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July 30, 2020 | Organization for Competitive Markets
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DOJ Claims Dairy Farmers of America is Subject to Antitrust Claims

Department Capper-Volstead Act does not shield the co-op

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:

  1. The allegations against DFA in the case are not sheilded 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.”
  2. 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.”
  3. 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.

Restoring the intent of the Clayton Act and implementing producer protection standards in antitrust enforcement were the exact arguments OCM made in our comments to the DOJ and the Federal Trade Commission on their proposed guidelines for vertical mergers in February.  OCM’s argument in favor of shifting the burden of proof of competitive harm away from producers was a central point in our comments to the USDA’s proposed rules on the Packers and Stockyards Act in March.
 
The DOJ doesn’t cite OCM in its Statement of Interest, and we do not presume to take credit for influencing those arguments, but we are pleased to see a government agency with antitrust enforcement authority taking a stand for the rights of farmers and ranchers.  The Sherman and Clayton Acts have been on the books for over a hundred years, and the DFA suit is an important opportunity for them to be interpreted correctly, as they were intended: to curb corporate abuses and end anti-competitive behaviors, even if they are committed by cooperatives such as DFA.
 

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 more than 125 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.

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