[Senate Hearing 111-293]
[From the U.S. Government Publishing Office]
S. Hrg. 111-293
CRISIS ON THE FARM: THE STATE OF COMPETITION AND PROSPECTS FOR
SUSTAINABILITY IN THE NORTHEAST DAIRY INDUSTRY
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 19, 2009
__________
ST. ALBANS, VERMONT
__________
Serial No. J-111-47
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
54-772 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
RICHARD J. DURBIN, Illinois LINDSEY GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
Bruce A. Cohen, Chief Counsel and Staff Director
Matt Miner, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 126
letter....................................................... 129
Feingold, Hon. Russ, a U.S. Senator from the State of Wisconsin
prepared statement........................................... 83
letter....................................................... 85
cheese reports............................................... 87
WITNESSES
Doton, Paul, Doton Farm, Woodstock, Vermont...................... 24
Forgues, Travis, Forgues Family Farm, Alburg, Vermont............ 26
Glauber, Joseph, Chief Economist, Department of Agriculture,
Washington, DC................................................. 8
Rowell, Bill, Green Mountain Dairy, Sheldon, Vermont............. 22
Sanders, Hon. Bernie, a U.S. Senator from the State of Vermont... 3
Varney, Christine, Assistant Attorney General for Antitrust,
Department of Justice, Washington, DC.......................... 5
Wellington, Robert, Agri-Mark Dairy Cooperative, Lawrence,
Massachusetts.................................................. 29
QUESTIONS AND ANSWERS
Responses of Joseph Glauber to questions submitted by Senators
Feingold, Sanders and Schumer.................................. 43
Responses of Christine Anne Varney to questions submitted by
Senator Feingold............................................... 64
SUBMISSIONS FOR THE RECORD
Allen, Alice H., AL-Lens Farm, Wells River, Vermont, statement... 74
Burlington Free Press, David Usher, article...................... 76
Bahler, Vern, President, Bahler/Oakridge Farms, Ellington,
Connecticut, letter............................................ 77
Chaput, Reg, Chaput Family Farms, Troy, Vermont, letter.......... 78
Doton, Paul, Doton Farm, Woodstock, Vermont, statement........... 79
Fiske, Nancy and Wayne, Highgate Center Vermont, letter.......... 89
Forgues, Travis, Forgues Family Farm, Alburg, Vermont, statement. 91
Glauber, Joseph, Chief Economist, Department of Agriculture,
Washington, DC, statement...................................... 95
Gotham, Bryan, Dairy Farmer, Edwards, New York, memo and
attachments.................................................... 110
Goodrich, Chase, Goodrich Family Farm, Vermont, letter........... 117
Grimes, Janice and Todd, Windmill Farm Dairy, Webster, Iowa,
letter......................................................... 118
Howrigan, Harold, III, St. Albans, Vermont, letter............... 120
Keough, Kate, Burlington, Vermont, letter........................ 122
Kings-Ransom Farm, Edgar A. King, Schuylerville, New York, letter 123
Kohler, Mike, Manager, Dairy Producers of Utah, letter........... 125
McGarry, Ed and Diane, Vermont, letter........................... 132
Maroney, James H., Jr., Leicester, Vermont:
letters...................................................... 133
letter to editor............................................. 138
McNall, Ralph, Dairy Farmer, St. Albans, Vermont, letter......... 142
Montagne, David R., Swanton, Vermont, letter..................... 144
NAJ Equity, Reynoldsburg, Ohio, Newsletter....................... 145
NCFC, St. Albans, Vermont, statement............................. 147
New York Times, September 29, 2009, articles..................... 150
Paradis, Lynn, Vermont, letter................................... 153
Parsons, Bob, letter............................................. 155
Pelham, Tom, letter and attachment............................... 157
Plains Cotton Cooperative Association, Wallace L. Darneille,
President & CEO, Lubbock, Texas, letter........................ 160
Prent, Sue, St. Albans, Vermont, letter.......................... 161
Rowell, Willard ``Bill'', Green Mountain Dairy, Sheldon, Vermont,
statement and letter........................................... 163
Schneider, Mary, RN, Barnesville, Maryland, letter............... 171
Schubart, William, letter........................................ 172
Seyfert, Trudy, letter........................................... 174
Terrier, Lisa, letter............................................ 175
Trainer, Kris, letter............................................ 176
Varney, Christine, Assistant Attorney General for Antitrust,
Department of Justice, Washington, DC, statement............... 177
Wellington, Robert, Agri-Mark Dairy Cooperative, Lawrence,
Massachusetts, statement....................................... 183
Windecker, Deb, letter and attachment............................ 186
CRISIS ON THE FARM: THE STATE OF COMPETITION AND PROSPECTS FOR
SUSTAINABILITY IN THE NORTHEAST DAIRY INDUSTRY
----------
SATURDAY, SEPTEMBER 19, 2009
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:12 a.m., St.
Albans City Hall, St. Albans, Vermont, Hon. Patrick J. Leahy,
Chairman of the Committee, presiding.
Present: Senator Sanders.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Good morning. We have a good gathering
here. We have a number of members of Vermont legislature, and
between panels I'll make sure that we acknowledge all of them
who are here. I appreciate all the people for being here.
Everybody has busy schedules, especially in dairy country. I
know, because it's also the Jewish holidays, some members of
that faith will not be able to be here. I would wish for them
L'Shanah Tovah Tikatevu, for them to have a good and sweet new
year. It is the year 5,770.
Also, this is something we've never seen in a Senate
hearing in Washington: flowers. Howard's, the flower shop, just
brought those over. So, I don't know. Is somebody here from the
flower shop? They're probably back working, but I want to thank
them. That is unique.
For both Assistant Attorney General Varney and Dr. Glauber,
they've probably not seen that either.
I want to thank Representative Peter Welch, who was unable
to be here. He's leading the charge in the dairy crisis in the
House. Of course, nobody is working harder in the Senate on the
dairy crisis than Senator Sanders, who's sitting here beside
me. I want to thank you, Bernie, for coming and joining the
Committee. A lot of people have made an effort to be here and
have traveled some distance. St. Albans' mayor, Martin Manahan,
I want to thank for the hospitality. I have used, over the
years, this hall a number of times. Marcelle, who's sitting
here, knows we get kind of accustomed to it, and it's a very,
very convenient place to have.
We invite anyone who'd like to express their views on the
issue who are not on the witness list, of course, to give me
their testimony and it will be included in the record.
Last Friday, Marcelle and I were here for the funeral of a
very, very dear friend, Harold Howrigan. I said at that funeral
that I would dedicate today's hearing in honor of Harold
Howrigan and his service to the community, to our State, and to
Vermont's dairy industry. One of the very few privileges you
have as Chairman of a Committee is that you can dedicate the
hearing to whomever you want, and I will dedicate it to Harold,
a great and good man.
Now, there were certainly a lot of years in his life--85
years in all--but there is also a lot of life in those years.
I'll look back with fondness at the time that I spent with
Harold and Ann and all their families. I think I'd ask among
the Vermonters, all those who knew Harold Howrigan, please
raise your hand.
[A showing of hands.]
Chairman Leahy. Let the record show, virtually every hand
here went up.
Here in Vermont, the dairy industry is a pillar of our
State's economy and our landscape, but also our culture. Dairy
farmers have long contended with the volatility of milk prices,
even more when they've had to adjust to changing weather. But
today they're facing changes of epic proportions. Prices have
fallen to lows that no one in this room thought we would ever
see. The fact that the cost of production is higher than ever
only compounds the problem. It has increased the gap between
what it costs our farmers to produce milk and what they are
paid for that milk.
In Vermont, we have lost 35 of our dairy farmers this year;
last year, we lost another 19. Each one of these losses means
we've lost part of who we are as Vermonters. The loss ripples
through our families, through our communities, through our
economy. It has been easy for many Americans to take American
dairy farmers for granted. Those of us--both of us and so many
here--who have spent time on dairy farms know how much work is
involved. We know that the carton of milk you buy in the store
does not grow on a milk tree; it is hard work that provides a
highly perishable product that puts it more directly at the
mercy of fluctuating markets and costs of production. We need
both short-term solutions to get out of this crisis, but we
need some long-term solutions to make sure we don't return to
the tumultuous cycle of volatility that is now threatening
farmers' very survivability.
That's the purpose of this hearing, all of the efforts that
have been made to stimulate the dairy industry. The
consolidation in recent years throughout the agriculture sector
has had a tremendous impact on the lives and livelihoods of
American farmers. It affects producers of most commodities in
virtually every region of the country. It particularly affects
Vermont dairy farmers. For decades, dairy farming in Vermont
seemed immune from the consequences of restructuring and
consolidation between cooperatives that serve as milk
processors for local regional markets. National markets didn't
exist.
But times have changed and now it's dramatically different
today. There has been a breakdown in competition. Vermont dairy
farmers are not getting their fair share of the retail price of
milk, but it seems that some of the corporate processors rake
in profits even as they raise prices to the consumers. This is
way out of whack.
As I think about the gap between retail and farm prices, I
can't help but think back to 2001 and the Dean Foods merger
with Suiza Foods. That merger created the largest milk
processing company, not just in this country, but in the whole
world.
I continue to be disappointed at the past administration.
The Justice Department and the administration allowed it to
happen. Just as I feared and said 8 years ago, it seems that
market dominance is translated into overwhelming power in the
dairy industry. We are seeing local dairies and processing
facilities bought and then closed.
We will hear firsthand testimony today about how and why
Vermont dairy farmers are hurting. I think having a hearing
here in St. Albans, where people don't have to spend the money
to go to Washington to testify, allows us to have a record that
will then be provided to every member of the Senate Judiciary
Committee.
I want to build a hearing to let policymakers in Congress
and the Federal agencies hear directly from the farmers. As
part of that record, on behalf of Vermont's Secretary of
Agriculture, Roger Allbee, who is at an official meeting of
secretaries of agriculture, I will submit and have as part of
the record the copy of the Vermont Milk Commission's final
report. Roger has been a tremendous help and I appreciate
having that.
[The report of the Vermont Milk Commission appears as a
submission for the record.]
Chairman Leahy. Now, Senator Sanders and I both realize, as
I said earlier, that it's a holiday for many. We understand why
some Vermonters have not been able to travel to this hearing.
So I will keep the record open until September 30, and if there
are others in Vermont who wish to have, on this subject,
testimony submitted, we will include it.
But, first, I want to turn to Senator Sanders. You and I
have discussed this so much. You should all have seen him
breaking arms in the well of the Senate, getting an amendment
through to help dairy farmers.
Bernie.
STATEMENT OF HON. BERNIE SANDERS, A U.S. SENATOR FROM VERMONT
Senator Sanders. Patrick, thank you very much. I think we
all remember Harold Howrigan and the great work that he has
done, and I appreciate that you're holding this hearing in his
honor.
We thank our guests from Washington for being here, and
mostly we thank all of you. I want to thank Senator Leahy not
only for holding this hearing, but for holding it right here in
St. Albans, which is the heart of dairy country in the State of
Vermont, and for the work that he has done for so many years,
both on the Agriculture Committee and the Judiciary Committee,
in fighting for Vermont's dairy farmers. Patrick, thank you
very much.
Chairman Leahy. Thank you.
Senator Sanders. We all know why we're here. We are here
today because farmers, dairy farmers in Vermont and throughout
this country are receiving the lowest prices for their milk
that they received in 40 years. We are here because farmers in
Vermont are being driven off of the land because of these low
prices.
We are here because consumers, if this trend continues,
will not be able to get the fresh, quality food that they want
because increasingly people are concerned about having to get
food from all over the world, where food regulations are not as
strong as they are in America. People want wholesome, fresh
food, and that's what our farmers produce. We are here, as
Senator Leahy just said, because while the price that farmers
are getting for their product has plummeted, consumers have not
seen much of that benefit.
