How Dairy Monopolies Keep Milk Off the Shelves

Yves here. One of the problems in discussing monopoly policy is that monopolies often operate in local, regional, or narrow markets, which impedes enforcement in our current regime, and even in the more stringent environment of 50 years ago. The milk example below looks straightforward, but you could anticipate the producers arguing for different market definitions that might make an anti-trust case somewhat less compelling.

By contrast, for instance, private equity has been buying up kidney dialysis centers. No one travels very far for kidney dialysis, since it has to be done several times a week. But then how do you define a market?And are any of those markets big enough to justify an anti-trust action?

By Eileen Appelbaum, the co-director of the Center for Economic and Policy Research, and Jared Gaby-Biegle, an intern at the Center for Economic and Policy Research. Originally published at the Institute for New Economic Thinking website

People rarely think about where the milk on supermarket shelves or the cheese on their pizzas comes from. But COVID-19 and the lock down of the economy in March 2020 brought with it the specter of unhappy dairy farmers dumping milk while supermarkets rationed milk products and food banks could not keep up with demand. The fault lines in America’s system of production and distribution of milk and dairy products stood out in bold relief. Nearly 40 years of consolidation and specialization in milk and dairy foods processing have rendered the dairy system inflexible, lacking resilience, and unable to adjust to challenging circumstances.

Our new Working Paper shows how the decline in the number of family dairy farms accelerated in the 1980s and after. Advances in technology have made large scale dairies more productive and able to produce milk at far less cost than on smaller farms. Fluid milk, butter and cheese processing also underwent technological changes that made large-scale production of dairy products feasible.

But technology is only part of the story. In dairies and processing operations – as elsewhere in the economy – changes in the approach of anti-trust regulators to mergers led to increased industry consolidation. In 1982, President Reagan’s anti-trust enforcement chief rewrote the rules and replaced a mandate to protect markets from domination by a few firms with a mandate to safeguard “consumer welfare,” narrowly conceived of as lower consumer prices. This unleashed a wave of consolidation that is still ongoing. Technical scale requirements have little to do with the huge size of the handful of companies that dominate dairy products processing.

For the first seven decades of the 20thcentury, local dairy cooperatives – owned by their dairy farmer members – maintained creameries and plants that processed some of their members’ raw milk into dairy products they sold to schools and restaurants as well as groceries. They sold the rest of their members’ raw milk to other processing plants. The co-ops negotiated the price paid to farmers, and shared profits from the creameries with farmer owners. But new rules on mergers and acquisitions opened the dairy industry to consolidation in later decades.

Investor-owned corporations like Dean Food went on a buying spree, scooping up competitors. By 2001, Dean Food was the second largest dairy producer in the U.S. That year, it was acquired by Suiza Dairy, the number one dairy producer at that time. The combined company took the Dean name and dominated markets across the country. Dairy cooperatives followed a similar path, with large cooperatives buying up smaller ones and recruiting (sometimes coercing) independent dairy farmers to become members. Four large regional cooperatives merged to become Dairy Farmers of America (DFA) in 1998 and expanded into other parts of the milk product supply chain. As of early 2020, DFA had more than 13,000 dairy farmer members and owned 42 manufacturing facilities across the country. DFA pays farmers for their raw milk, but does not share the profit made from its own processing operations or sales of raw milk to other dairy products processors with the farmer members who are nominally its owners.

DFA, Dean Food and Borden Dairy have dominated the dairy industry for most of the 21stcentury, culminating with DFA acquiring Dean Food in 2020. Monopolization of dairy products processing has caught many family farmers in a vicious cycle of consolidation and overproduction as processors with dominant positions have set prices for raw milk below the cost of production for smaller dairies. To survive, farmers have increased the number of cows and the scale of production to reduce costs – increasing the supply of milk, while the demand for milk falls as consumers seek out nondairy alternatives. Oversupply of raw milk has led to a 40 percent fall in price between 2014 and 2019, driving thousands of smaller farms into bankruptcy.

Pursuit of profit led large dairy processors to have each plant specialize in production of a narrow range of products. When the COVID-19 pandemic led to the shutdown of restaurants and schools, the dairy industry was unable to adjust. To change from producing for high volume buyers to producing for groceries and food banks would require retooling an entire processing plant and overhauling logistics and delivery. Two separate and inflexible supply chains – one serving retail markets for consumers, the other serving commercial markets for institutional customers– characterize the dairy industry. Plants specialized to produce for commercial customers were incapable of producing for consumers served by supermarkets or food banks. Some farmers had no choice but to dump milk.

