The growing milk processing monopoly
hurts farmers, consumers
By Edward Ericson, Jr.
Published 05/17/01, The Hartford Advocate
Between 1997 and 2000 you and
other New England consumers paid
nearly $50 million more for milk than
you would have in a competitive
marketplace, according to a study by a
University of Connecticut economist.
Professor Ronald Cotterill, director of
the university's Food Marketing Policy
Center, analyzed bar scanner data,
wholesale milk prices and other
economic factors to gauge the effect of the Northeastern States Dairy
Compact, a price support system approved by Congress in 1997. His study
found that retail prices increased by more than three times the increase
legislated by the compact because two companies, Stop & Shop and Suiza
Dairy, used their dominance as milk processors to increase their own profits
while blaming the compact.
"We certainly would agree with the report on the onset," says Matthew
Freund, co-owner with his brother, Benjamin, of Freund's Farm
Incorporated in East Canaan. "If the processors have gouged it they ought to
be held accountable."
Ben Freund says New England farmers "need good processors in the area"
because many have closed or have been bought out in the past few years.
Without the processors, who buy raw milk from the farmers, test it for
bacteria or contamination, pasteurize it and package it for market, the
farmers can't get their milk to the stores. "So we need them and it's in no
one's interest for us to fight with each other," he adds.
But the two wings of the milk business have been fighting over the price
support system since 1997. The farmers like it; the processors oppose the
compact because it increases their costs.
The supermarkets not only lobbied against the compact in Congress, but
they also lobbied consumers by drawing attention to increased milk prices in
the summer of 1997. A sign over Stop & Shop dairy cases read, "Due to
the increased cost of milk caused by the new 'Northeast Compact'
authorized by the U.S. Congress and signed by the U.S. Secretary of
Agriculture, we have had to increase our milk prices. We hope this poses no
inconvenience to anyone."
The retail price increase, according to Cotterill, averaged 29 cents per
gallon, but the compact alone accounts for only 6 cents of that, he says.
A spokeswoman for Stop & Shop, New England's largest supermarket
chain with 274 stores in five states, referred questions about the study to
Grace Nome of the Connecticut Food Association, an industry trade group.
Nome said last week that she had not yet read Cotterill's report, despite its
availability for download via the Internet.
In general, she said, "I think they're beating us up because they expected
to swallow that (increase in wholesale milk price). We're dealing with a 1
Nome said she could not answer questions about Stop & Shop's milk
pricing policies, or about that company's milk processing system. Questions
left with Stop & Shop public relations people were not answered as of press
Suiza spokespeople also did not return calls seeking comment. They have
the past referred reporters to a Washington-based trade group, The
International Dairy Foods Association, which disparaged the UConn study
in a statement released May 2.
"The study's release coincides with the introduction of legislation to
and expand the use of interstate dairy compacts and uses statistical
sleight-of-hand to arrive at what appear to be pre-determined conclusions of
the authors," association president and CEO E. Linwood Tipton wrote. "For
example, they conclude that farmers have received an added benefit of
$128.5 million as a result of the higher compact price. However, they also
conclude that consumers paid a premium of only $19 million due to
compact-induced higher prices. One has to wonder where the other $109.5
million came from to pay the farmers. The numbers don't add up."
The study attributes the $109.5 million difference to a stabilized wholesale
price over the three-year period. Prior to the compact, the wholesale price
fluctuated greatly, where the retail price stayed the same. The processors
were, in effect, taking a bigger spread of the profits when prices fluctuated
Cotterill concludes that processor and retail profit margins could have
remained stable given a retail price increase of 4 to 6 cents. Much of the
increase beyond that fell to the bottom line as profit, he concludes.
But while farmers and processors try to use the report to argue for or
an extension of the Northeast Compact, the report's real focus is on the
antitrust implications of Suiza's consolidation of the Northeast milk
"The major policy issue now facing New England consumers of fluid milk
not the Northeast Dairy Compact," the report says. "It is the exercise of
market power by the region's leading retailers and milk processor."
Dallas-based Suiza was already the nation's leading dairy processor and
brand retailer when the compact went into effect in 1997. But after that the
company went on a buying spree, gobbling up New England milk processing
plants. By 2000 Suiza controlled 70 percent of the processing in New
"They bought every processing plant except one," says Doug DiMento,
communications director for Agri-Mark, a regional dairy farmers'
co-operative. "So the dairy farmer is in a much more precarious position
than he's ever been in the marketplace."
When processors were independently owned, for example, milk shortages
would occasionally compel them to pay farmers a premium to get their milk
and keep their machines running, DiMento says. Those days are long gone
now, he says.
According to Hoover's online, a business directory, Suiza Dairy Group
operates more than 80 dairy processing plants that produce and distribute
milk to 46 states. Its brands include Meadow Gold, Borden, Elsie,
Foremost, Oak Farms, Country Fresh, Tuscan, Dairymens, Pet,
Flav-o-Rich, Broughton, and Suiza Dairy.
U.S. Sen. Patrick Leahy (D-Vermont) spoke against the consolidation trend
in Congress, and wrote letters to the U.S. Justice Department and the
Federal Trade Commission asking them to investigate Suiza. Leahy has
gotten no response from the feds to date, his spokesman says. But the
senator also contacted the attorneys general from New England states, and
they are investigating. "We have had an active investigation into the milk
industry in New England," says Connecticut Attorney General Richard
Blumenthal, adding that his office plans to take some public action in the next
It is unclear what the states can do to curb corporate consolidation.
Agri-Mark's DiMento is skeptical. "The only mechanism in place is the U.S.
Justice and Antitrust Department which has been sitting in a closet for the
last eight years," he says. Things are unlikely to improve. President Bush's
nominee to lead the Federal Trade Commission, Timothy Muris, has spent
his academic career arguing against government intervention to prevent
Suiza, meanwhile, announced a $1.5 billion merger with Dean Foods, the
nation's number-two milk processor, last month. Dean reported more than
$4 billion in gross sales in 2000, and earnings of $229 million.
Wall Street analysts, ordinarily delighted by mergers, tempered their
enthusiasm with a rare dose of caution. "My only concern for the success of
this deal is that the rest of the milk industry can prove to be viable
competitors," said Merrill Lynch analyst Leonard Teitelbaum. "We're going
to be a one-cow country."