The focus of our hearing today is that, while we understand
all of the issues of supply and demand, while we understand the
nature of the volatility of the dairy industry, which is not
new, it's gone on for many years, we're here to focus on one
particular issue today, and that's why we have the head of the
Antitrust Division of the Department of Justice, Christine
Varney, and we're very appreciative she's here. She and I
chatted a couple of months ago, and I hoped that she would come
to Vermont, and I'm glad she is here today. It may signal a new
direction from the Department of Justice of the United States
in dealing with these issues.
Here's what the bottom line is to me. As Senator Leahy
indicated, what we have seen in recent years is a growing
concentration of ownership in terms of the dairy industry,
specifically in terms of dairy processing. My staff and I have
taken a hard look at this issue. We're trying to get as good
information as we can, which is sometimes harder than you may
think. But this is what we believe.
According to the dairy industry press, one company, the
largest milk processor in America called Dean Foods, controls
approximately 90 percent of the milk market in Michigan, about
80 percent of the milk market in Massachusetts, 80 to 90
percent in Tennessee, over 80 percent in northern Alabama, over
70 percent in northern New Jersey, and in New England, about 70
percent.
In the last year, as everybody in this room knows, the farm
price of milk has plummeted from close to $19 per 100-weight to
just over $11 per 100-weight. Farm prices, for the farmer, are
plummeting. Meanwhile, Dean Foods reported $76.2 million in
profits for the first quarter of 2009, up 147 percent from the
first quarter of 2008. Let me repeat that. The price that
farmers have gotten has plummeted to the lowest level in 40
years, while Dean Foods has seen a 147 percent increase in
their profits. Is there anybody in this room who doesn't see a
connection between those two facts?
If you don't get that, let me throw a third fact at you.
Over the last 5 years, while dairy farmers in the State of
Vermont have struggled, in the last year while over 32 dairy
farms in this State have gone out of business, the CEO of Dean
Foods, a gentleman named Greg Engles, received $116 million in
compensation in the last 5 years. One hundred and sixteen
million for one person, profits soaring for Dean Foods, dairy
farmers in Vermont and all over this country going out of
business. That, my friends, is what we are here to discuss
today.
Can family based dairy farmers survive when we have that
degree of concentration of ownership in the industry? Now, it
is no secret--and we'll discuss this in the questions--that
this is an issue, in fact, that has been looked at for a number
of years. Senator Leahy is one of those people who forced that
discussion. But it is also, in my view, a known fact that the
last administration in Washington, having investigated that
issue, decided that it was a little bit too hot to handle, that
maybe they didn't want to take on some of these big-money
interests. We're asking Christine Varney here today to move
this country in a new direction and have the courage to go
where the money leads her.
So Senator Leahy, thank you very much for holding this
important hearing. Let me conclude by saying that we have been
working--Senator Leahy, Congressman Welch, I, and others--to
try to get some short-term benefits for farmers. You know that
we were able to raise milk prices maybe a little bit throughout
working with the Secretary of Agriculture, Mr. Vilsak. We've
got an amendment in that Senator Leahy and I worked on that
also would do that. But long term, these are some of the issues
that we have got to address.
So, thank you again for being here. Senator Leahy, thank
you very much for holding this hearing.
Chairman Leahy. Thank you very much.
As I mentioned, we have two extremely important witnesses
from Washington. The first, is Christine Varney. She is
Assistant Attorney General of the United States, but a very
important Assistant Attorney General because she is in charge
of the Antitrust Division. Prior to her confirmation as
Assistant Attorney General, she was a partner at Hogan &
Hartson's Washington, DC office, one of the most prestigious
law firms in the country.
She served from 1994 to 1997 as a Commissioner at the
Federal Trade Commission, working on technology-related issues.
She received her Juris Doctorate from Georgetown University Law
Center. I am always pleased to see somebody else who went to
Georgetown Law Center. She received her MPA from Syracuse, her
BA from the State University of New York University at Albany
in 1977. She leads the enforcement of our Nation's antitrust
laws.
I would note that she is no stranger to the Senate
Judiciary Committee and she has testified on other matters
before.
So, Assistant Attorney General, we're delighted to have you
here. You go ahead and give your statement, please.
STATEMENT OF HON. CHRISTINE VARNEY, ASSISTANT ATTORNEY GENERAL
FOR ANTITRUST, DEPARTMENT OF JUSTICE, WASHINGTON, DC
Attorney General Varney. Thank you so much, Mr. Chairman,
and thank you, Senator Sanders.
Let me start by saying, I will come to Vermont any time you
want. Your State is absolutely beautiful. The people I've been
talking with are terrific, and I'm looking forward to learning
more.
Let me also start on a personal note, maybe more for the
people in the room. As I think you both know, I care deeply
about this issue. My family in Ireland are dairy farmers. I am
probably the only Assistant Attorney General in modern times
who actually knows how to milk a cow, and have done it many
times. I just came back from a family wedding in Ireland where,
indeed, they are suffering--my family--the same constraints
that we see here. I am concerned on a personal level, as well
as on----
Chairman Leahy. Excuse me. Can everybody hear Ms. Varney? I
always wonder about this question when I say ``if anybody in
the back can't hear, please raise their hand'' because you
wonder how they're going to know that I asked the question.
[Laughter.]
Chairman Leahy. But please go ahead, Ms. Varney.
Assistant Attorney General Varney. So I approach this from
both a personal perspective, as well as the perspective of what
is the best thing for our Nation, both our consumers and our
farmers. I'm pleased to appear before you today and talk about
the importance of competition in today's agricultural
marketplace, particularly in the dairy industry. I look forward
to hearing from your other witnesses, meeting with farmers, and
others in Vermont's agricultural sector who can help me learn
more about what is really happening in the dairy business.
The Antitrust Division is aware that there is an
unprecedented economic upheaval in the dairy industry and that
dairy farmers have been going out of business at a record, and
intolerable, rate. We are very concerned about these
developments. In my remarks today I will briefly provide the
Antitrust Division's perspective on the state of the
marketplace and our ongoing effort to better understand the
industry and the role that public policy, including aggressive
antitrust enforcement, can play to protect and promote
competition.
As I said, competition issues affecting agriculture have
been a priority for me since I was confirmed as the Assistant
Attorney General last spring. As a reflection of that priority,
we announced in August, in partnership with USDA, that we will
be hosting a series of workshops to examine the state of
competition in agriculture markets.
These workshops will provide us with an important
opportunity to learn firsthand from those participating in
these markets and for us to better understand the effects of
competition and concentration in relevant sectors, including
dairy, concerns about buyer power, and the economic impact of
vertical integration, including contractual relationships
between producers, distributors and retailers.
In these brief remarks I will take just a few minutes to
discuss the state of the marketplace and some themes we will be
exploring in our workshops. As I noted, two particular issues,
buyer power and vertical integration, are ones we have already
heard a lot about and are interested in exploring further.
Let me explain what these terms mean for us in antitrust to
those of you who don't speak antitrust regularly. A number of
dairy producers are concerned about the exercise of what
economists call ``monopsony power'', or to use a more
descriptive term, ``buyer power''. Traditional monopoly power
concerns a dominant producer of goods or services that may be
able to charge artificially inflated prices.
Monopsony power is the other side of the coin. When there
are a number of producers in an input market and a dominant
buyer of those products, like a dominant dairy processor, the
buyer, under certain circumstances, may exert its power to
press the prices lower than would be the case if the buying
market were more competitive--that is, if sellers had more
choices of where and to whom to sell their products.
Consolidation among or between buyers can also lead to, or
enhance, monopsony power.
In looking at dairy markets, we know that competition is
frequently local or regional in nature, meaning that the nature
and extent of competition-related concerns will differ across
different parts of the country. Thus, national statistics can
be misleading. I was very interested to hear Senator Sanders
break down, on a regional and State basis, the concentration.
Parts of the dairy industry have experienced extensive
consolidation in recent years, with fewer processors and,
therefore, fewer buyers of dairy products. As a result of
consolidation, the potential for an exercise of buyer power is
increased.
We are also aware that agriculture markets, including
dairy, have become more vertically integrated in the last 15
years. Vertical integration occurs when a manufacturer also
participates in other parts of the supply chain, such as
distribution of its products or supply of its inputs. Vertical
integration frequently involves ownership at multiple stages,
though it may also be achieved through contractual commitments.
Vertical relationships in dairy markets would include, for
example, a processor entering into an exclusive agreement with
a specific cooperative to buy raw milk. In many cases, such
activities can lead to greater efficiencies and savings for
consumers. Indeed, vertical integration is widespread in our
modern economy. Under certain conditions, however, vertical
integration may alter the incentives of parties and thereby
facilitate the exercise of market power. A careful review of
these arrangements is merited and is, thus, one of the areas
that we will be focusing on in the Antitrust Division.
Finally, I want to say a few words about the series of
workshops that we have planned with the USDA. The Department of
Justice and the Department of Agriculture announced in August
our plans for a series of jointly run workshops in 2010 to be
held around the country to address the dynamics of competition
and agriculture markets.
In the workshops, we will examine whether changes in the
marketplace, including increased consolidation and vertical
integration, have generated efficiencies or whether they have
led to increases in monopoly or monopsony power.
We are also actively soliciting input through the end of
this year from farmers, ranchers, economists, lawyers,
legislators, consumer groups, and processors about their views
and experiences. The Division invites all contributions to the
workshop process and looks forward to active participation,
hopefully from many of you in this room and from others in the
State of Vermont. This hearing will serve as part of my
learning process to be continued through these workshops.
Mr. Chairman, Senator Sanders, the Division recognizes
there has been considerable change in agricultural markets,
especially dairy. We take very seriously the concerns about the
competitive consequences of those changes. At the same time, we
are open to the fact that some marketplaces and technological
changes may promote needed efficiencies. We intend to engage in
careful and critical evaluation of the relevant market
conditions, informed by input from those of you here who live
this market every day. We will approach these matters in a fair
and reasonable manner, and I promise you, we will take whatever
action we find warranted.
Chairman Leahy. Thank you very much.
[The prepared statement of Assistant Attorney General
Varney appears as a submission for the record.]
Chairman Leahy. What I was going to, I discussed with
Senator Sanders, is we'll hear next from Dr. Glauber, and then
we'll both ask questions.
Doctor, I appreciate you coming to Vermont also. We have
tried to make a nice sunny day here today. Dr. Joseph Glauber
is the Chief Economist. Did I pronounce your name correctly, I
hope?
Dr. Glauber. Yes.
Chairman Leahy. At the United States Department of
Agriculture. Before he was appointed as Chief Economist in
2008, he served as Deputy Chief Economist at the Department. He
held positions with the U.S. Trade Representative, the
President's Council of Economic Advisors, and the USDA Economic
Research Service. He is responsible for USDA's agricultural
forecast and projections, but also for advising the Secretary
on economic implications of alternative programs, regulations,
or legislative proposals.
He received his Ph.D. in Agriculture and Economics from the
University of Wisconsin, and holds an A.P. in Anthropology from
the University of Chicago. I might note on a personal basis,
those of us who also serve on the Senate Agriculture Committee
look to those projections of yours all the time.
You can imagine, sometimes we're looking at them--and I
never want to suggest that any Senator would take a parochial
view--but the Midwesterners look at some aspects of it, we from
the Northeast look at other aspects, and the Southwest looks at
other aspects. But we all look to you as having some of the
most definitive projections.
Dr. Glauber, please go ahead, sir.
STATEMENT OF DR. JOSEPH GLAUBER, CHIEF ECONOMIST, U.S.
