HOBART, N.Y. -- America's daily farmers have been battered over the past decade by a nationwide drop in milk consumption, the rise of dairy-free and plant-based alternatives, and the trade war with China. Another factor pushing down milk prices and harming farmers, according to some, is the business practices of Dairy Farmers of America, a farmer-owned cooperative.
John Lamport, 47, a ninth-generation farmer, shut down his dairy business in September, auctioning off a herd of nearly 150 cows in his barnyard in Hobart, a small town in the northern Catskills. His struggle is a familiar one for America's dairy farmers, and he says a large part of the blame goes to the cooperative.
"They can manipulate the milk price, and they can tell farmers what they're going to get," said Lamport, who now grows hemp for a living, drying the plants in barns where he used to keep his cows. "We have nowhere else to go."
Now the biggest dairy cooperative in the United States, with more than 14,000 members from New York to California, the Dairy Farmers of America was established in 1998 to help farmers, like Lamport, market their raw milk to dairy processing companies, which prepare the milk for distribution to retailers.
Over the years, however, the cooperative has also invested heavily in milk-processing operations, meaning that it buys some of the milk its own marketing arm sells. Those investments have created a conflict of interest, farmers and the lawyers who represent them say, since milk processors benefit from lower prices, while farmers benefit from higher ones.
Now, the cooperative is in talks to acquire Dean Foods, the century-old milk processing company that sought bankruptcy protection in November. No agreement has been reached, but the prospect of the cooperative's taking control of Dean Foods, its own biggest customer, has raised new antitrust concerns.
It "ought to be doing one or the other" -- market milk for farmers or invest in processing, said Peter Carstensen, a former antitrust lawyer with the Department of Justice who tracks the dairy industry. "The conflict of interest is going to result in harm, and the dairy farmer is going to have no good choices."
Monica Massey, executive vice president at the cooperative, said in a statement that it was "ridiculous" to claim that the cooperative would suppress milk prices. "Our mission is to bring value to our farm families," Massey said. "We do this by striving to pay a competitive price to our members and providing a secure home for their milk."
This is not the first time the cooperative has faced allegations of anti-competitive behavior. In 2018, the cooperative, which makes billions of dollars in annual revenue, paid $50 million to settle a long-running class-action lawsuit filed by farmers who claimed it had colluded with Dean Foods to lower milk prices. A group of the plaintiffs dissented from that settlement, filing a separate suit against the cooperative in federal court in Vermont.
That suit alleges that the cooperative has engaged in a wide range of anti-competitive practices: making deals with other cooperatives not to poach one another's members, sharing milk-pricing information with those rivals to suppress payments to farmers, and signing restrictive supply contracts with processors like Dean Foods and Farmland that made it impossible for farmers outside the cooperative to sell to those companies directly.
Massey said the allegations were "without merit." In September, however, the judge in the Vermont case allowed the suit to move forward to a trial.
In the past few years, the cooperative has expanded its business partly by spending hundreds of millions of dollars to acquire milk processors like Guida's Dairy, Cumberland Dairy, Oakhurst and Stremicks Heritage Foods.
"When DFA owns the plant, DFA controls which farmers can sell to the plant and DFA sets the price for the raw milk for its plant," said Joel G. Beckman, a lawyer for the plaintiffs in the Vermont case. "DFA's acquisition of Dean's processing plants would be the crown jewel of its empire-building, the death knell for independent farmers struggling to find a place to sell their milk."
An expert witness for the plaintiffs, the Harvard Law School antitrust specialist Einer Elhauge, calculated that the Dairy Farmers of America's business practices have reduced the price of milk by nearly 80 cents per 100 pounds sold, costing dairy farmers millions of dollars every month.
While those losses affect cooperative members and nonmembers alike, Lamport, a plaintiff in the case, said his milk profits declined soon after he reluctantly joined the cooperative in 2017.
For decades, he had helped run an independent dairy operation on land farmed by his family since the 1930s, selling milk to the dairy processor Garelick Farms.
In 2001, a subsidiary of the cooperative, the Dairy Marketing Service, took over the transportation of milk from independent dairy farmers to Garelick plants, as part of an agreement the cooperative had struck with Garelick's new owner, Dean Foods. Suddenly, the checks Lamport's family received every month were signed by the Dairy Marketing Service.
Then, in 2017, the Dairy Marketing Service informed Lamport that it would stop picking up his milk. If he wanted to continue selling to Garelick, he would have to join the cooperative. Feeling he had no other option, Lamport agreed to become a member. Soon, his monthly income decreased, as the cooperative deducted marketing surcharges and other fees.
"We tried to cut back as much as possible to make ends meet," Lamport said. "The milk price wasn't high enough. We weren't making money."
Whatever happens, Lamport plans to continue growing hemp on his farm in Hobart.
Lamport still owns a group of calves that he eventually plans to sell.
"I thought I was going to be a dairy farmer for the rest of my life," he said. "It's all I ever knew."
Business on 12/12/2019