On July 27th, 2020, the United States Department of Justice (DOJ) filed an amicus brief in a lawsuit against Dairy Farmers of America, the United States’ largest dairy cooperative. The lawsuit, filed in Vermont U.S. District Court, alleges that DFA and other cooperatives agreed not to compete for each other’s farmer-members, conspired to share payment information in order to discourage competition and depress prices, and maintained those low prices market-wide by entering into supply agreements with Dean Foods and other dairy processors.
In its Statement of Interest for the brief, the DOJ makes three main arguments:
- The allegations against DFA in the case are not shielded by the Capper-Volstead Act from antitrust laws. In other words, DFA cannot hide behind its technical status as a cooperative. If there is evidence that DFA conspired with nonexempt parties, (non-cooperatives) to act “anti-competitively against other farmers,” then “claims at issue in this case fall outside the heartland of Capper Volstead protection.” The DOJ states, “To the extent . . . that DFA, even when acting as a milk marketing cooperative, made agreements with non-cooperatives that would violate section 1 of the Sherman Act,” that “DFA had monopsony power and used it,” and that “it would be inconsistent with the (Capper-Volstead) Act to allow a monopsony to use (Capper-Volstead) as a shield.”
- The Capper-Volstead Act does not insulate exclusionary acts from the antitrust laws prohibiting monopsonization. Basically, this section argues that the definition of “predatory practices” should be applied broadly as violations of section 2 of the Sherman Act, and are “therefore outside the protection of the Capper Volstead Act.”
- The Defendants (DFA) bear the burden of proof that they are protected by the Capper-Volstead Act. Since it is DFA’s claim that they are protected as a cooperative by Capper-Volstead, they must show proof of such claims. This argument is extremely significant, because it shifts the burden of proof away from the farmers. OCM has long argued that requiring farmers to show proof of harm is an unreasonable burden, and this argument from DOJ follows a similar line of reasoning.
The Statement of Interest provided by DOJ is perhaps one of the most relevant interpretations of the Capper-Volstead Act’s intent and purpose that OCM has seen. The DOJ arguments clearly demonstrate that farmer and producer protection was one of the main reasons for passage of the Clayton and Sherman Acts.
More Background on the Case:
In 2016, DFA paid $50 million to dairy farmers to settle a class-action lawsuit that alleged DFA and its marketing arm, Dairy Marketing Services LLC, had conspired to monopsonize the fluid milk market in the Northeast. A significant outcome of that settlement was that a group of 116 farmers in the Northeast opted out of that settlement, instead working together to bring a separate lawsuit against DFA.
The lawsuit, filed in Vermont U.S. District Court, alleges that DFA and other cooperatives agreed not to compete for each other’s farmer-members, conspired to share payment information in order to discourage competition and depress prices, and maintained those low prices market-wide by entering into supply agreements with Dean Foods and other dairy processors.
In September of 2019, U.S. District Judge Christina Reiss issued a 58-page ruling that allowed the case to move forward. The judge ruled that the farmers had provided “admissible evidence from which a rational jury could conclude that DFA management favored growth of its commercial operations and empire building over the interests of its farmer-members.”
If the jury sides with farmers, according to Leah Douglas of FERN News, “there could be wide-ranging implications for the dairy sector and other agricultural cooperatives. Currently, agricultural cooperatives enjoy an exemption from some antitrust scrutiny under the Capper-Volstead Act, a law dating back to when cooperatives were meant to shore up farmers in the market against pressure from powerful middlemen. The farmers in this case would have DFA’s behavior ruled beyond the scope of the antitrust immunity granted by Capper-Volstead. They would also have DFA’s supply agreements terminated.”
The case was slated for trial on July 1, 2020, but was postponed due to the Covid-19 pandemic. OCM will be monitoring the progress of the trial, and will provide as much information about the process and outcomes as they develop.
So does this mean the millions in profits made by DFA and many dairy Co-ops from “cheap raw milk” may be illegal as violation of Capper Volstead which mandates for Co-ops to first look out for “producer/member benefit”. Will this require them to stop buying surplus raw milk at $10 so their partners can make millions on their exports, all a loss to their very own producer/members??
Hi Joe,
We don’t know exactly what this will mean, but the DOJ’s arguments in their brief clearly indicate that they do not believe DFA can use the protection of Capper-Volstead in this case. Once the trial begins, arguments and evidence are presented, and we see the outcome, we should know more about whether this case will set a precedent that would guide other interpretations of agriculture antitrust cases.
Thanks Ben, for the article. It is time Co-op owner/members understand Co-op law and that undisputedly the #1 job of Co-op CEOs and Boards is producer profitability–NOT to get rid of surplus , NOT grow market share, NOT keep raw milk prices low for exports etc. Annual meeting should be for one reason–review farmer paid price, deducts and full explainations
of same. No BS buzzwords and bragging–of course they are in great financial shape–they just take what they want in “deduct” from milk checks. Great Article!!!