DEPARTMENT OF AGRICULTURE, WASHINGTON, DC
Dr. Glauber. Mr. Chairman and Senator Sanders, I'd like to
take this opportunity to provide you with an update on the
dairy market situation, our forecast for the dairy market for
next year, and the Department's response to the sharp downturn
in milk and dairy product markets.
Unquestionably, the dairy industry has been one of the
hardest-hit sectors in agriculture in the past year. The all-
milk price averaged a record $19.21 in 2007, as drought in New
Zealand and Australia lowered milk production in those two
major dairy product exporting countries, and strong global
economic growth boosted world dairy product prices and the
value of U.S. dairy product exports to record levels. In 2008,
farm level prices remained strong, with the all-milk price
averaging $8.41 per 100-weight, the second-highest on record.
This spring and summer, however, producers received less
than $12 per 100-weight and the milk-to-feed price ratio, one
measure of the profitability of producing milk, was the lowest
in over 25 years during the first half of 2009. USDA projects
that the all-milk price will decline by 34 percent in calendar
year 2009, to an average of $12.15 per 100-weight, the lowest
average annual price received by farmers for milk since 1979.
There are many factors contributing to the decline of farm-
level milk prices. The drought conditions in Australia and New
Zealand that I mentioned earlier have largely abated, leading
to increased milk production globally. The global recession,
the melamine scare in China, and the use of export subsidies by
the EU have also lowered the demand for U.S. dairy products in
world markets.
At home, the economic crisis has curtailed domestic demand
for dairy products, and until recently, milk product remained
at historically high levels as producers responded to those
high milk prices in 2007 and through the first half of 2008 by
increasing the number of replacements, limiting the decline in
dairy cow numbers.
Producers are responding to the current depressed market
situation by reducing herd numbers. Cow numbers dropped a year
ago in March 2009 and are expected to average 125,000 lower in
2009 than in 2008. Further cutbacks in cow numbers are
expected, leading to lower milk production in 2010.
Currently, we expect milk production to fall by nearly 1
percent in 2010, following a 0.8 percent drop this year.
Reduced production, an improved economy, and lower dairy
product prices are expected to lead to a gradual increase in
milk prices and improve returns later this year and into next
year. USDA is currently forecasting the all-milk price to
average $11.80 per 100-weight in the third quarter, and $12.90
in the fourth quarter. For all of 2010, we are projecting an
all-milk price of slightly over $15.
The Consumer Price Index for dairy products peaked in
August 2008. Since August of last year, the CPI for dairy
products has gradually declined, and in August was down 10
percent from a year ago. Over the same period, the CPI for
fluid milk fell by 18 percent and the CPI for cheese and
related products dropped by 11 percent.
Nationally, the margin between the retail price of fluid
milk, as reported by BLS, and the price fluid milk processors
paid for milk dropped by 18 cents per gallon between August
2008 and 2009. The margin between the retail price and the
price paid for milk by processors in August 2009 was also
slightly less than the margin in 2007 when farm level milk
prices reached their peak.
USDA has taken numerous actions to help producers through
this difficult time. So far in 2009, the Farm Service Agency
has provided over 1,100 direct loans to dairy producers,
totaling approximately $70 million. We are also extending loan
repayment terms for new loans and notifying FSA dairy borrowers
of loan servicing options, such as a deferral of payments or
rescheduling of their repayment terms.
As announced on July 31, USDA increased the amount paid for
cheddar cheese and nonfat dry milk under the Dairy Product
Price Support Program. These purchase price increases, which
were in place from August 2009 through October 2009, increased
the price paid for nonfat dry milk by 12 cents per pound, and
the price for cheddar cheese by 18 cents per pound above the
minimum purchase prices specified in the 2008 farm bill.
From August 1, 2008 to date, USDA has purchased 277 million
pounds of nonfat dry milk and 4.6 million pounds of butter
under the Dairy Price Support Program, much of it during late
2008 and the first half of 2009.
On March 26, 2009, the Secretary announced that
approximately 200 million pounds of nonfat dry milk would be
further processed or bartered for dairy products for use in
domestic and international feeding programs. The nonfat dry
milk is being further processed or bartered into higher value
products, such as instantized nonfat dry milk, ultra-high
temperature milk, cheese, and ready-to-eat milk-based soups. In
addition, at least 1 million pounds of nonfat dry milk will be
sold on a competitive bid basis for the production of casein.
USDA is working with the Department of State to provide
foreign assistance. This assistance includes about 500,000
pounds of nonfat dry milk for use in the McGovern-Dole
International Food for Education & Child Nutrition Program, and
about 1 million pounds for use by the U.S. Agency for
International Development, based on anticipated requests from
the State Department.
The 2008 farm bill modified and reauthorized the Milk
Income Loss Contract Program, which providers counter-cyclical
payments to producers in times of low prices or high feed
costs. In order to provide assistance as quickly as possible to
dairy producers, FSA published regulations reauthorizing the
milk program on December 4, 2008.
Declining milk prices caused the Boston Class 1 price to
fall below $6.94 beginning in February, triggering payments
under the MILC program. USDA began distributing payments in
early April, and to date, over $700 million has been paid to
producers under the program this year. We expect MILC payments
to continue for the next several months, although we expect the
payment rate to decline given the projected increase in milk
prices this fall.
On May 22, we announced the reactivation of the dairy
export incentive program, with allocations for the export of
68,000 metric tons of nonfat dry milk, 21,000 metric tons of
butter fat, and 3,000 metric tons of cheese. These quantities
reflect the maximum volume of dairy products the U.S. is
allowed to export with subsidies, consistent with the U.S.'s
WTO commitments.
Last, on August 25th, USDA announced that nominations would
be accepted to form a new Dairy Industry Advisory Committee.
The Advisory Committee will review farm milk price volatility
and dairy farm profitability and provide suggestions and ideas
to the Secretary on how USDA can best address these issues to
meet the dairy industry's needs.
Appointed representatives will include processors and
processor organizations, producer and producer organizations,
handlers, consumers, representatives from academia, retailers,
and State agencies involved in organic and non-organic dairy at
the local, regional, national, and international levels.
This concludes my oral statement. I would be happy to
answer any questions you might have.
[The prepared statement of Dr. Glauber appears as a
submission for the record.]
Chairman Leahy. Thank you. I should also note that, both
with you and Ms. Varney, we will keep the record open, as I
said, until the 30th. So after you've seen the transcript, if
there are things you wish to add to it, you will be able to, as
well as any of the other witnesses.
Chairman Leahy. Thank you. And I should also note to both
you and Ms. Varney, we will keep the record open, as I said,
until the 30th. So after you have seen the transcript, if there
are things you wish to add to it you will be able to, as well
as any of the other witnesses.
I am looking at this chart behind this young woman with the
camera. That would be you. If we might just move that out here
a little bit. I do not want to interfere with the press here,
but I just want you to all be able to see this, because it goes
to what both of you have been talking about. This is something
that every single dairy farmer here knows unfortunately all too
well. It shows the Boston Class 1 prices down here at $13.51,
the cost of production up here at $26.07. You can see the way
those prices have gone.
I was thinking of this, Doctor, because you made reference
to that, the peaks and valleys, and your Department was helpful
in preparing this. Obviously, something staying like that,
farmers cannot stay in business and our State of Vermont will
change dramatically, as will many other parts of this country.
Ms. Varney, I have to thank you again for being here. You
have one of the busiest Departments in the Department of
Justice. And although I must admit, it is nice to have--I
believe you are the first person to head up antitrust who's
actually milked a cow.
[Laughter.]
Chairman Leahy. Trust me, I have pointed that out to a
whole lot of people. You talked about the monopsony power, or
buyer power, in the dairy industry. In New England, we have a
situation, as Senator Sanders has pointed out, where one
distributor is responsible for the purchase of more than 70
percent of Northeast dairy production. Now, that high level of
buyer concentration is that something that concerns you? I
would ask you to put on your professional hat as head of
Antitrust. Does that concern you?
Attorney General Varney. Senator, whenever you see that
level of concentration in a market it is concerning. We are
committed to the concept that a free market thrives on
competition and competition is not very well served when you
have one player in the market who controls 70 percent of the
market. So, yes, that is something that we are concerned about
and we look very carefully at the activity in a market when you
have that kind of dominance.
Chairman Leahy. Well, as you look at this activity if you
determined that action should be taken, what tools do you have?
Attorney General Varney. Well, we have a number of tools. I
think, going the range, we start with basic tools of learning
what is happening in the marketplace. I think that is what we
are trying to do here today. It is what we are going to be
doing in our workshops. We escalate from there. If we believe
there is activity in the marketplace that may violate the law,
we have a number of investigative tools at the Department of
Justice.
We, as you know, open up investigations, we issue
subpoenas, we depose witnesses, and we look for the kinds of
activity that may violate the antitrust law. And should we find
evidence that there is a violation of the antitrust law, under
my direction we will certainly not hesitate to prosecute and
bring a case.
Chairman Leahy. Well, you know, it is interesting. You
mentioned the workshops. I have been in the Senate for a number
of years. I've been there through seven different
administrations. I have never known of a time when the Justice
Department has held such workshops for dairy farmers. Is this
something unique?
Attorney General Varney. I believe it is, Senator. As I
said, we will be going all over the country and looking at
dairies. As a matter of fact, we are planning a workshop
specifically on the retail price spread to really try and get
at some of the core issues that are driving that spread. I also
think it is unprecedented that the Department of Agriculture
and the Department of Justice have worked together on this
issue.
Chairman Leahy. I would like very much, once those
workshops have been completed, if perhaps you could arrange to
have your office come up and give a briefing for my office,
actually for a number of the offices of those Senators in both
parties who represent dairy States.
Attorney General Varney. I would love to do that. But I
would also love to come back up here, if invited and brief you
all on what we found.
Chairman Leahy. Preferably either at the height of foliage
season----
Attorney General Varney. In the fall.
[Laughter.]
Attorney General Varney. Exactly.
Senator Sanders. We'll bring you back in mid-January, how's
that?
[Laughter.]
Attorney General Varney. Well, I do ski, Senator so I'm
okay with that.
Chairman Leahy. You state that within the agriculture
sector, the companies have become more vertically integrated
over the years. We see this where the cooperatives rely wholly
on one company to manufacture their milk. Is this part of the
things that the antitrust division has to look at?
Attorney General Varney. It is certainly something you
know, I want to understand because, as I said, I'm new to the
structure of the dairy markets in the United States, and how
we've evolved to the point where the co-ops are basically
captive of one distributor. I want to understand how we got
there and what kind of competition exists. Even if there is 70
percent concentration at the distributor level, how do we
reinvigorate competition in that level, given the structure of
the market where it is today?
Chairman Leahy. Well, my staff on the Judiciary Committee
found that in the last administration, we found allegations
where there were career lawyers in the Antitrust Division, who
are usually, as you know, people we--they don't take a
Republican or Democratic position.
Attorney General Varney. Right.
Chairman Leahy. They just give the best knowledge possible.
They investigated competitive issues in the dairy industry.
They ultimately concluded that there was a problem and the
career, the nonpartisan lawyers recommended action against
certain firms in the industry. But my staff tells me the
Department of Justice back then never took any action. Did this
actually happen?
Attorney General Varney. Well, as you know Senator, I just
got there in April and I've been very immersed in looking at
the structure of the industry as it exists today and what we
can do going forward. I too, am aware of the controversy
surrounding the previous administration. I do want to point out
that the Department did file a lawsuit after the merger of DFA
Southern Belle, and they lost that lawsuit and went on to
appeal it and won it.
