Rules Must Match the Playing Field

by Richard A. Levins, Professor Emeritus of Applied Economics at the University of Minnesota, St. Paul.

I’ve been writing lately about how the size and number of dairy farms have a big role in how dairy policy actually plays out in practice. The same thing goes for other parts of the dairy industry.

Recent issues of Hoard’s Dairyman put the spotlight on both dairy processors and dairy cooperatives. The trend toward fewer and bigger businesses, not to mention overlap among the two groups, is striking.

Let’s look at the top 50 co-ops list first. The member milk volume of the five largest cooperatives was close to half of the nation’s milk supply. Acooperative with only 16 farm- ers came in at No. 20 on the list. The cooperative in the No. 6 position has only 110 farmers.

The top 50 dairy processor list is equally dramatic. The country’s largest dairy processor is a cooperative. A Canadian cooperative has the No. 5 position. Another domestic U.S. cooperative is listed at No. 9, and two more are tied for No. 10.

Then there is the issue of overlap between the two lists. Domestic dairy cooperatives ranked No. 1, No. 9, and tied for No. 10 on the top processor list are also ranked high on the top cooperative list.

Antitrust policy

Congress laid the legal founda- tion for antitrust policy relating to agriculture in the 1920s. Back then, we counted our dairy farms in the millions. The average herd size of those farms was measured in single digits. Operators of very small dairy farms individually faced off against giant proprietary milk processors in a battle over milk prices. It made good sense to grant an antitrust exemption to all dairy farmers and their coopera- tives so they could balancebargain- ing power on both sides of the price negotiation table.

What would legislators from a cen- tury ago say if they suddenly came back to life in 2020 and read the last few issues of Hoard’s Dairyman? Could they even imagine a cooperative of 110 farms accounting for almost 4% of America’s total milk supply? Or that the nation’s largest cooperative, with member milk accounting for roughly one in four loads of milk produced in the entire country, would also be America’s largest processor?

The century-old goal of using antitrust policy to level the market playing field for smaller dairy farmers makes as much sense now as it did then. Nonetheless, the top 50 lists make me wonder if it is time to rethink the way we use antitrust policy to pursue that goal.

Federal order regulations

We can see the same story play- ing out in the Federal Milk Market- ing Order (FMMO) system. Decades ago, bloc voting was easier to defend. The huge number of farms complicated voting, farmers had less information on the matters at hand, and we didn’t have modern communica- tion technology.

Today, we have many fewer farm- ers, they are well-educated, and they have access to sophisticated communications methods. On top of that, we are in a situation where four domestic cooperatives, each of them top 10 processors, can together bloc vote for over 10,000 dairy farmers.

Milk volume further clouds the balance of power between FMMOs and dairy cooperatives. The largest cooperative processor on the latest list has member milk volume far greater than the amount delivered to any single FMMO. The four larg- est domestic cooperative processors combined had member milk volume that was over half the total amount delivered in all FMMOs in 2019.

Consider the natural economic tension between processors and farmers: One entity does better with lower milk prices, while the other group does better with higher prices. Then add into the mix that 10,000 dairy farmers can be repre- sented by bloc votes from four different cooperatives. How can four “bloc votes” effectively represent so many competing interests in a FMMO referendum?

A lot more to think about

As you can see, there is a lot to think about in this year’s top processor and top co-op lists. Antitrust regulation and giving farmers a stronger voice in FMMO reforms are at the top of my list. I’m sure you have your own ideas for what needs a fresh look in today’s dairy economy. No matter what your priorities, however, the main message will be this:

When the playing field changes, so must the rules.