Dairy Farmers of America (DFA) is the target of a class action antitrust lawsuit filed last week, alleging the largest national dairy cooperative has acted or has tried to act as a monopsony by constraining the Northeast raw milk market.
The complaint, filed on July 29 in the U.S. District Court in Vermont, claims DFA has created a conflict of interest with its member farmers by expanding into dairy processing, withheld profits from its processing operations, and has moved to control the Northeast raw milk market through “predatory and exclusionary actions” by coercing farmers to become members through acquiring competing businesses and exclusive supply contracts.
What Are the Specific Allegations?
According to the complaint, the alleged actions began at least on May 10, 2016 and add up to DFA creating a monopsony – a single buyer market – for non-organic raw milk. That environment kept milk prices lower while simultaneously pushing competing dairy cooperatives “to the brink of insolvency,” allowing DFA to acquire the distressed organizations and further consolidate the market.
The lawsuit also claims DFA purchased milk hauling fleets that serviced non-DFA farmers and then withdrew services until those farms agreed to join the cooperative and also that it withdrew its fee-based marketing services from non-members as another tactic to force membership. DFA also allegedly sought to acquire processing facilities, removing more options for non-members.
Among the deals cited by the complaint are DFA’s 2017 purchase of Cumberland Dairy Milk Producers in Bridgeton, New Jersey; the 2019 merger of Vermont-based St. Albans Cooperative Creamery; its 2020 acquisition of defunct dairy conglomerate Dean Foods; and a 2021 exclusivity agreement with Wakefern Food Corp. to serve as the sole supplier for its Readington Farms branded milk bottling plant in White House, New Jersey.
While the alleged control would provide a challenge for independents in any sector of food and beverage, the suit notes the fast-paced nature of the raw milk market – in which cows must be milked twice daily and the product is highly perishable – poses a more urgent threat for these non-member farmers who “could go out of business within days or weeks if they cannot access a market for their raw milk,” the complaint states.
The Northeast region includes 11 states, including all of New England, New York, New Jersey, Delaware, Maryland and eastern Pennsylvania.
“The result of DFA’s anticompetitive, exclusionary, and predatory conduct is that it has reinforced and extended its monopsony buyer power over the Northeast market for raw milk (measured as a % of volume marketed), from approximately 40%-55% on the eve of the Class Period to approximately 50%-60%,” the complaint states, noting that one report estimated DFA controls 85% of milk processing in the Northeast region.
What is DFA’s Response?
In a statement shared to media outlets, Kristen Coady, SVP, corporate affairs for DFA, called the allegations “baseless and completely without merit.”
“DFA is a cooperative that was formed by, is owned by, and is governed by dairy farmers,” Coady said in the statement. “Any claim that a farmer-owned, farmer-governed cooperative is motivated to self-inflict damage on its member-owners is preposterous, irrational and blatantly inaccurate.
“Since DFA’s formation, our farmer-owners have worked to build a cooperative that is strategically invested in assets to ensure milk markets and provide additional returns on their investment in their cooperative,” she continued. “We will, as we always have, continue to make decisions and take actions that are in the best interest of our farmer-owners — now and for generations to come.”
What Other Challenges Has DFA Faced?
This is not the only antitrust lawsuit filed against DFA this year. In April, a class action filed in New Mexico made similar allegations against the cooperative for its actions in the Southwest region. The complaint accused DFA of conspiring with Select Milk Producers Inc. to “stabilize and depress pay” for member farmers through price data sharing and skimming profits. Two of the law firms involved in this new case – Hagens Berman Sobol Shapiro LLP and Lockridge Grindal Nauen PLLP – are also representing plaintiffs in that class action.
Notably, the Southwest lawsuit is focused on a specific conspiracy claim, while the Northeast case revolves around monopsony, despite the end impact – farmers facing financial distress due to price control – being fairly similar. However, the different violations alleged in the two suits means decisions made by the court in one case may not necessarily impact the other.
Beyond that case, DFA has been a frequent target of antitrust claims and other lawsuits over the past decade with varying results. According to Lancaster Farming, “the co-op and other defendants agreed to pay a $159 million settlement with Southeastern farmers in 2013” and in 2016 a federal judge approved a $50 million settlement to be paid by DFA to Northeast farmers, however 116 of those farmers rejected the settlement and reached a new settlement in 2020 for undisclosed terms.
DFA also faced challenges in response to its acquisition of bankrupt dairy producer Dean Foods Co., which was settled for undisclosed terms in February 2021. Prior to that, the two companies settled a lawsuit alleging price fixing in 2014 for $350 million.
Last year a federal judge dismissed a lawsuit filed by farmers in New York asking DFA to be broken up. Also in 2021, DFA settled with the Maryland & Virginia Milk Producers Cooperative Association and Food Lion, who had sued the cooperative.
What is the Context for the Rest of the Dairy Industry?
The lawsuits come at a time where the number of U.S. dairy farms has been in a decades long decline. A 2021 USDA report found 31,657 total licensed dairy producers in the U.S. in 2020, down 2,550 from the year before. Between 2003 and 2020, the total number of farms fell by more than 55%.
While the DFA cases deal primarily with non-organic milk, the issue has also impacted organic farms as well. Last year, Maple Hill Creamery and Danone-owned Horizon Organic both moved to terminate purchase contracts with Northeast family farms. In response, Stonyfield Organic announced it would invite impacted farms to join its direct supply program. Stonyfield co-founder Gary Hirshberg also founded nonprofit group Northeast Organic Family Farm Partnership to support the independent operations.
Meanwhile, Wisconsin-based cooperative Organic Valley is also making moves into the Northeast. Yesterday, it announced 51 new member farmers in Vermont, New Hampshire, Maine and New York – its first partners from the region.