So I think that there is basis to continue to investigate
and bring these suits and bring them in a way that can reach a
successful conclusion for the dairy farmers, and I am very
focused on what we are going to do going forward, looking at
the record of where we've been in the past.
Chairman Leahy. Thank you.
Doctor, I have to thank you and tell you how appreciative
we are that the Department moved very quickly. Senator Sanders
and I, and all the Senators from the various dairy-producing
States, have had what I think was almost an unprecedented
meeting with Secretary Vilsak. He demonstrated a real crisis.
He actually took some very quick steps and he responded, but
was, I think most appreciated by the Senators who were there.
We had a secretary who actually understood the complexities of
the dairy industry and could speak about it. He has traveled
across the country.
He has met directly with dairy farmers. He announced that
in July, that they're raising the dairy price supports. The OMB
said that will cost about $250 million. The increase is
currently set to expire at the end of October. Could you tell
us what has happened in that with the raising of the price
support, how much money was spent? What is that actually doing?
Dr. Glauber. I don't have exact figures, but I can tell you
generally what's been going on.
Chairman Leahy. Sure.
Dr. Glauber. When we raised those price support levels in
July, we did see an immediate increase in product prices. We
have also seen, generally, an increase in product prices since
that time. Whether or not they are directly related to the
increase in price supports, I think there are a lot of other
factors, but the point is, we've been--I think if I'm not
mistaken we've only acquired a few million tons of product.
That is far less than what we had originally anticipated
largely because of the price increases. I would be happy to get
you the exact numbers when I'm back in the office on Monday.
Chairman Leahy. Could you, please?
[The information appears as a submission for the record.]
Chairman Leahy. I know on the MILC program, just in
Vermont, the part I wrote in on the feed adjustment, that is
about $15 million into Vermont. Overall, it is going to pay out
a little over a billion dollars. A quarter of a billion of that
comes from the feed cost adjustment. As I said, that $15
million that came directly into our State was very helpful, but
we still have this huge disparity. You also spoke about the
Livestock Gross Margin Dairy insurance program, the LGM Dairy.
Most folks who don't live on a dairy farm don't fully
understand that. I know it protects farmers against loss of
gross margin, the market value of the milk minus the fee costs.
How many farmers have signed up for that, and how does that
work?
Dr. Glauber. Well, let me explain. One of my other hats is,
I'm chairman of the Federal Crop Insurance Corporation Board of
Directors. Back in July of 2007, we had a submission where a
private party brought forward this proposed insurance product
for dairy producers. The board approved it in July of 2007.
Essentially what it allows producers to do is guarantee a
margin for the milk that is produced.
Every day, we calculate the margin based on the futures
price for milk, futures price for corn, futures price for
soybean meal. And that allows you to lock in. If you purchase
that insurance product on that day, it allows you to lock in
that margin. So in 2 months' time, when the contract comes due,
one can then turn around and if the margin has declined
precipitously by either a collapse of dairy prices or increases
of feed prices, then you are able to then get a payment if it
exceeds the deductible.
Now, it is a very new product and we still have just a
handful of producers who have signed up for the product. That
said, I know just last fall we had a Board of Directors meeting
where we expanded--at the request of several States, expanded
the program into, I believe Kentucky and Tennessee, New Mexico,
Washington. I would just say that the important thing is, this
is particularly good when you have a reasonable margin out
there. I mean, if you have a very low margin, well, it will
help things from getting worse, but it won't boost income above
what the market anticipates that margin to be. That's the
important thing, much like any insurance product.
Chairman Leahy. You know, I remember all the pressure we
got from the administration in 2002 to strip out the
competition title which we had put into the Farm Bill of 2002.
I and several others, we actually had a bipartisan coalition
from the Senate in getting that in. Is that something we should
look at again? I mean, this would have actually directly and
legislatively addressed some of these issues. Is that something
we should look at again in the next farm bill?
Dr. Glauber. Well, certainly we work with Justice in their
investigations. They will come to us and ask us for information
because they seek the expertise that the Department has on a
lot of these issues. I think through these workshops--again,
unprecedented--that we will be conducting, we will be looking
at these things very, very closely. As far as whether or not
something like that is needed in the farm bill, I think that is
something that would be presumably worked out among you members
and the administration.
Chairman Leahy. Thank you. I've gone over my time.
Senator Sanders, please.
Senator Sanders. No, you haven't. I don't see any clocks
here. When you're the Chairman, you never go over your own
time.
[Laughter.]
Chairman Leahy. The Chairman never goes over. There's two
things I've learned about being Chairman: I am never late for a
hearing because it starts when I get there, and we have
flexibility in time. But this is an important matter. As you
know, we're trying to get as much detail on the record because
this is going to be--both Senator Sanders and I are going to
use this record in arguing with the other Senators about what
should be done.
Bernie.
Senator Sanders. Thank you, Patrick.
Attorney General Varney, let me start off, picking up on a
point that Senator Leahy made. It is fairly widely known that
in late August 2006, career professionals in your division, in
the Antitrust Division, and were not political appointees, but
professionals, concluded a 26-month investigation into far-
ranging anti-competitive practices in the dairy industry. It is
my understanding that, in August 2006, that team--these are
professional investigators--recommended action against some of
the dairy industry's biggest firms, including Dean Foods Dairy
Farmers of America, and National Dairy Holdings.
Unfortunately, under the Bush administration, when that was
kicked up to the political people, they decided not to pursue
that investigation or take any action. Can you give us
assurance that you, in fact, will continue that investigation,
and if it leads you to the conclusion that action should be
taken, that in fact you are prepared to take action?
Attorney General Varney. I can give you every assurance,
Senator, that any investigation that I undertake that leads us
to believe there is evidence sufficient to prosecute will be
prosecuted. There is no doubt that we will prosecute that kind
of activity should we find it.
Senator Sanders. Thank you.
[Applause].
Chairman Leahy. I appreciate the applause especially as it
is following a statement that I wholeheartedly agree with, but
we do have to follow the Senate rules and we will have to----
Senator Sanders. Even in St. Albans?
[Laughter.]
Senator Sanders. We have a little flexibility can't we
here?
Chairman Leahy. During the break, we definitely will.
Senator Sanders. Let me ask Assistant Attorney General
Varney another question. One of the problems my staff has had
is I think everybody wants to know what the truth is and what
the facts are. You can't go forward unless you know reality. We
have read and studied a lot the dairy industry, and we read the
dairy press. What we have ascertained is what Senator Leahy and
I indicated a moment ago about a significant concentration of
ownership in various regions of this country. That's what we
believe to be the truth, based on what we read.
Attorney General Varney. Right.
Senator Sanders. Meanwhile, what has happened is we want to
confirm that fact about the likelihood of Dean controlling 70
percent, for example, of the fluid milk market in New England.
But when we call up the milk marketing orders around the
country and we say, this is what we believe, can you tell me if
this is true or not they say that in fact that information is
confidential. They say that by law, the USDA collects all this
data but they can't share it unless it is in a lawsuit or in
other limited circumstances.
On the surface, this seems pretty absurd to me. I think the
people of this country have a right to know, Congress has a
right to know, to what degree there is concentration of
ownership. Can you tell me if you think, in fact, that the
public has a right to know this information, not only in
Vermont, but all over this country? What do you think?
Attorney General Varney. Well, it's interesting Senator,
because as--in my prepared remarks for the record I quote
Justice Brandeis, who says ``sunlight is the best
disinfectant''. I am a firm believer in transparency. As a
matter of fact, just Thursday afternoon I was meeting with a
group of dairy farmers who expressed their frustration about
the lack of transparency generally in the industry.
So with my colleagues at USDA, it is certainly something
that we're going to be examining, both from the perspective of,
how do we ascertain and then inform the public as to what we
believe the levels of concentration are, but more importantly,
what are the real barriers to sharing that kind of information?
We understand that business has a right to keep proprietary
data and that they are not compelled in this country to provide
certain proprietary data absent a lawsuit or another form of
enforcement.
On the other hand, this is a very distressed industry and
transparency is something we all need in order to understand
how we can improve the production and the health and life of
the dairy market in the United States. So I think both USDA--
and I would turn to my colleague--and I are committed to
understanding not only what the concentration levels are, but
how we introduce more transparency.
Senator Sanders. Well, I appreciate that. I mean we all
understand that for business, certain kinds of proprietary
information is vital and no one questions that. On the other
hand, what we are here to try to do is to see how we save
family-based agriculture in America. If we find in dairy and in
other commodities--this is not unique to dairy--that there is
monopoly control, the public has a right to know, Congress has
a right to know. I think you agree with that?
Attorney General Varney. I do agree with that Senator.
Senator Sanders. Let me ask you another question. When we
talk about monopoly control with regard to Dean this is not, by
the way, some new idea. As I'm sure both of you know, a number
of private parties, including both consumers and dairy farmers,
have filed lawsuits against Dean Foods alleging antitrust
violations. In 2007, for example, two classes, representing
over 4,000 dairy farmers, sued Dean Foods, DFA, and National
Dairy Holdings, alleging that they conspired to monopolize milk
markets in the Southeastern United States. In other words, this
is not just a Northeast issue, it's a national issue, various
regions.
More recently, a class of consumers sued Dean Foods, DFA,
National Dairy Holdings, and others for conspiring to fix the
price of milk in stores. So you're having farmers and consumers
suing Dean Foods. My question is does the Department of Justice
plan to investigate these allegations or request access to the
documents in these cases, as appropriate?
Attorney General Varney. Well, Senator, as you know, I
can't comment on any specific investigation the Department is
currently involved in or may become involved in. I can tell you
that we carefully monitor all private antitrust actions in this
arena. We read every public document. We are very cognizant of
the allegations at issue here. We are very aware of the
proceedings, of the evidence that's coming in on the records.
Private antitrust is certainly an important--Senator Leahy
asked me about the tools--private antitrust is certainly an
important tool of the Department. We do watch those matters
carefully and have in the past, in other industries, as
appropriate, either intervened or brought our own lawsuits. So
you can rest assured that that tradition continues.
Senator Sanders. Okay. Well, again, that's good news,
because the point to be made is the problems that we are having
in Vermont and New England are not unique. They're taking place
all over the country and there have been lawsuits filed. It's
important that the Department of Justice work and investigate
those as well.
Ms. Varney, as you know, the Capper-Volstead Act provides
an exception to the antitrust laws for agricultural
cooperatives, but only if those cooperatives ``are operated for
the mutual benefit of the members thereof''. My question is,
how seriously do you take the requirement that a cooperative
act for the benefit of its members in order to be protected by
Capper-Volstead? Could a cooperative lose Capper-Volstead
protection if it routinely acted against its members' interest?
Attorney General Varney. Well, Senator, Capper-Volstead is
something that I have been recently introduced to as the
Assistant Attorney General for Antitrust, and I'm really
learning a lot about the history of the Act and the history of
co-ops and how they've evolved. And without, you know,
asserting any conclusions at this point, I understand that the
act was intended to bring the small producers together in order
to give them some ability to effectively market their milk. It
does seem to me initially that some of these co-ops have grown
extraordinarily beyond what anybody imagined when Capper-
Volstead was enacted.
Now, Capper-Volstead essentially provides antitrust
immunity. We obviously take very seriously the congressional
determination that some activity is exempt from antitrust
scrutiny, even though we're slightly allergic to antitrust
immunity anywhere. Having laid that as a framework, certainly
if an enterprise is acting outside the scope of their immunity,
I believe they would be subject to antitrust review, and
potentially prosecution. That is something I would want to
think carefully about. Congress does not lightly grant
antitrust exemptions, so I think there is a balance that I
would have to strike there and I would look forward to working
with the appropriate congressional committees on what they see
as the limits of Capper-Volstead.
