Dick Groves, Publisher, Editor, Cheese Reporter

Latest Compact Study Likely To Have Lingering Effects

The University of Connecticut’s study on the Northeast Interstate Dairy Compact isn’t the first study of compacts and probably won’t be the last. But it will probably be the definitive study as far as influence over policy is concerned.
In case you missed it, the Connecticut study was released last week, and covered extensively in a story that started on our front page. Among the study’s key conclusions was that fluid milk processors and retailers have used the Northeast Dairy Compact to increase their profits.
That finding alone differentiates this study from some of the previous studies we’ve seen. Those studies — one from Dr. Ken Bailey when he was still at the University of Missouri, the other by Tom Cox, Bob Cropp and Will Hughes of the University of Wisconsin — essentially concluded that compacts are good for those dairy farmers covered by the compacts, bad for all other dairy farmers, bad for fluid milk consumers within the compact region but good for consumers of manufactured dairy products everywhere.
From a political standpoint, these studies were what might be called “non-starters.” That is, they didn’t contain anything that didn’t confirm why compacts are already favored by those farmers and politicians within compact regions and despised by farmers and politicians elsewhere. So both sides just dug in their heels even deeper when these reports came out.
The University of Connecticut study was different in a couple of respects. One, it garnered immediate response from attorneys general in New England; and two, it garnered immediate response from some members of Congress from New England.
There’s another difference between the Connecticut study and those previous studies. The lead author, Dr. Ron Cotterill, probably isn’t very well known in dairy circles, certainly not as well known as the authors of the studies cited above.
But Cotterill has delved into dairy controveries before, and his recommendations actually garnered policy changes that are still with us today. Specifically, Cotterill testified at the May 1996 House dairy subcommittee hearing on the National Cheese Exchange.
His testimony didn’t garner much attention — indeed, it wasn’t even mentioned in our extensive hearing coverage, which took up over half of our paper that week — but one of his recommendations eventually became policy.
What Cotterill specifically said was that no meaningful reform of the cheese price discovery process can be successful without a significant and leading role being played by USDA. He suggested a national cheese price reporting system based upon spot and contract sales and inventory audits of the top 200 cheese plants “to reestablish the integrity and allocative efficiency of the cheese pricing system.”
Today, of course, we have the weekly NASS “Dairy Product Prices” reports, which were launched about 10 months after that subcommittee hearing. And those NASS prices have replaced cash market prices in USDA milk pricing formulas. So it might be said that Cotterill’s views hold some sway with decision-makers.
And that leads back to our point about who responded quickly to his new dairy compact study. First, attorneys general in New England are planning legal action against retailers and dairy processors, in response to the study’s contentions. So the dairy compact, which has been challenged in court since before it was implemented, will soon be back in the courts again, at least indirectly.
Second, Vermont’s congressional delegation — two senators and one House member, all of whom live and breath dairy in a state where something like three-quarters of all farm income is dairy-related — welcomed the report as evidence that “the compact is good for consumers and gives farmers a fair shake.” Further, they said in a joint statement last week, “as this study clearly shows, market abuses and increasing consolidation in the dairy industry are the true culprits, not dairy farmers or our compact.”
So Congress will also be involved. That’s not new, given that compact legislation was just introduced last week, and given that compact supporters are working with a September 30 deadline.
It will, however, be interesting to see how much compact supporters focus just on extending and expanding dairy compacts, and how much, if at all, they focus on legislation that might tighten enforcement of agricultural mergers and acquisitions. While Vermont’s congressional delegation talks about how the Northeast Dairy Compact “is good for consumers,” the main points covered in the report dealt with milk pricing practices, not consumer benefits.
And we’re not sure how “good” the compact has been for consumers, given that it has cost them $19 million since it was implemented, according to the Connecticut study. Where is the “good” in that?
The bottom line to all of this is that while the compact issue itself might end by September 30, the key issues covered in the Connecticut study won’t end for quite a while after that. At the processor level, the Connecticut study singled out Suiza Foods for criticism.
That company is currently under investigation by attorneys general in New England, and will also come under some US Justice Department scrutiny in the months ahead as its proposed acquisition of Dean Foods Company is analyzed. Indeed, Suiza announced yesterday that it has received a second request from the Justice Department regarding its proposed merger with Dean.
That’s mainly a regional issue, concerning New England and a few other areas where Suiza and Dean overlap. Nationally, concerns over the growing power of retailers by others in the food marketing chain are likely to increase in light of this new study. Indeed, entities ranging from the Federal Trade Commission to the Senate Small Business Committee are voicing concerns over slotting fees and other retailer practices. This study will likely be added to the evidence against retailers.
So the compact issue may be resolved in a few months, but other issues raised by the Connecticut study will linger long after that. •