Antitrust hearings into food industry continue in Madison with dairy

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 by Cynthia Price

Legal News
The Antitrust Division of the U.S. Attorney General’s office, led by Assistant Attorney General Christine Varney, startled food activists, farmers, and the food industry when it announced late in 2009 that it would conduct a broad investigation into consolidation in the food industry.
That should not have come as a surprise in a country where, according to Food and Water Watch, the top four firms in their respective industries control such high percentages of the market: 66% for pork packers, 58% for poultry processors, 83% for beef packers, 48% of grocery retail.
The top four fluid milk processors control 46% of their market, which is more to the point of the June 25 workshop in Madison, Wisc., the third of five the Antitrust Division is holding. The scheduled workshops focus on, though are not limited to, information-gathering on specific segments of the food industry. Unsurprisingly, the subject of the Wisconsin workshop was  the dairy industry.
One thing on which everyone at the June 25 presentations seemed to agree: dairy farmers are getting paid very low prices for their milk, and consumers are paying the same or more at the point of sale. This hit a dangerous low in 2009. As was evidenced by the past weekend’s Independence Day “milk dump,” in which farmers protested by spilling their milk on the ground rather than selling it at prices which do not even meet their production costs, there is still a tremendous amount of concern.
As industries go, the dairy industry is highly complex in antitrust terms. Adding to the mix dairy processing cooperatives, which are to some degree protected by the Capper-Volstead Act, and federal market orders, which set a floor for fluid milk prices in various geographic areas of the United States, results in a situation that is very difficult to pull apart, analyze, and make determinations on whether violations have occurred.
Capper-Volstead, passed in 1922, follows on the Clayton Act in setting exemptions from some Sherman Antitrust provisions for agriculture cooperatives which farmers join voluntarily. The motivation behind the act’s passage was the concept that member cooperatives would create a positive voice for farmers to ensure higher prices for what they produce, and eliminate some of the profit motive from industries (processing, distribution) which come between the producer and the consumer.
Capper-Volstead gives the authority to monitor anticompetitive behavior to the Secretary of the United States Department of Agriculture (USDA). Current USDA Secretary Tom Vilsack led the June 25 workshop with Christine Varney.
Early in the day’s presentations, Varney disclaimed the notion that she was “going after” Capper-Volstead, correcting an impression which stemmed from remarks she had made at the second hearing in Normal, Alabama.
However,  according to leading authority Peter Carstensen, a professor at University of Wisconsin Law School who worked for the U.S. Antitrust Division from 1968 to 1973, Capper-Volstead is “a fairly narrow statute controlling contracts between a cooperative and its members, and agreements between cooperatives.” Referring to United States v. Borden Co. 1939 Supreme Court decision concerning the limitations of regulatory acts which preceded and followed Capper-Volstead Act, Carstensen says, “It’s been clear ... that in an anticompetitive agreement between a cooperative and an outside entity, Capper-Volstead doesn’t apply.”
Adding to the confusion, there is a premium paid to contributors of actual milk for drinking. Because “value-added” industries like cheese makers or ice cream producers pay a premium for the milk, the country is divided into “milksheds,” each of which offers slightly different monetary incentives for fluid milk, regulated by a department in USDA. However, there is no law or rule requiring a milk cooperative to pass along the premiums to its members. Carstensen, while acknowledging that the cooperatives do incur costs, recommends regulations that mandate a certain percentage be passed through.
Carstensen was one of several professors who testified in a panel on “Trends in the Dairy Industry” and others.  Dr. Ronald W. Cotterill, Dr. Robert Cropp, and University of Wisconsin’s Brian Gould, who has a fascinating statistical web site at http://future.aae.wisc.
edu/, each added to the USDA/Antitrust Division understanding of the nature and scope of the problem.
During the open public comment, several farmer members of Dairy Farmers of America (DFA), the largest of the milk cooperatives, testified to the many benefits their membership accords them. DFA, however, has been in court several times, and was sued in May over price-fixing allegations in conjunction with Dean Foods.
Will the Antitrust/USDA investigation result in change within the food industry? The jury is still out.
The Antitrust Division brought some charges against giant Dean Foods in January, and the USDA has promulgated rules which, if adopted, could cause major change in the
meat packing and stockyard industries.
Antitrust prosecutions have two intertwined goals: to allow the consumer maximum benefit from a properly-operating competitive climate, and to eliminate situations which results in unfair competition. The food industry antitrust investigations have the potential to add a dimension to the  second prong: making sure that producers of goods deemed of high value get a fair shake.