Senator Sanders. Okay. Thank you very much for your
refreshing remarks.
I just have a couple of questions, all right, for Dr.
Glauber?
Chairman Leahy. I might add though, if I could just follow
on that on Capper-Volstead, I mention this because all
antitrust legislation comes before the Judiciary Committee. The
Congress, as you said very rightly, has granted this exemption
from the antitrust laws. Congress having granted that can also
take that exemption away, could it not?
Attorney General Varney. Absolutely.
Chairman Leahy. And if Congress were to determine that
there was a violation of the intent of the law, they could
remove the law, could they not?
Attorney General Varney. Well, and Senator, it does seem to
me that an examination of whether the law is serving its
intended purposes may lead to a conclusion that it is not the
right law for the state of the industry at this time.
Chairman Leahy. I mentioned that Senator Kohl, I've
appointed as chairman of the Antitrust Subcommittee in the
Judiciary Committee. It is something that I know he and I will
be discussing, and with Senator Sanders. Thank you. Please go
ahead.
Senator Sanders. Thanks.
Let me ask Dr. Glauber a few questions. One of the
important points to be made right here in dairy country is, the
fight to preserve dairy and family-based agriculture is not
just an issue of dairy farmers. I used to be, as some of you
know, the mayor of Burlington. Remember, there are no dairy
farmers in Burlington. I can tell you that the people of
Burlington and the people of cities all over this country want
family-based agriculture to be preserved because they want to
get access to fresh, high-quality food. They worry about the
concentration of ownership, they worry about foreign imports
that do not have the standards that we are used to, and want,
in the United States. So this is an issue that goes just beyond
dairy producers, as important as that is.
Now, in connection with that point, Dr. Glauber explain in
non-bureaucratese, in English, a very simple point. I think
Senator Leahy started making it. Here's the point: most people
assume that when they go to the grocery store and they buy a
product, a gallon of milk, they kind of assume that most of
that money goes to the people who produce the product, i.e.,
farmers.
I think most consumers would be shocked to know that if
they're paying, say, $3 for a gallon of milk today, $1, just
$1, goes to the farmer. Under today's conditions, that is
significantly lower than the cost of production. Farmers are
losing money every single day. So $1 goes to the farmer. My
question to you: where do the other $2 go?
Dr. Glauber. Well, in the case of dairy, it clearly goes
for the transportation and processing of dairy products.
There's marketing bills put in there. We do a breakout every
year for a number of commodities. In fact, the farm level value
of total U.S. agriculture is only about 20 cents on the dollar.
Senator Sanders. Did everybody hear that? What you're
saying is, on average, farmers get 20 cents.
Dr. Glauber. Yes. For all products. And certainly if you
were to go to some of the grains like wheat, it's very minimal,
what the price--the farm level price of wheat in a box of
Wheaties, for example. Now, when you move up the chain and go
to things like higher value products like fruits and
vegetables, they command a slightly larger share of the overall
dollar. But you're absolutely right. There's a lot of
processing and transportation and other costs involved in
getting farm level product to the retail----
Senator Sanders. But it's not just--well, let me take you
another step further on that. Do you think it's just
transportation? Do you--are you concerned, in terms of the
survival of family-based agriculture in America, by these
ratios that 8 out of every 10 cents goes to the non-farmer?
Does that sound viable to you?
Dr. Glauber. I'm less concerned about the ratios. What I
think I'm concerned about is what the farm level price is vis-
a-vis the cost of producing that product for the farmer. That's
the----
Senator Sanders. But there is a ratio----
Dr. Glauber. That's the key thing.
Senator Sanders. But there is a ratio between them. I mean,
let me ask you again: what do you think--what's your
understanding of a situation where dairy farmers are receiving
40-year low prices at the same time as a company like Dean
Foods is making record-breaking profits? Do you think there's a
connection between the two or do you think it's just an
accident and a coincidence?
Dr. Glauber. Well, I wouldn't say that it's an accident or
coincidence. I would have to look at the situation. I think
that's one of the things we'll be looking at in terms of these
margins. But understand that, over the last year, a lot of
other things went on. We had very, very high energy prices.
That increases transportation costs, it increases costs for a
lot of that marketing bill. So, one has to look at a lot of
factors, one factor of which may be the market structure.
Senator Sanders. Right. That's actually my next question.
Dr. Glauber. Okay.
Senator Sanders. Thanks. In your prepared testimony you
mention that the Federal milk marketing order has its primary
objective of assuring that fluid milk processors have an
adequate supply of milk to meet the needs of consumers and
farmers so that they can receive a fair price for their milk.
My question is, do you believe that, in fact, the Federal milk
marketing order system is broken? Is it no longer doing what it
was supposed to do?
Dr. Glauber. Well, as you know, it, too, is a system that
dates back to the 1930s. We've had a lot of changes in the milk
marketing order system. We had, as Senator Leahy can remember,
a very, very extensive series of reforms that came out of the
1996 Farm Bill, a very contentious set of reforms which
essentially consolidated the number of orders, streamlined the
number of class prices.
There is certainly, if you go across--and understand that a
large portion of milk produced in this country is outside of
the orders entirely, and that, of course, as we've seen, large
growth in production in some of those regions and that product,
of course, flows into other regions. So they're a very
complicated system.
As for the Federal marketing orders, I certainly think that
a complicated regulatory structure like that is always
worthwhile to review because I think that clearly, when you see
the differences between, say, a Southeast order or the New
England order in terms of what percent goes to processed
production, et cetera, you want to ensure that that order
system is performing efficiently.
Senator Sanders. Let me thank both of you.
Senator Leahy, thank you.
Chairman Leahy. Thank you. Just two very quick follow-ups.
The dairy price supports are going to expire at the end of
October, next month.
Dr. Glauber. The increase that was put in place.
Chairman Leahy. The increase. The increase. Yes. What do
you think will happen in the market when those support prices
return to their previous level?
Dr. Glauber. Given the fact that we have not purchased much
in terms of product and given the forecast for product prices,
I expect that product prices will continue to increase. We have
seen some drop in production, in milk production, over the----
Chairman Leahy. Product priced to the producer would
continue to increase.
Dr. Glauber. Yes. Yes.
Chairman Leahy. Is that what you're saying?
Dr. Glauber. Yes. Yes.
Chairman Leahy. I just want you to know, everybody here is
paying very close attention to your answer on that.
Dr. Glauber. Yes.
Chairman Leahy. Would the Department consider extending the
current price levels beyond October?
Dr. Glauber. Well, I think Secretary Vilsak has made it
clear that he wants to work with Congress to get the dairy
industry through this very tough time, and I think more
importantly, look longer run about ensuring--getting a better
solution to combat future volatility because as you know, this
market has been highly volatile over the last 5, 10 years.
Chairman Leahy. Well, I know. I mean, look at the chart.
Dr. Glauber. Yes.
Chairman Leahy. Look at the chart I show here, and you can
just see that volatility. We don't have ski slopes that are
that sharp here in Vermont.
[Laughter.]
Dr. Glauber. I was bicycling here last summer and it looks
a lot like that.
Chairman Leahy. One of our bicycle clubs has a great tee
shirt. It says, ``Vermont: 'Taint Flat''.
[Laughter.]
Chairman Leahy. But you understand, Dr. Glauber. Just,
those of us who aren't dairy producers, we go to the grocery
store and we see the price of a gallon of milk may come down
slightly, but then I go to the charts that I get every week and
it shows that the price of the producer has gone down much,
much more. Or conversely there are times when the price at the
grocery store has gone up, but the price hasn't gone up to the
producer. I think everybody is very similar to the way my wife
and I are, and our whole family. We don't mind paying the
price, if we are actually keeping farmers in business that they
are actually getting the value from that. We do feel pretty
perturbed if, as Senator Sanders has pointed out, it may go to
enormous profits and enormous salaries to people who own a
conglomerate. But I thank you both. We're going to do--in just
a moment we're going to recess for 5 minutes while we set up
the next panel. Ms. Varney, could you stay and hear the next
panel?
Attorney General Varney. I plan to, Senator, yes.
Chairman Leahy. Good. Thank you. I mean, you're both
welcome to, of course.
Before I recess, could I note there are--I look around here
and I see a number of my friends from the Vermont State
legislature. Would all the legislators please stand? And you
are allowed to applaud. Would you please stand, all the
legislators who are here?
[Applause].
Chairman Leahy. And we will stand in recess for 5 minutes
while we set up the next panel. I thank you both very, very
much for taking this time.
Dr. Glauber. Thank you.
[Whereupon, at 11:17 a.m. the hearing was recessed.]
AFTER RECESS [11:35 a.m.]
Chairman Leahy. If we could reconvene, please. Thank you
all. It was interesting. I see the enormous difference between
having the hearing in Washington and having it here, is during
the break, Marcelle and I, and certainly Senator Sanders and
others, were seeing people we've known forever coming up and
people have--some have raised questions of everything from
market concentration to over-production.
I have suggested that all--again, as I said before we will
keep the record open. If people have testimony they want heard
on this subject, the subject we are talking about, we will keep
the record open for it. This is unusual. A Saturday hearing is
unusual in the Senate but certainly a hearing out of the normal
Senate hearing room. So, take advantage of it.
The first person we're going to recognize is Bill Rowell.
He's the owner of the Green Mountain Dairy farm in Sheldon,
Vermont. I didn't realize, Bill, until I was looking at the
background, you're a descendent of the original Vermont
settlers who farmed in Orleans County.
Mr. Rowell. Yes, sir.
Chairman Leahy. And Franklin County.
Mr. Rowell. Yes, sir.
Chairman Leahy. I knew you were raised on a dairy farm in
Albany because you've told me that before.
He received his B.A. from Johnson State College, his
graduate degree in Urban Environmental Planning from Old
Dominion University in Norfolk, Virginia. Along with his
brother, Mr. Rowell's farm was awarded the prestigious title of
``Vermont Dairy Farm of the Year'' in 2008. We'll start with
your testimony. We'll do it the same way we did before. I want
to hear from each of you, and then Senator Sanders and I will
ask questions.
Please go ahead, Mr. Rowell.
STATEMENT OF BILL ROWELL GREEN MOUNTAIN DAIRY, SHELDON, VERMONT
Mr. Rowell. Very good. Thank you, Senator, Senator Sanders.
Thank you both for being here. Our industry is looking for some
hope, and your very presence gives us hope and we thank you.
Mr. Chairman, testimony of Willard Rowell. As you've said
previously, I operate a farm with my brother, Brian and his
family in Franklin County, Vermont. We produce 23 million
pounds of milk annually. Our herd numbers 900 lactating
Holsteins, 150 dry cows, and 650 replacement heifers. Our waste
stream is processed through an anaerobic digester, which offers
the farm multiple benefits. Crop land for the dairy consists of
1,000 acres of corn, 500 acres of hay land. We utilize best
management practices and operate the farm in a highly efficient
manner.
Today we find ourselves in yet another dairy crisis. We
recognize that dairy farmers nationwide are producing milk well
below their cost of production. Here in the Northeast, the cost
of production is approximately $18 per 100-weight. The pay
price for raw milk is presently--I think last milk check was
$11.60 per 100-weight. That's $2.5 million short this year of
what we were paid last year. In fact, if everything goes well,
by the end of the year we will only be $1.6 million short of
breaking even for the year.
Our national annual milk production in the U.S. amounts to
190 billion pounds and depends on export markets to achieve a
balance between supply and demand to ensure fair pricing for
our product. The world economy is in recession, consumer demand
is down at home and abroad. Last year's export markets of 11
percent have dwindled to about half that this year. The market
over-supply or surplus determines the pay price for 100 percent
of the milk produced, which has created an untenable situation
for the dairy farmer.
