Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Grocery and ice cream maker allege milk price fixing conspiracy, (Sep 22, 2014)

By Linda O’Brien, J.D., LL.M.

An association of dairy producers and dairy cooperatives conspired to manipulate the supply of raw milk in order to eliminate competition and artificially raise prices for raw milk, milk products, and other manufactured dairy products, according to a complaint filed in the federal district court in East St. Louis, Illinois (Belle Foods Trust v. National Milk Producers Federation, September 19, 2014).

Belle Foods is a family owned chain of supermarkets that purchased large quantities of manufactured dairy products directly from a dairy marketing cooperative and dairy farmer cooperative. Yarnell’s Ice Cream Company was a manufacturer of dairy products, such as ice cream, frozen yogurt and sherbet. The National Milk Producers Federation (NMPF) is a trade association of dairy producers and dairy cooperatives which produce the majority of the nation’s milk.

The complaint states that NMPF developed “Cooperatives Working Together” (CWT) program described as a voluntary producer-funded program to strengthen and stabilize milk prices. Members of NMPF funded the program through assessments paid based on the amounts of raw milk produced. The assessments were used to pay some members of CWT to retire (slaughter) their herds and refrain from producing milk for a certain time period.

From 2003 to 2010, CWT funded ten rounds of herd retirements, resulting in the removal of over 500,000 cows from production and reduction of the nation’s raw milk supply by almost 10 billion pounds, the complaint stated. The effect of the program was to put smaller farms out of business, while unfairly increasing the profits of large agribusiness companies.

An analysis of the program illustrated that the effect of premature herd retirements reduced milk production while increasing cumulative raw milk price revenues by over $9.5 billion. The analysis also showed that retail milk prices closely followed raw milk prices and the manipulation of the supply of farm milk through herd retirement caused direct purchasers of fluid milk and manufactured dairy products to pay supracompetitive prices, the complaint alleged.

Milk demand is highly price inelastic and a relatively small decrease in raw milk supply can cause a substantial increase in price due to the lack of suitable alternatives. Non-milk products, such as soy based products, whose primary component is not raw milk, are not interchangeable with fluid milk or other manufactured dairy products. Moreover, milk prices have been supported at artificially high levels since the minimum pricing of nearly all of the raw farm milk produced in the United States is regulated by federal milk marketing orders.

According to the complaint, the CWT is not entitled to the limited protections of the Capper-Volstead Act. The Capper-Volstead Act grants certain agricultural cooperatives limited antitrust immunity under the Sherman Act when they are acting “in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce” their agriculture products. CWT does not quality for antitrust immunity because the Act does not provide immunity for pre-production output restraints or grant cooperatives the power to restrict supply. Moreover, CWT’s membership included entities that did not produce milk. Thus, NMPF’s control over CWT defeated “the equality of corporate suffrage” that non-members had influence over the direction of the CWT and put the defendants’ conduct outside immunity afforded by the Act.

The activities of CWT and its members allegedly were anticompetitive and predatory, did not promote market efficiency, and had no legitimate business justification for their existence.

The plaintiffs assert claims for violations of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:14-cv-01014-MJR-DGW.

Attorneys: Charles Barrett (Charles Barrett P.C.), Don Barrett (Barrett Law Group, P.A.), Diane M. Nast (NastLaw LLC), Michael Roberts (Roberts Law Firm, P.A.), Joseph Kohn (Kohn, Swift & Graf, P.C.), and Arnold Levin (Levin, Fishbein, Sedran & Berman) for Belle Foods Trust and Bankruptcy Estate of Yarnell’s Ice Cream Company, Inc.

Companies: National Milk Producers Federation; Cooperatives Working Together; Dairy Farmers of America, Inc.; Land O’Lakes, Inc.; Dairylea Cooperative, Inc.; Agri-Mark, Inc.

News: Antitrust IllinoisNews