Are Higher Milk Prices the Result of a Price-Fixing Conspiracy?

Have dairies killed thousands of cows to drive up milk prices? A recently filed class action lawsuit alleges that large companies in the dairy industry participated in a multi-billion dollar milk price-fixing scheme.

The National Milk Producers Federation, Dairy Farmers of America, Land O’Lakes, and others have been accused of using a herd retirement program to reduce the milk supply and artificially inflate prices. Cooperatives Working Together (CWT), a collective trade group established in 2003 by the National Milk Producers Federation, runs the herd retirement program. CWT conducted 10 rounds of herd retirements, culling more than 500,000 dairy cows between 2003 and 2010. The result was an increase in milk prices and an additional $9.5 billion in revenue for milk producers. The CWT stopped its herd retirement program in 2010. However, industry experts say the smaller herd could impact milk prices for years.

The CWT acknowledges that milk prices have increased since 2003. The CWT was designed to “strengthen and stabilize prices.” Additionally, given the rising cost of feed and higher dairy export demand, increases in milk prices are not surprising. And if each dairy operation independently accessed supply, demand, and prices, and reduced herds as a result, higher milk prices would likely not be controversial. What is unsettling among consumers is the alleged collective and systematic killing of dairy herds. These actions inflated prices, cheated consumers, and violated anti-trust laws, according to animal right group Compassion Over Killing.

The consumers suing the dairy industry also say the CWT concentrated its herd retirement efforts on smaller dairy farms. Smaller farms were then more prone to buy outs and large dairy operations became even larger. The CWT program may have unfairly represented the interests of dairy corporations over smaller dairy farmers, according to the lawsuit. Among the defendants, Dairy Farmers of America and Land O’Lakes are two of the largest dairy cooperatives in the US. The National Milk Producers Federation controls about 70 percent of US milk production.

Also noteworthy is that the current dairy industry lawsuit is the second time in the past year that Land O’Lakes has been accused of price fixing. The company agreed to pay a $25 million settlement in allegations of egg-price fixing in June 2010. The United Egg Producers and its members, including Land O’Lakes, were accused of conspiring to reduce flocks to inflate egg prices. Hmm … sounds very similar to the CWT herd reduction initiative. Maybe then, it’s not a coincidence that the CWT ended its “successful” herd retirement program in the summer of 2010, the same time Land O’Lakes settled its egg price-fixing issues.

Whether or not Land O’Lakes actually conspired to fix prices for eggs or milk, it certainly doesn’t look good. It will be interesting to see how consumers react to Land O’Lakes’ latest lawsuit and to the new accusations against other dairy giants.

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Photo by Kabsik Park, used under a Creative Commons license.
Rebecca Mallett

Rebecca Mallett has been researching and writing about companies, industries, and executives as a member of the Hoover’s editorial team since 2007. For the past 5 years, she has focused on the agriculture and food manufacturing, business services, and mining and energy industries as a member of the First Research team. Follow her on Twitter.

Read more articles by Rebecca Mallett.

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