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Dairy I Ask How to Improve the American Milk Industry by Breaking it Up Through the Antitrust Law

Dairy I Ask How to Improve the American Milk Industry by Breaking it Up Through the Antitrust Law

Serena Tang

The green grass, the happy cows, and the rolling hills of the classic American dairy farm are no longer a reality. The idyllic rural farm of the American dream is gone. In its place is the twentieth century consolidated American dairy industry.[1] Big dairy industry players like Dean Foods Co. (Dean) and The Dairy Farmers of America (DFA) are accused of creating this reality by pricing out smaller farms to make their empires.[2] These two giants are turning the American dairy industry into their personal monopolies and monopsonies.[3]

A monopoly is the artificial control of sale prices within a market through price collusion by one or more market players.[4] A monopsony is the artificial control of purchasing prices within a market by one more market players.[5] A market is the supply and demand analysis of a single isolated good. Simply put, the total control of a good by sellers is a monopoly. And the total control of a good by buyers is a monopsony. Monopolies and monopsonies are disapproved by economist and government planners because they both allow one party to have a humongous control of the market.[6] The fear is that the party who holds a monopoly or monopsony could inflate prices to benefit themselves.[7] In the dairy market, this type of single-party control could exacerbate issues already ravaging through the dairy industry, such as the fair treatment of migrant workers[8] and the humane treatment of farm animals.[9] Skewed market control can impact the livelihood of so many rural American farmers and is an ongoing issue within the dairy industry.[10] This is a problem for all Americans because the dairy industry is one of America’s biggest exports[11] and has a growing impact on the environment and the global climate.[12]

The dairy industry is important to all facets of an average American life. The dairy industry’s dramatic and detrimental changes this past century affect both our environment and social structure.[13] Within the past century, the U.S. dairy industry has morphed into a nationally integrated dairy market through mergers and competitive pricing.[14] This nationally integrated dairy market allows a single processing cooperative—the middle man of dairy production and marketing—to “dictate to a certain degree how much it will pay for that milk” and leaves dairy farmers with few alternatives.[15]

Giving a processing cooperative total market control undermines the agency of both the consumer and the producer.[16] Without any leverage or agency to combat processing cooperative pricing, milk farmers have no choice but to rely on the prices offered to them to sell their goods.[17] And consumers have no choice but to accept the offers presented to purchase their goods.

This atrocious autonomous market control is allowed to happen through the current exceptions made to the Sherman Act through the Capper-Volstead Act.[18] This Note will argue that the exceptions to the Sherman Act that provided for humongous processing cooperatives like the DFA to exist should be updated to modern circumstances because the dairy industry and its environment has drastically changed since 1922 and humongous agribusiness like the DFA no longer need the economic safety net put in place for cooperatives. This Note will provide background information on antitrust developments in the U.S. and reconcile the competing interests of high consumer prices, low farmer gains, and nefarious middle players within the dairy industry. Within the dairy industry, this Note focuses on the pricing scheme of Grade I fluid milk within the U.S.

Part I provides an overview of the modern dairy pricing schematic as well as the history and background of agricultural cooperatives and their special status within antitrust law. Part II analyzes the current application of the Capper-Volstead Act and the Agricultural Marketing Agreement Act (AMAA), the way dairy has carved its place within these laws, and the way the current laws limit small dairy farmers and producers. Part III proposes solutions to the gaps and issues raised in Part II and addresses the recent developments within dairy monopolies.

[1] James H. Maroney, The Political Economy of Milk ix (2009).

[2] Compl. at 8–9, Allen v. Dairy Farmers of America Inc., No. 5:09-cv-230, 2011 U.S. Dist., LEXIS 4879 (D. Vt. Oct. 8, 2009).

[3] Id.

[4] Richard A. Posner, Antitrust Law 1 (2001).

[5] Roger D. Blair & Jeffery L. Harrison, Monopsony: Antitrust Law and Economics 4 (1993).

[6] Adam Henshall, Why Are Monopolies Bad? An Analysis of 6 Rise-And-Fall Companies, Process St. (June 9, 2017), https://www.process.st/why-are-monopolies-bad/.

[7] Id.

[8] National Farm Worker Ministry, Farm Workers & Immigration, http://nfwm.org/education-center/farm-worker-issues/farm-workers-immigration/ (last visited Dec 21, 2017).

[9] Farm Animals, Animal Welfare Institute, https://awionline.org/content/farm-animals.                                

[10] Henshall, supra 6.

[11] Mark Landler, Trump Roars Again on Trade, Reviewing Steel and Chiding Canada, N.Y. Times (Apr. 20, 2017), https://www.nytimes.com/2017/04/20/business/trade-canada-trump-steel.html?mcubz=1.

[12] Beth Gardiner, How Growth in Dairy is Affecting the Environment, N.Y. Times (May 1, 2015), https://www.nytimes.com/2015/05/04/business/energy-environment/how-growth-in-dairy-is-affecting-the-environment.html?mcubz=1.

[13] Mark Kurlansky, Inside Milk Machine: How Modern Dairy Works, Modern Farmer (Mar. 7, 2014), https://modernfarmer.com/2014/03/real-talk-milk/.

[14] Dennis A. Shields, Consolidation and Concentration in the U.S. Dairy Industry, in U.S. Dairy Farming and Demand: Policies and Economics 61, 64 (Keith Lennon & Michael L. Caple eds., 2012).

[15] Kirk Kardashian, Milk Money: Cash, Cows, and the Death of the American Dairy Farm 187 (2012).

[16] Henshall, supra note 6.

[17] Compl., supra note 2, at 22–23.

[18] Id.

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