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Serious Milk Powder Shortages Disrupting Dairy/Food Processors

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Serious Milk Powder Shortages Disrupting Dairy/Food Processors The Milkweed Dairy’s best marketing info and insights Issue No. 326, September 2006 Antitrust Hands Over Dairy Complaints to DOJ Superiors by Pete Hardin “Interviews” with high-level officials of DFA and Dean Foods were held in mid- In late August, career professionals at the Antitrust Division of the United August—just before the Antitrust Division finalized the draft complaints. States Department of Justice (DOJ) finalized drafts of proposed complaints against three dairy industry firms: Dairy Farmers of America, Dean Foods, and Southeast shenanigans believed to be focus National Dairy Holdings. Alleged misdeeds by the three parties are believed to focus on activities in The draft complaints were submitted by Antitrust officials to superiors at the Southeast. Dean Foods and (to a far lesser degree) NDH control a large per- DOJ around August 24. The final drafts contain charges that the Antitrust centage of fluid milk processing/distribution in that region. DFA has a stran- Division recommends be brought as indictments against the three firms. It is not glehold on raw milk supplies in the region. Southeast dairy farmers whose milk known if any individuals at those three firms may also be named. is marketed by DFA and related marketing agencies have been financially DOJ higher-ups must now decide whether, and in what fashion, to pursue abused by “reblends”–deducts from members’ milk checks. the Antitrust Division’s recommended charges against these three dairy entities. Several critical issues have been raised by anti-competitive antics among (Dean Foods’ principals are tightly connected to the Bush White House.) the three above-mentioned dairy firms in the Southeast, including: The rogues’ gallery line-up *Coercion of competing milk suppliers. DFA has run roughshod over Dairy Farmers of America (DFA) is the nation’s largest dairy producers’ competing milk suppliers in the Southeast. The “worst case” behavior occurred cooperative. DFA is based in Kansas City, Missouri. in late January 2003, when DFA’s top management official in the Southeast, Dean Foods is the nation’s largest fluid milk processor. Dean Foods is John Collins, wrote a letter to Calvin Covington (CEO of Southeast Milk, Inc.), based in Dallas, Texas. demanding that SMI agree to extortionate terms in a new milk marketing agree- National Dairy Holdings (NDH) is a fluid milk-processing firm, based in ment, or else DFA would take away SMI’s ability to sell raw milk to Dean Foods Dallas, Texas. and NDH plants in Florida. SMI responded to Collins’ threats by hiring top-notch lawyers and lobby- DFA and its subsidiaries are the near-exclusive raw milk suppliers to Dean ists—working hard to convince state and federal Departments of Justice about Foods and NDH. DFA owns NDH. NDH is a competitor of Dean Foods. DFA’s improper activities. Covington announced the filings of the Antitrust In late 2001, when the present Dean Foods was created by merger of the Division complaints to senior DOJ officials in SMI’s September 1, 2006 week- nation’s two largest fluid milk processors (Suiza Foods and Dean Foods), three ly member newsletter. SMI merits great credit in this battle. top-level Suiza Foods executives jumped ship to NDH. NDH then bought about a dozen milk plants that DOJ Antitrust officials ordered sold to “preserve com- *Abuses by marketing agencies. In the Southeast (and elsewhere), DFA petition” in certain markets. relies heavily on so-called “marketing agencies in common” to do the co-op’s dirty deeds. “Marketing agencies” are special entities—“cooperatives of coop- Investigation lasted over two years eratives” authorized by the Capper-Volstead Act, a 1922 federal law that gave The draft complaint by the Antitrust Division summarizes an active investi- agricultural cooperatives special marketing powers. gation into anti-competitive antics in the U.S. dairy industry that has lasted more However, apparent abuse by DFA-related marketing agencies in the than two years. DOJ’s Antitrust officials have repeatedly investigated alleged mis- Southeast has been blatant. deeds by DFA during the past decade, but never before put the hammer down. Example: Starting in February 2003 … one month after Dean Foods The present investigation was announced in early August 2004 by sen- announced it was forcing its 2500+ independent dairy producers to join Dairy ior DOJ Antitrust Division attorney Allee Ramadahn, at a meeting of dairy Marketing Services (a DFA-related marketing agency) … DFA compelled the farmers in the home of Brent and Carrie Duncan (who live outside of Southeast Marketing Agency (SMA) to issue a $.11/cwt. “promotion credit” to Franklinton, Louisiana). At that meeting, Ramadan promised to “follow the Dean Foods. Questions arise about the independence of DFA and its marketing money” to determine why DFA was so poorly paying Louisiana dairy farm- agencies