Is the price of milk controlled by the dairy industry?
General Reference (not clearly pro or con)
Kenneth Bailey, PhD, Professor at Penn State University, wrote in his Mar. 8, 2001 paper "Producing Milk for a Competitive Market: The Rules Have Changed!" that was presented at the Mid-Atlantic Dairy Management Conference:
"Dairy cooperatives can work together in a market to enhance or bargain for higher milk prices. This is a very special privilege granted all farmers by the Congress under the Capper-Volstead Act. In fact, many dairy cooperatives form marketing agencies in common and bargain for over-order premiums. This has been an effective way to add more money to the milk check.
However, farmers cannot abuse this privilege and 'unduly enhance milk prices.' In fact that is exactly why the U.S. Department of Justice reviews all mergers of large dairy cooperatives. They are always concerned that some mergers could result in anticompetive behavior such as price fixing or market manipulation. So even if a group of dairy farmers were able to finally 'corner the market' for milk, the Justice Department would find that intolerable and someone would likely go to jail. This type of collusion and abuse would not be tolerated."
Is the price of milk controlled by the dairy industry?
Cooperatives Working Together (CWT), a farmer-led milk producers organization, wrote the following in an article titled "CWT's Impact," (accessed Sep. 11, 2007) published on it's website:
"Cooperatives Working Together is a multidimensional, farmer-led and farmer-funded national program to address the milk supply and demand imbalances that can depress farm-level prices.
Now in its fourth year CWT remains focused on its goal of reducing milk supply-demand imbalances, and, in so doing, delivering a significant return on farmers' investments through higher, more stable milk prices.
The combined effect of CWT's three herd retirements, and its ongoing export assistance program, has helped strengthen cheese and butter prices and, as a consequence, boosted farmers' milk prices in 2004 and the first half of 2005."
Dan Morgan, Fellow at the German Marshall Fund, along with coauthors Sarah Cohen and Gilbert M. Gaul, Washington Post staff writers, wrote in their Dec. 10, 2006 article "Dairy Industry Crushed Innovator Who Bested Price-Control System," published in the Washington Post:
"A maverick dairyman named Hein Hettinga started bottling his own milk and selling it [in California and Arizona] for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years...
United Dairymen of Arizona, a cooperative that handles 85 percent of the state's milk, complained that by keeping his milk outside the Arizona pool, Hettinga was affecting the USDA price-setting formula, lowering returns for other dairies.
In California, the Hettingas were taking on the two biggest players in the U.S. milk industry: Dean Foods Co., the largest processor of dairy products, with $10 billion in annual sales and five California plants, and Dairy Farmers of America, a co-op that controls nearly a third of the nation's liquid milk.
[In an effort to stop Hettinga from under selling] eight groups with an interest in the legislation reported overall lobbying spending of more than $5 million in 2005 and the first half of 2006. Dean Foods reported spending almost $2.5 million, including $500,000 for outside lobbyists [Hettinga spent $120,000 on lobbying]."
[Editor's Note: The above mentioned lobbying by eight milk producers against Hettinga resulted in the passage of the Milk Regulatory Equity Act of 2005 PDF (37KB) that forced Hettinga to raise his prices and operate under Arizona milk marketing orders.]
Daniel A. Sumner, PhD, Director of the University of California Agricultural Issues Center, wrote in the 2002 article "United State's Agricultural Systems: An Overview of U.S. Dairy Policy," published in the Encyclopedia of Dairy Sciences:
"The pricing of nearly all of the milk produced in the United States is regulated by milk marketing orders. Since January 2000, eleven federal marketing orders regulate the sale of 70 percent of all milk produced in the country. California, which operates its own marketing order, regulates the sale of another 19 percent of the country's milk. Most of the remainder is regulated by other state marketing orders (Maine, Montana, Nevada, Virginia), and a small portion is not regulated by any marketing order.
Both federal and California milk marketing orders use price discrimination to raise the average price received by producers, setting minimum prices that processors must pay for Grade A milk according to its end-use (classified pricing).
Each month, federal orders set the minimum prices for milk used in cheese, and milk used in butter and dry milk according to formulae that take into account the wholesale prices of these products. The minimum price for milk used in fluid products (Class I) in each order is set as a fixed differential over the manufacturing-use minimum prices. California distinguishes between five end-use classes, and uses similar formulae to set minimum prices for each class."
Paul G. Christ, former Vice-President for Primary Dairy Processing and Procurement at Land O' Lakes, Inc., wrote in his May 1980 article "An Appraisal of the U.S. Government's Role in Milk Pricing," published in the American Journal of Agricultural Economics that:
"Whatever market power dairy cooperatives do possess, I think, derives mostly from the existence of federal milk orders and not much from size or concentration of sellers.
In evaluating the government's role in milk pricing, I see little cause for alarm. The Dairy Price Support Program [federal milk marketing order program] provides the means for stabilizing dairy markets to the benefit of producers and consumers.
Concern about the relationship of dairy cooperative market power and federal milk marketing orders is undue. Cooperatives do exercise limited market power under milk orders, but they seem to use that power to extract competitive returns, and little more."