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Groups Want Senate Hearings on Dairy Cooperative: They Allege Dairy Farmers of America Has Unfair Business Practices

July 8, 2008

By Rick Barrett, Milwaukee Journal Sentinel

Jul. 8–Twenty-five agriculture and consumer groups, including three based in Wisconsin, have asked the U.S. Senate for immediate public hearings and oversight of the nation’s largest dairy cooperative, Dairy Farmers of America.

The groups, represented by the National Family Farm Coalition, allege the cooperative has engaged in predatory business practices that have led to the demise of thousands of farms and an increasingly consolidated dairy industry that limits farmers’ options in selling milk.

The groups have noted their complaints in a letter to the Senate Judiciary Committee, chaired by Sen. Patrick Leahy (D-Vt.).

Federal commodity regulators are investigating whether the farmer-owned cooperative, which controls about one-third of the nation’s milk supply, engaged in a price manipulation scheme. Separately, the Dairy Farmers of America recently notified the Department of Justice of an unauthorized $1 million payment to a former director of the group.

Driven by high milk prices, the cooperative had record revenue of $11.1 billion in 2007, up $3.6 billion from 2006. But dairy plant closures and the revaluation of the cooperative’s past investments resulted in non-cash charges of $144.8 million and a net annual loss of $109.3 million.

All of these things, and more, have frustrated farmers at a time when their expenses are high and profits are low, said Joel Greeno, a dairy farmer near Kendall and member of a smaller cooperative called Scenic Central Milk Producers.

Greeno has been disappointed with large farm cooperatives and dairy industry corporations in general.

“It’s just a crying shame that farmers have to suffer through so much when the government and everybody knows how corrupt the system is,” he said.

Cheese futures probed

The Commodity Futures Trading Commission is looking into Dairy Farmers of America trading of cheese futures on the Chicago Mercantile Exchange. Cheese futures can affect milk prices because the Department of Agriculture sets a minimum price of milk that’s based in part on a survey of cheese futures prices.

“Dairy farmers have complained for years about the Dairy Farmers of America’s frightening market power,” the National Family Farm Coalition, based in Washington, D.C. said in a news release.

“We are sick and tired of DFA’s behavior, and it’s high time the U.S. Senate look into how DFA keeps hiding behind laws designed to protect farmer cooperatives when they have long ceased being a farmer-controlled cooperative,” the news release said.

Co-op defends itself

Dairy Farmers of America, which represents about 10% of Wisconsin’s milk production, says the government investigations aren’t new.

“We are disappointed to learn about the recent letter sent to the Senate Judiciary Committee by the National Family Farm Coalition and other groups,” Rick Smith, president and chairman of the Kansas City-based cooperative, said Monday in a written statement.

“We understand that as a national and international business, DFA is subject to a great deal of scrutiny.

“Since the formation of the cooperative in 1998, several federal and state agencies have inquired and continue to inquire regarding our business activities. . . . We do not believe we have violated any laws, and we have and will continue to cooperate” with investigations, Smith wrote.

Dairy Farmers of America represents more than 1,200 Wisconsin farms. Individual members of the cooperative did not return phone calls asking about the investigations and the National Family Farm Coalition letter.

Tension between groups

There’s been some tension between large dairy cooperatives and smaller groups that sometimes have different interests.

“Agriculture over the years has become much more diverse in size and interests than it used to be back in the 1950s, when farms were about the same size and everybody was in the same boat,” said George Crave, whose family has a dairy farm and cheese plant in Dodge County near Waterloo.

Some of the groups that represent small, traditional farms sometimes feel they get shortchanged by the government and the dairy industry.

“But their production doesn’t represent a very large percentage” of the nation’s milk and cheese industry, Crave said.

The 25 groups that asked for Senate hearings into Dairy Farmers of America business practices include three Wisconsin organizations: Family Farm Defenders; The Cornucopia Institute; and the American Raw Milk Producers Pricing Association.

Greeno, who belongs to two of the three organizations, says some dairy cooperatives have lost touch with their membership and no longer represent their best interests.

“In theory, a cooperative’s members should be able to throw the management out,” Greeno said. “But, in most cases, what happens today is the farmers are so overworked and tired, they don’t go to the board meetings and keep up with what’s going on.”

Greeno’s cooperative, Scenic Central Milk Producers, has about 300 members. Last year it marketed roughly 260 million pounds of milk and had $62 million in sales.

Of the $62 million, according to Greeno, more than 90% of the revenue went back to the membership.

“Dairy Farmers of America is supposed to be conducting business like we are, but it isn’t,” he said.

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