch Bereunig, owner of Mystic Valley Dairy, said dairy farmers became victims of
subsidized expansion because of export quotas. “Exports went from 10 percent to zero. We

produced as much as you can and then the global economy turned on a dime . . . and exports

stopped,” he said. He added that the Robinson-Patman Act of 1936 and the Agricultural

Marketing Agreement Act of 1937 should be reviewed to address current issues in farming.

Cropp admits that declining exports played a “major role” in the plight of dairy farmers.

He explained that the anti-trust advisory group should still examine the supply and demand

management of the milk pricing structure. “Co-ops are too big and aren’t managed as well as

they should be,” said the retired economist. On the other hand, he believes milk prices are the

result of oligopolies practices in the retail industry rather then monopolistic advantages by milk

processors. He explained that corporate retailers like Wal-Mart help to create low prices for

dairy farmers.

“The concentration of low milk prices is closer to the consumer end,” Cropp said.

UW-Law George H. Young-Bascom Professor Peter Carstensen explained that, “The

practice of dominant milk buyers is to pay prices way below the cost of production,” he said.

The decrease in prices paid has not transferred to the consumer, according to industry analysts.

The professor of anti-trust history believes that government involvement in all aspects of milk

production is necessary. “The present system should be completely redesigned to be fair to

farmers and consumers,” he concluded.

Senator Kohl was more direct, “Despite historically low farmgate prices for fluid milk,

consumers have seen little of the benefit of lower prices,” he said. The National Groceries

Association wrote the anti-trust division in 2004 about how corporate mergers and acquisitions
in the grocery industry would negatively affect price competition. “Marketplace diversity is a

major factor that must be examined in every merger, especially those in or affecting the grocery

industry,” stated the report.

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