The first 6 months of this year, dairymen have converted
$4.5 billion worth of equity to loans and continue doing so at
a rate of $800 million per month across this country. Upcoming
months will prove disastrous for many as equity is depleted and
survival of the fittest plays its role.
Presently, there is no dairy farm in the United States
supplying raw milk to the market at a profit to the farm.
That's unbelievable. The need to balance supply with demand
seems obvious, since the over-supply determines pricing on all
milk. During the past several years, this country has struggled
with the concept of supply management. Our inability to
recognize the role played by surplus milk today has us working
for half price, or in other words, producing 50 percent of our
product for nothing.
Regarding the matter of balancing supply with demand,
producers from across the Nation are expressing interest in a
plan developed by Holstein USA and the Milk Producers Council.
The plan is known as the Dairy Price Stabilization Program. It
provides for the establishment of a national 15-member producer
board, directed by the U.S. Secretary of Agriculture.
The Dairy Price Stabilization Program is a budget-neutral
supply management tool, by which the supply of milk can be
balanced with demand through the national board representative
of the dairy industry to stabilize milk prices.
As a member of the St. Albans Dairy Cooperative, I'm very
encouraged with their recent board decision to endorse the
concept of a supply management program in this country. That's
the first in the Nation, and I hope others will soon follow.
The matter of antitrust, being pursued by Senator Leahy and
Senator Sanders, Ms. Varney and Dr. Glauber, is of vital
importance to our industry. It ensures that we'll be able to
play on a level playing field in a competitive environment. If
the farmer gets the balance of supply and demand in line but
can't operate on a level playing field, he can't overcome that
obstacle. That's a job for you folks, and we thank you for your
efforts.
Finally, to ensure stability in the dairy industry there
needs to be a comprehensive evaluation of Federal milk
marketing orders to determine if they function as intended, to
determine the effectiveness of their design and to determine if
they're representative of today's needs.
Senators, it is rather humbling to look at all the decent,
hard-working people associated with agriculture and then have
to recognize the state of our dairy industry today. Today's
world consists of 6.4 billion people presently; 9 billion will
have arrived by the end of the century, and we represent the
people who will feed them.
We extend our gratitude to Senator Leahy and the Federal
delegation for these hearings and thank you for providing
responsible leadership.
[The prepared statement of Mr. Rowell appears as a
submission for the record.]
Chairman Leahy. Thank you. Thank you, Mr. Rowell. Thank you
for taking the time to be here. You have worked on these issues
for a long time and it's been very helpful to the State.
The same with Paul Doton, who's going to speak next. Mr.
Doton is from--has a farm--in fact, the Doton farm in Barnard,
Vermont. Owns and operates a dairy operation and milks 60
Holsteins, along with his wife Sherry and his son Brian. He
produces--and please correct me if I'm wrong on the numbers--
about 1.1 million pounds of milk or around 128,000 gallons of
fresh milk each year?
Mr. Doton. That's correct.
Chairman Leahy. He's a member of Agri-Mark Dairy
Cooperative, board member of Yankee Farm Credit, and a member
of the Vermont Milk Commission. As I noted earlier, the report
that I received from Commissioner Allbee, or Secretary Allbee,
has been made part of the record. Roger and Tom Berry and
others from my office have been talking yesterday, and it's
only because of the agriculture heads who are meeting is why
he's not here. But we let him know that you were going to be
here too.
So, please go ahead, Mr. Doton. And nice tie.
[Laughter.]
Mr. Doton. Thank you. My brother bought it in Dallas, Texas
for me.
[Laughter.]
Chairman Leahy. Does he know that those are Vermont cows on
there, though?
Mr. Doton. We're guaranteed they are: I'm wearing them in
Vermont.
[Laughter.]
Chairman Leahy. You're going to make sure you had Holsteins
on it, huh?
Mr. Doton. Correct. In spite of what my sister says. She
has Jerseys.
Chairman Leahy. I notice Mr. Wellington does, too.
So go ahead, please.
STATEMENT OF PAUL DOTON, DOTON FARM, WOODSTOCK, VERMONT
Mr. Doton. Good morning. Thank you to both of you for
having this hearing in the State. As you stated, my name is
Paul Doton. I run a small dairy operation--as compared to Mr.
Rowell it's small, anyway--in Barnard Vermont, where I milk 60
Holsteins with my wife, Sherry and our son Brian.
I've been working on the farm since birth, but I did take a
break to go to college and I worked off the farm for 5 years. I
have four younger siblings, and they had to matriculate through
the farm so I could come back in 1977. I guess you could say
that I've been farming for almost 60 years.
Our son Brian is 23 years old and he's fully involved in
the farm with us. In fact, we formed an LLC to make sure he
understood that when he graduated from high school, he was
going to be part of the operation. We're using that to be able
to pass the farm on to him before I kick the bucket and he has
to pay the high estate tax.
[Laughter.]
Mr. Doton. We own 200 acres of land and rent or use another
200 acres of land in our local area for growing hay and corn.
As you stated, we do produce 1.1 million pounds of milk and we
market it through the Agri-Mark Dairy Cooperative. As I've
stated before, I have been dairy farming my whole life. When I
worked off the farm it was for a feed, seed, and fertilizer
company. This is the worst I have seen on the farm as far as
high production costs, but devastatingly low milk prices are
concerned.
Right now as I speak, my operation is losing in the
neighborhood of $75 per cow per month. That's a little lower
than what some people are stating, but we use intensive
grazing, so we cut back on the grain in the summer and
hopefully we'll make it through and we won't have cows that are
a little gaunt going into the fall.
How are we making ends meet? Fortunately we have a maple
syrup business, we sell vegetables, we do custom mowing, we
plow snow. We haven't figured out a way to do custom mowing or
plowing snow year-round, or making maple syrup. Without this
income, I would already be out of business. Doton Farm, much
like many other farms, cannot hang on much longer. How long can
we go on losing $4,500 per month? My answer is, not long at
all.
Dairy farming is a business. When I spend money economists
tell me that it circulates several times throughout the local
economy. They estimate that for every cow I milk, it means
$13,000 in annual economic activity in the local economy each
year. If that holds true, my farm contributes almost $800,000
to my town in taxes and other benefits in addition to open
space and wildlife habitat. I do spend money locally, but only
when we have money to spend.
As an example, my veterinarian service is local, as is my
farm equipment dealer. My repair work for farm trucks and
tractors is also performed locally if we cannot fix it
ourselves. Our farm is starting to show the wear and tear, not
only on the equipment, but on the three of us that are the
entire workforce on our farm meaning myself, my son and my
wife. In spite of what my son says, I do go to several meetings
a month, but I am there. I milked this morning. If this gets
done in time, I will milk tonight.
Chairman Leahy. At least the sun is shining.
Mr. Doton. Yes.
Our vet, for example, now does not visit our farm as often
since we cannot afford to have her every month. It's important
to have a regular herd check every month to check for pregnancy
or lack thereof in our cattle. She used to come every month,
but now we've stretched that to one and a half or 2 months. In
talking to her I'm not the only one that's doing that. So it is
affecting the economy. We also are trying to repair all the
farm equipment and milk equipment ourselves, even more so than
in the past. Everything must be fixed if it is broken, as new
equipment is certainly out of the question at this point in
time.
We are struggling to make ends meet, even though we are
diversified and have more than one source of income. But when
my business suffers, so does the business of many of my
neighbors, like, as I mentioned, the veterinarians and the
mechanics. Their businesses are stressed by this downturn in
our economy in the milk prices.
I feel strongly that the end result of this hearing is that
we must find a way for dairy farmers to recover their cost of
production plus profit, and that's the only reason to have a
hearing like this. Every other group in the marketing chain can
recover their costs if import costs rise, except the dairy
farmer. That situation is unfair and cannot continue. What
other business in the United States is in a position where they
cannot raise their prices to recover their costs? Even our non-
farming friends cannot believe that we're working 365 days a
year but cannot make ends meet.
Am I worried about my future and Sherry's future? I
certainly am. But I worry even more about the future of dairy
farming for my son Brian. He is 23. How can he survive if milk
prices do not even cover the cost of production? How can he
raise a family, send his children to school, invest in the farm
and keep it going for the next generation? Because the next
generation will certainly not milk cows and work the land if
there is not a way to make a profit on their investments.
I also serve on the board of Yankee Farm Credit which is
part of the farm credit system. Earlier this week I was at a
meeting in North Carolina, where I had a chance to talk to
farmers and Farm Credit officers from around the country. I can
tell you that dairy farmers all over the country are struggling
and are going out of business at an alarming rate. That is also
happening here, as you have heard, in this region as well.
I am also on the Vermont Milk Commission and have heard
some testimony from all aspects of the dairy industry, from
farmers, to processors, to retailers. There's no quick or easy
solution for the Commission or the State to take, but we must
work together to address this problem.
Finally, I am also director of Agri-Mark Dairy Co-Op which
markets milk for farmers not only in Vermont, but throughout
New England and Eastern New York. During the past 3 months
alone, our co-op has just over 50 dairy farms that have gone
out of business. With many of those in Vermont, I know this
trend will continue if something is not done to increase the
milk price.
Thanks for this opportunity to testify, and I will be glad
to answer questions later. Thank you.
Chairman Leahy. Thank you very much.
[The prepared statement of Mr. Doton appears as a
submission for the record.]
Chairman Leahy. Our next witness is Travis Forgues of the
Forgues Family Farm in Alburg. I should probably say, because
this becomes part of the full record in Washington, Alburg,
Vermont. We all know Alburg.
But along with his family, he owns and operates an organic
dairy farm with 70 cows, 240 acres. It's been in his family for
over 35 years. I might note parenthetically, his wife and
children are all here with him and we welcome you all.
Mr. Forgues serves as a board member of the CROP, a
cooperative, Organic Valley Family Farms. It's a national
organic dairy farmers' cooperative, with approximately 1,300
members in 28 States.
Mr. Forgues, please go ahead, sir.
STATEMENT OF TRAVIS FORGUES, FORGUES FAMILY FARM, ALBURG,
VERMONT
Mr. Forgues. Chairman Leahy, Senator Sanders members of the
Committee, thank you for inviting me to appear before you to
discuss the important issue of sustainability of the dairy
industry in New England.
I grew up on my parents' conventional farm in Alburg
Springs, Vermont, just across the road from Lake Champlain near
the Canadian border. I love life on the farm with my parents,
Henry and Sally, and two younger sisters, but I was always
aware of the stress my parents felt trying to make ends meet.
It was always a struggle. Believing there was no future in
farming, my parents encouraged me to go to college and carve
out a career away from the farm.
As my wife Amy and I began to think about raising our
family, we realized we wanted to give our children the same
rich, rural upbringings that my parents had given me. When I
approached dad about making a go of farming however, he agreed
to let me return, but insisted I had to come up with a way to
make it work. We bought the house next door to the farm and
started co-farming with my folks, both having jobs off the farm
to make ends meet.
Since my dad had been downsizing our farm to keep afloat,
he hadn't chemically treated his fields. He'd always resisted
the use of drugs, genetic engineering and other conventional
technologies used to get cows to produce more milk. He had
already switched to grass pasturing to cut the high cost of
feed. By the time we began thinking about switching to organic,
which commanded a higher price, we realized we were already
well on our way.
In 1997, we started shipping our milk organically to a
small Vermont-owned organic milk company. We are very proud to
be part of the small company that was shipping organic milk to
local markets. It was not to last however, as the owner sold
the company to a large corporate competitor. It was then I
realized how important true ownership of our future was. With
that in mind, I became the first Organic Valley cooperative
farmer in the State of Vermont in 1999. We started as a small
group, but Vermont is now the second-largest producer pool in
Organic Valley's family of farms totaling over 120.