Dumping milk has slowed considerably since May. In part, this is due to steps taken by the Department of Agriculture to bail out dairy farmers and to get milk products to where they are needed. USDA announced in mid-April that it would provide $!6 billion of CARES Act funds in direct support to agricultural producers, including dairy farmers. The agency also agreed to purchase $3 billion in fresh produce, dairy, and meat, spending $100 million per month to get a variety of dairy products to food banks and nonprofits as part of its new Farmers to Families Food Box Program

USDA’s rules for distributing CARES Act funds favor large dairy farms. An investigation by NBC News found that 20 percent of the money went to the top one percent of recipients; 60 percent went to the top 10 percent. The bottom 10 percent of recipients got just 0.26 percent of the funds. Nearly 2,300 farms got more than $250,000; almost 7,000 got less than $200. USDA’s Farmers to Families Food Box Program was designed to bail out agricultural food processors and get agricultural products to food banks and hungry families. The contracts went to large operators like Borden Dairy, which received the largest contract in the program

Like too-big-to-fail banks, the challenges of breaking up national and global milk and cheese processors and the complex logistics involved in getting a perishable product to markets all over the U.S. will take a national effort as well as a change in antitrust rules and enforcement. But that doesn’t mean that the strangle hold monopoly producers have on milk processing can’t be broken

As examples discussed in our paper show, state policies that support rural dairy farms can promote coordination among smaller raw milk producers, limit the domination by large dairy processors, and make the industry more resilient and better able to meet the needs of farmers and consumers.

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  1. Arizona Slim

    Yours Truly doesn’t buy corporate milk in grocery stores. Instead, I buy raw milk in a food co-op, and it comes from a nearby farm.

    What you do matters. Shift the way you shop.

    1. Chas

      And raw milk tastes so much better than corporate milk, and it’s nutrients haven’t been destroyed by pasteurization and homogenization. Another reason for the milk glut is that many schools have banned whole milk for hot lunch and substituted thin, skim milk, which has no taste and so the kids don’t drink it.

        1. RMO

          I’m lucky in that there is a local dairy which offers all kinds of milk (in returnable glass bottles too) that is carried by the grocery stores near me. It’s about the same price as the mass market choices we have here too. I’m not a regular milk drinker myself (not lactose intolerant but more than a little milk does upset my stomach) but my wife and mum are. I do love the occasional small glass of whole milk or straight cream now and then.

  2. rob

    the disconnect for me is that :
    dairy farmers have been getting less for their milk in 2014-2019….. but the price at the store has gone up in those same years.
    dairy farmers see the amount they get as less than the cost of production… which is putting their ability to stay in the business at risk…
    the consumers are paying more at the grocery store…..
    and in between…. the middle men….

    must be the middle men are good at their business?
    No, in the time of covid…. there has been shortages and disruptions in even having shelves stocked…
    So those middle men aren’t really good at their role in the business…. maybe all they are good at is skimming money from everyone.

  3. John Hacker

    Humans are the only species to use milk through life. Less animals stop at weaning after early growth. Looks like a money-making ploy to me.

  4. chuck roast

    A few years ago a regional milk co-op emerged in southern Maine called Moo Milk. Sustainable farming producing fresh milk in returnable bottles…what’s not to like? The bottle-neck, so to speak, for the co-op was the bottling plant which was a poorly maintained remnant facility of one of the regional oligopolists. Eventually the plant broke down and the co-op didn’t have the cash to fix it. At the very same time the state legislature was busy giving sale/lease tax credits to scammers in the paper producing industry that resulted in scandalous losses for Maine taxpayers, obscene profits for connected grifters and ultimately closed paper mills and huge job losses.

    Shortly after the demise of Moo Milk I was at an open economic development legislative forum at a union hall in South Portland and I bought up Moo Milk. All the legislators smiled and nodded when I mentioned how important it was for the community. The follow-up looks on their faces were priceless when I began discussing their vaunted New Markets Initiative scam and how they allowed capitalists to steal millions up north at the same time the co-op farmers and consumers down south got screwed for lack of capital investment. One of those very rare occasions when you can put a metaphorical ice-pick in the collective necks of the well deserving.

  5. Daniel Raphael

    Where milk comes from is the wretched cows who are routinely impregnated, then their calves immediately separated from them, while the mother lows for her child. If you think that merely sentimental, I encourage you to view one of the many videos available on Twitter or via any of the human associations that deal with the fate of farm animals. It is not the said dairy farmers, but their living machines consigned to be exploited in every way and then sent to slaughter, who deserve our greatest empathy.

    1. Scylla

      As someone who works with farmers for a living, just let me note that farms do not have to operate in the way you describe in order to produce milk, rather they are forced to operate that way to survive in our heavily exploitative capitalist system. Many breeds, particularly holsteins, have been bred to produce far more milk than the calf needs. That farms are forced to separate them is an indictment on our economic and political system rather than on dairy farms.

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