Justice, USDA, Dairy Officials Convene at UW to Address Competition, Regulation

UW Law Professor Sparks Discussion of Dairy Co-op Regulation

Submitted by UW Law School News on June 25, 2010

Wisconsin Law Professor Peter Carstensen has studied the dairy industry long enough to know how to cool a heated argument - with ice cream.

Dairy farmers, dairy cooperative members, and professors who study dairy co-ops gathered at the University of Wisconsin today to talk about the role co-ops play in the dairy economy.  The panel discussion was part of a day-long workshop on antitrust issues in the dairy industry, put on by the U.S. Department of Justice and the U.S. Department of Agriculture, with assistance from the University of Wisconsin Law School.

Knowing that feelings run strong on both sides of the diary co-op debate, Professor Carstensen, the George-Young Bascom Professor of Law at UW Law School, started the panel discussion by announcing UW's famous Babcock Hall Ice Cream would be available free after the discussion concluded.

And after that cool, and cooling, comment - the fireworks began.

Professor Carstensen fired the first salvo, acknowledging that co-ops serve a valuable function by providing marketing power and leverage to their member farmers, but arguing that co-ops should be subject to more regulation in order to protect farmers.

"A co-op often represents the second or third largest investment a farm family has, after the farm itself," Carstensen said.  "It is an investment that, unfortunately, it seems to me, does not have the kind of transparency, the kind of regulation, the kind of oversight that farmers deserve."

Professor Carstensen was not arguing for lifting the limited antitrust exemptions that farm co-ops receive.  He did, however, suggest that co-ops should be subject to reporting, disclosure, and auditing requirements, so that their members can adequately monitor their co-ops.

These suggestions did not sit well with Jerrel Heatwole, a Delaware dairy farmer and official with the Mid-Atlantic Dairy Association and Dairy Farmers of America.

"We're about regulated to death, and I'm disappointed that regulation is the first think we think of as a solution," Heatwole said.

Peter Kappelman, a dairy farmer from Manitowoc County, Wisconsin, and Chairman of the Board of Land O'Lakes co-op.  Kappelman described co-ops as highly democratic organizations and said they were often wrongly portrayed as being too big.

"Who gets to decide what 'big' is?  Or 'too big?'  Or 'big enough?'  And what are the criteria?" Kappelman asked. 

While acknowledging that some co-ops are multi-billion-dollar industries, Kappelman argued that even the largest co-ops are dwarfed by the retailers - Wal-Mart, Kroger, and others - that they sell to.

University of Wisconsin economist Robert Cropp said there has been consolidation among co-ops, but that it was moving more slowly than consolidation of processors.  Ultimately, he agreed with Kappelman and Heatwole that no new regulation was necessary.

But Colorado organic dairy farmer Marc Peperzak said that argument missed the real problem.  Peperzak said that the sheer number of co-ops operating in Wisconsin, Pennsylvania, and some other areas provides for meaningful competition.  But only one co-op operates in Colorado, Peperzak said, and with no competition farmers are put at a disadvantage.  The panel's last speaker, University of Connecticut economist Ronald Cotterill, said that those differences in market characteristics placed a heavy burden on regulators, such as the Department of Justice, to closely examine local markets and not just adopt a one-size-fits all approach.

Professor Carsten said the discussion's format prevented the panel from delving too deep into any of the issues raised.  But the good thing about the panel was that it addressed many of the issues that both sides raise when addressing dairy cooperatives.

Except, that is, for one issue: the Federal Milk Marketing Orders system, which has an enormous impact on the prices of milk and milk products.  "That," Carstensen said, "is the elephant in the room."

Nation's Top Agriculture, Antitrust Officials Convene at UW to Discuss Dairy Markets

Submitted by UW Law School News on June 25, 2010

When Christine Varney became the U.S. Justice Department's Assistant Attorney General for Antitrust, she came to Wisconsin Senator Russ Feingold to learn about dairy issues.  Senator Feingold referred her to the University of Wisconsin Law School to learn about the intersection of antitrust law and the dairy industry.

Today, Sen. Feingold, Gen. Varney and U.S. Secretary of Agriculture Tom Vilsack were among the policymakers who convened at the University of Wisconsin to discuss dairy markets and competition in the industry.  The discussion also included Senator Herb Kohl, Representative Tammy Baldwin, Governor Jim Doyle, and Wisconsin Agriculture Secretary Rod Nilsestuen.  (U.S. Attorney General Eric Holder also was scheduled to attend, but had to withdraw to attend a funeral.)

Hundreds of dairy farmers and producers filled the Union Theater in Memorial Union for the workshop.

"i really can't think of a more fitting location for you to have this workshop than America's Dairlyland, and to be on this campus at this fine university," Rep. Baldwin said.

UW Law School has long been a leader in this critical area of law enforcement.  In fact, Senator Feingold said he specifically asked Ms. Varney to talk with Peter Carstensen, the George Young-Bascom Professor of Law at the UW Law School and one of the nation's foremost experts on antitrust in agriculture generally, and in dairy specifically.  Professor Carstensen participated in one of the workshop's panel discussions Friday afternoon.

Professor Carstensen also helped to arrange the workshop, the third of five national workshops looking at antitrust issues in agriculture.  The first workshop in the series was held in Ankeny, Iowa, in March and focussed on row crops and hogs.  The second, with a focus on poultry, took place last month in Normal, Alabama.  Future workshops will address the livestock industry in Fort Collins, Colorado, and margins in agriculture in Washington, D.C.

The central concern of these workshops, Secretary Vilsack said, is fairness - "whether the playing field, the marketplace, is as fair and balanced as it needs to be."

Growing consolidation in the industry is one concern.  Earlier this year, the Justice Department filed suit against Texas-based Dean Foods in an attempt to reverse Dean's acquisition of two Midwestern dairy facilities - a transaction that gave Dean control of 57 percent of the processed milk market in Wisconsin, northeastern Illinois, and the Upper Peninsula of Michigan.

"This consolidation means that we need strong antitrust enforcement now more than ever," Sen. Kohl said.  "That's why it is so important that the Department of Justice and the Department of Agriculture are here today.  They need to hear from farmers."

The panelists also expressed concern about a lack of information that limits farmers' negotiating power, and about the growing disparity between the low prices dairy farmers receive for their produce and the rising prices consumers pay for milk, cheese, butter, and other dairy products.  

Varney said her agency would vigorously pursue illegal and anti-competitive practices.

"We put people in jail," she said.  "If there is price fixing going on, we will prosecute it and we will put people in jail."

"We are very interested in hearing from you about issues that confront you on a day-to-day basis," Varney said.  "We take very serisouly our obligation to enforce the law."

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