Just as a side note, if you start talking about how many
farmers we have left in the State, Organic Valley has
approximately 12 percent of those farms that are certified
organic. If you talk to many of them, the vast majority of us
would not be here today without what we had done.
Organic Valley represents over 1,200 farmers across the
country, all with the same goals: long-term, stable sustainable
pricing. In 2008, I was elected to the Board of Directors of
Organic Valley, which I serve on presently. You have asked me
to comment on the sustainability of the Northeast dairy
industry: it is not sustainable. The conventional system that
has developed over the last 50 or so years has done so on the
back of the farmers, and while farmers are strong and can
endure much, they are not invincible.
The ongoing instability of the market, with ups lasting
shorter and downs lasting much longer, relies on dairy farmers
to bear most of the risk of oversupply weak markets, falling
exports, and unregulated imports. The processors are able to
take advantage of over-supply by making larger profits with
lower paid prices to farmers or raising the price at the shelf.
The government, encumbered by regulatory structures and
fiscal realities, is forced to make small, short-term efforts
that do not change the realities year after year. Without
meaningful reform, the instability will continue until the
farmers break. That moment is approaching, and one has to ask
if that time is now.
As a certified organic farmer, I am fortunate to have been
able to avoid many of the troubles of the conventional dairy
industry. For the past 10 years, I have received a stable pay
price, steadily increasing to the price I continue to receive
today, approximately $27 a 100 at mailbox. I believe I've been
able to enjoy the stability because of three main central
principles that I participate in, both on my farm and through
the cooperative: setting our pay price, supply management and
marketing.
Setting our pay price. As a farmer in a cooperative I have
been able to set my pay price for my milk that is a fair price
and sustainable for my family. We have agreed as a cooperative
to set our price and demand that price or we will not sell our
milk organically. Many other organic farmers, whether members
of our cooperative or not, have seen this model and followed
it. We are able to do this because we have the alternative
market for conventional milk.
If we cannot find a market for organic milk at our price,
we sell it conventionally. We do not bid it out and hope for a
high price, it is our price or none. Many will say this does
not translate to the conventional market because there's no
alternative market. I think that there is a way to set up a
two-tiered pricing method for conventional farmers.
The farmers are able to receive a set price of, for
example, $15 for 100 for a certain amount of their milk; even
if it's just 30 to 40 percent of their milk, they will be in a
much more stable position than they currently are. A set price
can be either regulated by the government, or the farmers can
contract milk for a set price if the processors would be
willing to do that contracting.
But the only way for this type of system to be effective
for farmers is if there is support from the government and the
rest of the dairy industry. Whether through incentives or
forced through regulation, the farmers must have some assurance
that for at least part of their milk they will receive a stable
pay price they can count on year after year.
Supply management. Currently, the dairy industry works
outside the bounds of any normal supply/demand doctrine. The
dairy industry, processors, and marketers do not provide any
information to farmers about the forecast of supply needs.
Farmers, as a result, produce as much as they can because more
production helps them pay their bills. This leads to chronic
over-supply depressing prices and farmers in too much debt to
survive.
Without meaningful supply management, this cycle will only
continue. Voluntary programs like CWT are not enough to be
meaningful. I understand that farmers who sell their herds are
simply buying back into herds when the price comes back. This
program also results in over-supply in the beef industry,
hurting those farmers. Meaningful supply management requires
the marketers to make good assessments about their needs and
communicating those needs to the farmers. Farmers who continue
to produce and expand above those needs should not receive the
same price for their milk.
At Organic Valley, in response to this flowing market, we
have instituted a mandatory supply management system. It has
not been easy, but our membership has collectively decided to
reduce milk production by 7 percent. We are seeing our supply
slow and our utilization increase. This helps us protect our
pay price. Again, we are a small microcosm, but we are also a
model of how farmers can begin to take back control of their
piece of the supply/demand puzzle rather than just being at the
mercy of the market.
Finally, marketing. Dairy farmers today are completely
separated from their market, the ultimate consumers. Over a
decade of marketing under the ``Got Milk?'' campaign has
resulted in a consumer who drinks milk because a celebrity
tells them to. There is no connection to the farm with a farmer
who helps produce the milk. By taking this away, there is no
way to educate the consumer about what a sustainable price is
at the shelf for milk.
At least 30 percent of our farmers in Organic Valley
participate in the marketing of our milk. Whether through
retail stores, trade shows, or farm tours, our farmers are
making a connection with the consumer. In turn, our consumers
understand that the milk they are buying is helping to keep a
farmer on the farm and maintain the rural community in the
United States.
In conclusion, these difficulties in the Northeast and
across the country can be avoided by creating the atmosphere
for a cultural shift in the dairy industry. Short-term cures
like more exports or expanded purchases by government programs
do not address fundamental structural problems in the dairy
industry.
A traditional dairy farm was historically naturally
restricted from growth by barn size and land base. They are run
by independent-minded farmers interested in working on the
land. These small family farms form the basis of a vibrant and
healthy rural community and diverse food supply.
Common sense says it's good to have tens of thousands of
family farms providing diversity of farm operations and
production, training tomorrow's farmers and supporting rural
communities. We must find a way to support these individual
farmers in the midst of a global economy. By strengthening each
one of these small parts we strengthen and protect the whole.
But support is not only monetary, it is recognizing that these
farmers are not just cogs, but are critical, co-equal parts of
the whole. Thank you.
[The prepared statement of Mr. Forgues appears as a
submission for the record.]
Chairman Leahy. Thank you very much.
Our last witness before we ask questions is Robert
Wellington. He's the senior vice president for Economics,
Communications, and Legislative Affairs for Agri-Mark Dairy
Cooperative. He's a long-time dairy expert in the New England
region. He works closely with the Departments of Agriculture in
all the New England States, as well as New York. He has also
been very active, working with my office to help increase milk
prices. He frequently testifies before State legislative
bodies, as well as Congress. He has a Bachelor and Master's
degree in Agriculture Economics from Rutgers and you taught
there for several years, am I right, Bob?
Mr. Wellington. Yes.
Chairman Leahy. Thank you. Please go ahead.
STATEMENT OF ROBERT WELLINGTON, AGRI-MARK DAIRY COOPERATIVE,
LAWRENCE, MASSACHUSETTS
Mr. Wellington. Thank you both for all the work you have
done.
I want to get right to the point here, because things are
so severe. Prospects for sustainability in the Northeast dairy
industry are falling rapidly due to the severe financial crisis
faced by dairy farm families in the Northeast and throughout
the Nation.
If a farmer cannot cover his costs and return a fair return
for the investment and labors of its owners, then all other
aspects of sustainability become irrelevant. If farmers are not
buying the inputs needed to run their operations and the milk
is not flowing to processing and manufacturing plants, then the
other non-farm parts of the Northeast industry also are not
sustainable.
It has been estimated that each cow grazing on a hillside
generates more than $13,000 of economic activity. This means
that an average-sized farm in the Northeast, milking about 100
cows, results in over $1.3 million of economic activity. It has
also been estimated that every nine cows support one job in the
dairy economy, from the farm inputs, to the farm itself, to the
use of the milk and other products from the farm. If that
average farm family is forced out of business, $1.3 million of
economic activity and 11 jobs go with it.
This past January, a number of dairy industry
representatives went to Washington to warn legislators of the
looming crisis on the horizon. The Vermont delegation listened
and understood, but other areas of the country remained in
denial. When we explained that an industry supporting over a
million jobs and far over $100 billion in economic activity was
at risk, due in part to the national worldwide recession,
Congress and the administration still refused to provide any
relief for the dairy farming community in either the stimulus
package or the supplemental appropriations bill, despite the
support for that relief from the entire Vermont delegation and
others.
Now the situation has hit home and dairy farmers are facing
the worst financial situation since the Great Depression. They
are receiving 1979 milk prices, but paying 2009 production
costs. The result is thousands of dollars of losses per month
on small farms, up to hundreds of thousands of dollars of
losses per month or more on large or multi-family farms.
I have a chart in my testimony that was put together by Dr.
Stevenson of Cornell. It shows a Milk Cost Index versus the
Milk Price Index for the past 20 years. The situation has
gotten progressively worse and is most severe in 2009, and with
no surprise it's almost exactly the same as that chart up
there.
The causes of farm milk price volatility are many but a
primary one is the misalignment of supply and demand for milk
and dairy products. It has been shown all too often that a mere
2 or 3 percent misalignment can move prices tenfold, that is,
20 to 30 percent. This is a terrible problem when prices are
moving down, but a wonderful opportunity on the up side.
The immediate problem today is cash on the farm. Either
markets need to rise dramatically immediately or else another
source of money needs to be reached on the farm. A doubling of
the MILC payment level, as well as increasing the cap
retroactive to February 2009, would be extremely helpful for
most farms in the Northeast. Measures to enhance market prices,
like the $350 million additional price support allocation in
the 2009-2010 agriculture appropriations bill, could even be
more helpful if used appropriately.
One of my major concerns is that cheese prices were below
the support price for much of this year, as it is right now,
this week, but no product was removed from the marketplace.
This was the worst of both worlds. The support price created a
benchmark price to depress market prices, but it never resulted
in any surplus product being removed from the marketplace. That
cheese surplus is sitting in private warehouses and is a major
factor why cheese prices are far less likely to recover very
much this autumn. USDA needs to actually buy product to balance
supply and demand.
Market prices will eventually recover as more producers
leave and market supplies tighten, but this is a long, painful,
and terrible process. Low prices have gone on much longer and
gotten much lower than anyone had foreseen a year ago, and now
it will take well into 2010 before acceptable price levels are
reached. However even once milk prices recover, it will take a
long time for farmers to repay the debt accumulated and equity
lost in just the past 9 months.
The one certainty appears to be that prices will likely
fall back to the pattern shown in that table if nothing is
done. We are looking at alternative long-term pricing programs
to reduce volatility and low net farm income. The problems are
many, and include reaching a consensus among the strongly
opinionated dairy farmers. Farmers have funded a supply
management endeavor known as CWT, Cooperatives Working
Together, for several years. It worked well when small
surpluses developed but has yet to fully impact the current
dairy crisis, despite conducting three herd buy-outs this year.
This is a voluntary program funded by dairy farmers
producing about 70 percent of the milk in the country. However,
nonparticipants, often called free riders, gain the same
benefits without paying a 10-cent assessment. Some co-ops would
like to see a mandatory government-authorized CWT. Well, that
could eliminate free riders but would also result in other
problems that must be addressed.
Some people would use the futures markets to address the
price volatility problem. Well, that could work. It would not
necessarily improve farm income over time and could depress it.
I have another chart from Dr. Stevenson that shows that, and in
that chart volatility was reduced. But the average contract
price received through the futures market was less than those
that farmers received----
Chairman Leahy. Incidentally, these charts will be made
part of the record.
[The charts appear as a submission for the record.]
Mr. Wellington. Yes. Thank you very much.
Some people have suggested using some type of farm revenue
insurance. While this might help, one must keep in mind that
insurance premiums are usually affordable because the event
that one is ensuring against is rare. If 1 out of every 1,000
houses burns down each year, the premium rate can be low.
However, if every house burned down every 3 years, the premium
would be huge and likely unaffordable.
Milk prices have been burning down every 3 years for all
dairy farmers. Supply control programs such as those proposed
by the Holstein Association have merit but only if dairy
farmers are agreeable to the restrictions set therein. Whatever
plan that is brought to Congress must enjoy an overwhelming
consensus of dairy farmers if it hopes to have a chance at
passage, in my opinion.
