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.