In an effort to reduce the pressure on struggling dairy farmers,
Schumer called on the Department of Justice and the Federal Trade
Commission to take a hard look at the dairy industry and identify where
the problems exist. In response to Schumer's urging, the nation's top
antitrust official will be coming to New York State to meet with dairy
farmers and consumers to explore this problem.
As a dietary staple, milk prices affect consumers everywhere; around the country, and in New York, shrinking profits and disappearing dairy farms are raising questions across the board.
Over the past year, dairy industry issues have often crept into the headlines; however, the issues are confusing to many consumers who don't understand the problems at large.
To put it simply, dairy producers are making too little and consumers are paying too much. This has caught the attention of legislators, including New York State Senator Charles E. Schumer.
The price paid to dairy farmers for their milk is nearly 50 percent less than it was in January 2008, while the price consumers pay in grocery stores has only fallen 15 percent within the same time period. Schumer speculates that potential anticompetitive practices within the industry are causing this problem.
"These anticompetitive practices on the part of the nation's largest milk processors are squeezing both consumers at the grocery store and dairy farmers while securing the middlemen record profits," Schumer said.
Schumer announced on Monday, November 16 that Christine A. Varney, Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division will come to New York to meet with dairy farmers and consumers to explore potential anticompetitive behavior on the part of dairy processors.
Varney identified monopsony, also known as "buyer power," as one of the leading factors contributing to the current dairy "crisis":
"When there are a number of producers in an 'input market' and a dominant buyer or buyers of those products, like a dominant dairy processor, the buyer under certain circumstances may exert its power to press the prices lower than would be the case if the buying market were more competitive," Varney said in her statement.
The DOJ has already planned seminars in other states to evaluate and discuss the topic of applying antitrust legislation to alleviate the hardships caused by monopsony in the dairy industry.
The workshops will address the dynamics of competition, including buyer power and vertical integration. By meeting with dairy industry leaders across the country, the Department of Justice's Antitrust Division will be able to gather and evaluate the information neccessary to determine if the solution is creating antitrust laws associated with monopsony power.
In a statement delivered to the Senate Committee on the Judiciary in September, Varney discussed the dairy industry crisis and the prospects for sustainability within the industry to explain the purpose and themes of the upcoming workshop series.
This power is increased by consolidation within the industry, increasing buyer control over their purchase and resale price. This effect is the exact opposite of a monopoly, as buyers are able to drive the price down rather than up.
However, vertical integration, which has occured over the past 15 to 20 years, is a more questionable market attribute. Varney explained the industrial phenomenon as "when a manufacturer participates in other parts of the supply chain, such as distribution of its products or supply of its inputs. Vertical integration frequently involves ownership at multiple stages [...] Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk."
In other industries vertical integration can have a positive effect, leading to "greater efficiencies and savings for consumers." According to Varney, another benefit is "transparency," which means that economic conduct would be visible and easier to regulate, thus helping the market as a whole. Yet, vertical relationships can also lead to increased buyer power, which is why Varney's workshops will lead an active and extensive investigation on vertical integration and it's relation to monopsony in the dairy industry.
The purpose of these workshops is to "examine whether changes in the marketplace, including increased consolidation and vertical integration, have generated efficiencies, or whether they have led to increases in monopoly or monopsony power," thus detailing the competitive dynamic of the dairy market to derive appropriate solutions.
It is locally important that Varney is hosting a workshop in New York in 2010, as Saratoga County is home to a large number of dairy farms.
"The Department of Justice is doing the right thing by sending the nation's top antitrust investigator to New York to suss out what's going on," Schumer said.
As a result of these plunging wholesale prices, family dairy farmers across the country have gone out of business or are in severe danger of doing so.
"This is a disaster not only for the thousands of rural communities that rely on the dairy industry for support, but also for the many consumers who want fresh and locally produced food," Schumer said in a press release.
Further, a reduction in the diversity of the supply of wholesale milk would likely lead to more vertical concentration in the dairy industry, putting pricing power in the hands of a very few operations, an outcome that would weaken the interests of both dairy farmers and consumers.
While some dairy producers are struggling, some buyers and distributers have experienced a correlating surge of profits. One particular firm, Dean Foods, the largest fluid-milk buyer in the country, reported record profits in the company's first fiscal quarter of 2009. Profits more than doubled from slightly more than $30 million in 2008 to $76.2 million in 2009. The company also controls approximately 70 percent.
"It defies logic that dairy farmers are getting raked over the coals and consumers have seen such a minimal drop in price." Schumer said.
Over the past year, dairy industry issues have often crept into the headlines; however, the issues are confusing to many consumers who don't understand the problems at large.
To put it simply, dairy producers are making too little and consumers are paying too much. This has caught the attention of legislators, including New York State Senator Charles E. Schumer.
The price paid to dairy farmers for their milk is nearly 50 percent less than it was in January 2008, while the price consumers pay in grocery stores has only fallen 15 percent within the same time period. Schumer speculates that potential anticompetitive practices within the industry are causing this problem.
"These anticompetitive practices on the part of the nation's largest milk processors are squeezing both consumers at the grocery store and dairy farmers while securing the middlemen record profits," Schumer said.
Schumer announced on Monday, November 16 that Christine A. Varney, Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division will come to New York to meet with dairy farmers and consumers to explore potential anticompetitive behavior on the part of dairy processors.