to Dean Foods. Further questions arise about whether DMS is legally ers for their milk. DFA has bled southeast farmers unmercifully. protected as a cooperative when marketing milk from independent producers. Since the dairy Antitrust probe started, federal Antitrust officials have *School milk price gouging. That above-mentioned $.11/cwt. “promo- deposed (under oath) more than five dozen different industry personnel. tion credit” extended to Dean Foods by SMA was rebated three months after the Continued on page 2–Antitrust Serious Milk Powder Shortages The Milkweed 9/06 Disrupting Dairy/Food Processors Invest in your best source for dairy news and analysis. Know what’s really going on! by Pete Hardin Products Institute (ADPI—the milk powder trade Visit our Web site: www.themilkweed.com Say what??? No milk powder??? association), the largest use for nonfat dry milk is To subscribe, send your check to: Many dairy and food processing firms sudden- dairy manufacturing, primarily cheese. Some ly face serious shortages of nonfat dry milk. cheese plants add nonfat dry milk to their cheese The Milkweed Virtually zero supplies of fresh milk powder are vats to boost protein content and cheese yields. P.O. Box 10 Brooklyn, WI 53521-0010 available. DairyAmerica—the marketing agency in Confectionary (candy) and baking are, respec- common for most U.S. dairy cooperatives that pro- tively, the second- and third-largest domestic users Subscription rates: duce nonfat dry milk—was unable to tell contracted of nonfat dry milk, according to ADPI. $40 per year (12 issues); buyers at the end of August whether those buyers Scanning food products’ ingredients labels at a $75 for two years, OR 2 subscriptions. would receive any product during September. major supermarket will unveil many dozens of products listing nonfat dry milk as an ingredient. Foreign subscription rates, one year: Some industry sources project that the severe Canada: $50 U.S.; foreign air mail: $75 U.S. shortage of milk powder could last to Christmas 2007! Shortages of nonfat dry milk mean dairy/food Nonfat dry milk is so basic a commodity that processors must substitute ingredients—such as whey protein derivates and/or soy proteins. it’s always been taken for granted, like tap water. (Name) Nonfat dry milk is powdered milk—36% protein Manufacturers using such substitutes must adjust content—with the milk fat removed. their ingredients’ labels—a costly move. And such substitutes will detract from both the taste and qual- (Street or Rural Address) U.S. milk powder is widely used in dairy and ity of foods in which they’re used. food processing. According to the American Dairy Continued on page 4–Milk Powder Shortage (City, State, Zip) A Serious Milk Powder Shortages Disrupting Dairy/Food Processors Continued from page 1 ments, to lock monthly needs. And then In panic, WI plants scramble for farm milk DairyAmerica sold a month’s worth of U.S. nonfat Panic is setting in the dairy and food process- Why is nonfat dry milk scarce? dry milk to Fonterra this summer—and now can’t ing industries over the shortage of nonfat dry milk. Two major events have suddenly converged to supply domestic, contracted users’ needs. In August, Baker Cheese (St. Cloud, dry up nonfat dry milk supplies across the U.S. Sources steam that DairyAmerica has advised Wisconsin) “stole” two and a half loads of milk a Those factors include California’s intense heat the industry to set up pricing based upon weekly day from Saputo Cheese’s Schneider Cheese plant wave during July … and downright stupidity. price surveys of nonfat dry milk sales by the USDA’s at Waldo. Milk truck drivers said that Baker 1) Heat cut CA July/August 2006 milk solids NASS. And then the weekly NASS surveys lag far Cheese’s management didn’t think they’d be able to The intense heat wave the devastated behind other price indices, such as the Chicago obtain nonfat dry milk for the next year and they California seriously dropped farm milk output in Mercantile Exchange (CME) daily cash market, spot needed more milk to fill strong orders for their both July and August. Don’t believe USDA’s markets, dairy.com prices … and global markets. excellent “string cheese” product. National Agricultural Statistics Service (NASS) Firms reselling nonfat dry milk based on the NASS Foremost Farms, based in Baraboo, numbers projecting California only suffered a 0.3% weekly price in late August were losing almost five Wisconsin, is literally addicted to the white powder. decline in July 2006 milk production compared to and a half cents per pound, when comparing the At a membership meeting in Shawano, Wisconsin July 2005. (For a discussion of California’s July NASS price to the CME cash market price. in late August, a high-level Foremost executive, 2006 milk output, see page 7 of this issue.) Sources steam that DairyAmerica is selling when asked, stated that Foremost’s business plan Regardless of how much milk California spot loads of nonfat dry milk through dairy.com for called for purchase of 90 million lbs.
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