Varney identified monopsony, also known as "buyer power," as one of the leading factors contributing to the current dairy "crisis":
"When there are a number of producers in an 'input market' and a dominant buyer or buyers of those products, like a dominant dairy processor, the buyer under certain circumstances may exert its power to press the prices lower than would be the case if the buying market were more competitive," Varney said in her statement.
The DOJ has already planned seminars in other states to evaluate and discuss the topic of applying antitrust legislation to alleviate the hardships caused by monopsony in the dairy industry.
The workshops will address the dynamics of competition, including buyer power and vertical integration. By meeting with dairy industry leaders across the country, the Department of Justice's Antitrust Division will be able to gather and evaluate the information neccessary to determine if the solution is creating antitrust laws associated with monopsony power.
In a statement delivered to the Senate Committee on the Judiciary in September, Varney discussed the dairy industry crisis and the prospects for sustainability within the industry to explain the purpose and themes of the upcoming workshop series.
This power is increased by consolidation within the industry, increasing buyer control over their purchase and resale price. This effect is the exact opposite of a monopoly, as buyers are able to drive the price down rather than up.
However, vertical integration, which has occured over the past 15 to 20 years, is a more questionable market attribute. Varney explained the industrial phenomenon as "when a manufacturer participates in other parts of the supply chain, such as distribution of its products or supply of its inputs. Vertical integration frequently involves ownership at multiple stages [...] Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk."
In other industries vertical integration can have a positive effect, leading to "greater efficiencies and savings for consumers." According to Varney, another benefit is "transparency," which means that economic conduct would be visible and easier to regulate, thus helping the market as a whole. Yet, vertical relationships can also lead to increased buyer power, which is why Varney's workshops will lead an active and extensive investigation on vertical integration and it's relation to monopsony in the dairy industry.
The purpose of these workshops is to "examine whether changes in the marketplace, including increased consolidation and vertical integration, have generated efficiencies, or whether they have led to increases in monopoly or monopsony power," thus detailing the competitive dynamic of the dairy market to derive appropriate solutions.
It is locally important that Varney is hosting a workshop in New York in 2010, as Saratoga County is home to a large number of dairy farms.
"The Department of Justice is doing the right thing by sending the nation's top antitrust investigator to New York to suss out what's going on," Schumer said.
As a result of these plunging wholesale prices, family dairy farmers across the country have gone out of business or are in severe danger of doing so.
"This is a disaster not only for the thousands of rural communities that rely on the dairy industry for support, but also for the many consumers who want fresh and locally produced food," Schumer said in a press release.
Further, a reduction in the diversity of the supply of wholesale milk would likely lead to more vertical concentration in the dairy industry, putting pricing power in the hands of a very few operations, an outcome that would weaken the interests of both dairy farmers and consumers.
While some dairy producers are struggling, some buyers and distributers have experienced a correlating surge of profits. One particular firm, Dean Foods, the largest fluid-milk buyer in the country, reported record profits in the company's first fiscal quarter of 2009. Profits more than doubled from slightly more than $30 million in 2008 to $76.2 million in 2009. The company also controls approximately 70 percent.
"It defies logic that dairy farmers are getting raked over the coals and consumers have seen such a minimal drop in price." Schumer said.
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U.S. Senator Chuck Schumer’s call for a Justice Department investigation into milk pricing is unnecessary. He is on a witch hunt, similar to the Salem Trials. He is looking for conspiracy and controversy that doesn’t exist. His claims of manipulation are false and are not based on facts. He is wasting Justice Department time and money at the expense of taxpayers.
Milk processors and dairy product manufacturers who are the customers of dairy farmers do not set the price that is paid to farmers. In fact a mandated minimum monthly price that is to be paid to farmers is calculated by the USDA, our very own government. This system, called the Federal Milk Market Order was created by dairy farmers decades ago, has been amended only by them through the years and in fact can be voted out entirely. I question if the system is bad and controlled by dairy farmers and calculated by USDA, why in 2007 when they were being paid record high prices complaints weren’t lodged?
The price U.S. dairy farmers receive (and those around the world as well) has dropped since January 2009. The reasons are many; recession, loss of overseas sales and more importantly supply and demand. Dairy farmers have experienced record high prices during the current decade many times. Their prices are cyclical and depend on a number of factors. Currently supply and demand is at fault, not manipulation as Senator Schumer has claimed. Until early this fall, production of raw milk in the U.S. and New York State was higher than last year, and each year before that. It stands to reason if production is higher than demand, prices received on the farm will be lower.
Senator Schumer claims retail prices have not responded enough in relation to the price received by farmers. Prices consumers pay at retail can vary depending again on a number of factors including the price paid for raw milk. The farm price paid to dairy farmers isn’t the only factor in setting retail prices consumers pay for milk . Retail prices also depict the ever increasing costs of doing business in our state. New York State Department of Agriculture retail milk price surveys clearly show the price of milk has dropped significantly throughout the state in response to lower farm prices.
Milk is a great tasting nutritional beverage at any price. Consumers should know our state’s dairy industry is very competitive and one of the best in the world. Instead of calling for investigations Senator Schumer could show leadership within the dairy producer community to find alternatives to help keep them efficient and competitive during low price periods.