We do not have the right message to send the appropriate
signals to dairy farmers when too much milk is going to
severely depress the milk price. A farmer is going to do what
is best for their operation and their family, and rightfully
so. However, when milk prices rise, farmers often increase
production to capture more revenue and, hopefully, profit.
But then when prices fall, farmers also increase production
to maintain cash-flow and minimize losses. Farmers' reaction
when prices fall is bad for market prices, but appropriate for
the farm operation. Farmers must be told when marginal,
additional milk has less value and given an incentive not to
produce it.
I have an example in here, and for the sake of time I won't
give you the details of it except to say there there was 5
percent too much milk in this last year and it dropped prices
on an average of $18 to less than $12 a 100-weight. If you
attributed that 5 percent to the drop in income, every 100-
weight of that additional milk impacted farmers by a negative
$102 per 100-weight. That was the value of that additional
milk.
Finally, Federal order pricing is needed to raise Class 1
differentials and floor those prices. Volatility in cheese
markets should not have to produce volatility in fresh drinking
milk markets.
Thank you for this opportunity to address these issues and
for all the help you have provided dairy farmers over the
years. I will be happy to provide further details or thoughts,
as needed.
[The prepared statement of Mr. Wellington appears as a
submission for the record.]
Chairman Leahy. Thank you very much.
Throughout all this testimony there's been--at least I've
heard in various ways--talking about supply management, as well
as the obvious things of marketing as well as what we've raised
earlier with Ms. Varney and others about the whole issue of
consolidation of the marketing ability.
Mr. Rowell, you referenced the National Holstein
Association, Dairy Farmers Working Together, supply management
proposal. How could such a proposal have prevented the current
crisis?
Mr. Rowell. That proposal, Senator, has a national producer
board advising the U.S. Secretary on how to administer the
program, and that calls for an annual forecast of the market,
revised through quarterly meetings. It establishes a producer
base for each licensed dairy producer in the country. If we see
that we're going to be 4 or 5 percent over-supplied, the order
would be to reduce your supply.
Chairman Leahy. Well, let me make sure I understand that.
Is that a voluntary thing or would that be done mandatory?
Mr. Rowell. No, sir. That is going to take an act of
Congress. In fact, it's being drafted into a bill as we speak.
Chairman Leahy. Do you have any concern about the
government having a mandatory program?
Mr. Rowell. Yes, I have some concern about it. But I have
some concern, Senator, about allowing a small single-digit
percentage of over-production to determine the price of all of
the milk and suffering like this on a repetitive basis.
Chairman Leahy. Speaking of the percentage that Mr.
Wellington just spoke about.
Mr. Rowell. Yes, sir.
Chairman Leahy. Dr. Glauber's testimony--I've got the
numbers here. He talked about cow numbers being at 9.13 million
at the end of 2006, then increased to 9.34 million by 2008.
Now, milk prices were historically high at that time. The
increase in the cows came, milk prices went down. Do you see a
corollary?
Mr. Rowell. Yes. And we need to improve the market signals
to the farm. The farmer is encouraged with the higher pricing,
so he increases his herd, which then decreases his price as the
export market disappears. The export market is so fickle,
depending on somebody else's misfortune in another part of the
world. When that is repaired and they can produce for
themselves, our export market leaves us. We expect the
government to come up with a subsidy so that we still have an
export market but we have to compete with, say for example, the
European Economic Union. They're going to subsidize their dairy
industry by $5 billion. So what do we do, ask the U.S.
Government for $10 billion so we can----
Chairman Leahy. Do they have a quota system?
Mr. Rowell. Yes. In Belgium they do, and they're dumping
milk.
Chairman Leahy. That was going to be my next question. I
was struck by, in the last two or three days, I saw that
photograph of dozens of trucks going across a field, dumping
milk.
Mr. Rowell. They have a quota system. We had a couple of
gentlemen from Israel visit the farm a couple of years ago. I
said, what is the price of a bottle of milk on the shelf in
your country? The gentleman said well, it's about the same as
the price of a bottle of water, unless it's a well-known
spring, then the water sells for more than the milk. So the
world is flooded with milk. And it's apparent to us on the farm
that if we don't manage the supply, we're going to continue to
suffer.
Chairman Leahy. Let me ask, and I want to make sure we can
wrap up, and some questions may be placed in the record after.
But Mr. Doton, you talked about Farm Credit. How is Farm
Credit helping farmers and how are the lenders affected by this
crisis?
Mr. Doton. During the crisis last September, Farm Credit
was one of the only lenders that had an available supply of
money.
Chairman Leahy. But how are they being affected? Is that
lending going to continue?
Mr. Doton. As long as the supply of money is able to be
continued, that the lending agency that lends the money to Farm
Credit is able to access those funds.
Chairman Leahy. Would you say that's----
Mr. Doton. It is at a higher rate than it was previously.
Chairman Leahy. But that's the only source of credit,
basically?
Mr. Doton. The only----
Chairman Leahy. Is that basically the only source of
credit?
Mr. Doton. For agriculture?
Chairman Leahy. Yes.
Mr. Doton. Farm Credit, basically? I'd like to say that,
but there are other funds. Farm Credit is one that's been able
to maintain that to credit-worthy borrowers.
Chairman Leahy. The Vermont Milk Commission, and I
mentioned you being a member of that, and Secretary Allbee
running it, has the Commission recommended changes to Federal
policy?
Mr. Doton. That really wasn't part of the scope of the
Vermont Milk Commission because the Vermont Milk Commission is
to oversee Vermont milk, and only about 6 percent of it,
because it's only that portion that is produced--manufactured
and sold in the State.
Chairman Leahy. Let me talk about the Holstein Association
and Dairy Farmers Working Together's supply management
proposal. How would you feel about a mandatory supply
management program?
Mr. Doton. I've been attending several of these meetings
where the presentations were made by the Holstein Association,
and it's interesting that they have been able to change their
program a little to conform to what people are bringing to
them.
I also had a meeting of my region in Agri-Mark, and the
opinions were about as varied as they could be. You can
understand; we have got a few----
Chairman Leahy. I've been at those kind of meetings.
Mr. Doton. We've got a few people from New Hampshire and
they add to the spice of the meeting. But there are some people
that say ``keep the government the heck out of this''. Be
careful what you ask for, because you might get it, at least
some.
Senator Sanders. And how many of those people return their
MILC checks?
Mr. Doton. Only one of them would not accept his MILC
check.
Senator Sanders. One of them?
Mr. Doton. One of them. The rest of them all accepted their
MILC checks.
Chairman Leahy. But they want government out.
Senator Sanders. After denouncing the Federal Government,
they cashed the checks, right?
Mr. Doton. Correct.
Chairman Leahy. We've heard some similar things in the
health debate.
Senator Sanders. One of the concerns that I might have, and
it's been brought up to me, is with this program, how would
young people get started with a supply management program?
Chairman Leahy. That part does concern me, if it's not a
family farm.
Senator Sanders. Not to the detriment of the program, that
it should be done away with for that reason, but it's a concern
that I have.
Chairman Leahy. Well, let me ask, Travis, you--one, I'm
glad to see--and I apologize for using your first name. We
usually try to be a little more formal and we'll correct the
record.
Mr. Forgues. No, I don't like formal at all, so it's all
good.
Chairman Leahy. But I'm also glad to see a fellow
Michaelman, another St. Michaels graduate here.
Mr. Forgues. Well, thank you.
Chairman Leahy. Now, you're a member of the Organic Valley
Cooperative, I believe you said. Is that correct?
Mr. Forgues. That's correct.
Chairman Leahy. And the other major player in the organic
dairy market is Horizon Organic.
Mr. Forgues. That's correct.
Chairman Leahy. That's owned by Dean Foods.
Mr. Forgues. Yes.
Chairman Leahy. What's the competition between Organic
Valley and Horizon for organic milk? Is it a real competition?
Mr. Forgues. When you talk about competition especially
after listening to the Department of Justice discussing this,
there's two components to that. The one question is, is the
competition at the farmer level--so talking about the programs,
like how we're paying farmers compared to how our competitors
are paying farmers, is that competitive? I would say that that
has been competitive, especially when we were in a shortage of
milk for the last few years of growth. The packages were very
competitive, comparable.
People make decisions, they want to be a part of a co-op,
they want to have independent deals. I'd say that's been
competitive. When I start talking about retail level, for us,
we're a farmer-owned cooperative. Our money is pretty finite. I
mean, we're farmer-owned that's it. We need to make money based
on how we do in the marketplace. I would say my competitors
have a whole lot, more money to work with and a lot more
resources to deal with the retail level than I would say we do.
Chairman Leahy. We have talked about this before we talked
about it when you were down in Washington. I think one of my
proudest achievements in the Senate was when I wrote the
Organic Foods Production Act back in 1990, so at that time this
would be--people kind of said it's a niche market, crunchy
granola is not going to amount to anything. It's now projected
to be $23.6 billion, billion with a ``b'', in 2009. That's up
from $1 billion in 1990.
I don't know of any part of agriculture that's grown as
rapidly. But if you're going to keep that, you also have to
keep the strong standards. We wrote in some very, very tough
standards. What happens if those standards are relaxed? What
happens if the label no longer means what it means today?
Mr. Forgues. Well, I mean, it's important to note that the
National Organic Program, which really took all the different
certifier agencies, put it all underneath a national standard,
is really a gold standard of organic production through the
world, a well-written bill. If things get lax with that bill
and consumer confidence goes down, then the ability to command
a price for what you say you're doing will go away. I think one
of the biggest problems, as we look at the NOP--or not
problems.
But one of the issues we need to deal with is, I don't
believe, like you are saying, organics was ever expected to
grow at the rate we were supposed to grow. I don't think the
Federal Government put enough resources or gave the resources
to the NOP to keep up with us. You have a great set of
standards. Are they perfect? No. Can they be always improved?
Absolutely. But what you need to make sure is that the NOP gets
enough resources to keep up with a growing industry in the food
segment.
Chairman Leahy. Sure. I was just going to tell you, after
the microphone are turned off, remind me to tell you what
President George H.W. Bush said to me when he signed that bill.
Mr. Forgues. I'll remember.
Chairman Leahy. It's a funny story.
Go ahead.
Senator Sanders. Let me ask you this, picking up on the
point that Senator Leahy made on organic standards. Our friends
at Dean Food are moving fairly aggressively into the so-called
organic market. Is that right?
Mr. Forgues. Horizon Organics is a strong player in the
organic market, yes.
Senator Sanders. Are you concerned in terms of what it
means, what most people consider organic to be, that in fact
Dean's ownership of Horizon may be diluting that concept or are
they maintaining the standards that you think should be
maintained?
Mr. Forgues. I think--you know, I've always been an
organic-neutral kind of person in the belief that the standards
need to be followed no matter if you're a 30-cow dairy or a
1,000-cow dairy. I think if those rules are followed to what is
supposed to be done and the NOP has the resources and the
backbone to make sure that those standards are followed--and I
will say, I'm highly impressed and very excited to have
Kathleen Marrigan involved in making some changes and help with
the NOP and the new administrator for the NOP, just being
announced.
If that's followed, then Dean Foods being involved in
Horizon shouldn't really have anything to do with the organic
standards and how those farms are producing. I can't talk about
the justice part. That's a whole nother ball of wax that I
don't understand a whole lot, and that's what Department of
Justice needs to look at. But as for following standards, a
Horizon organic dairy farmer or an Organic Valley dairy farmer
should all be following the same standards and bringing a
quality product to the market.
Senator Sanders. That's absolutely correct. My
understanding is that that may not necessarily be the case
right now.
Mr. Forgues. That is hopefully why we're getting more
resources to the NOP, so the NOP can find out if that's true or
not.
Chairman Leahy. Mr. Wellington, I was reading over your
testimony before we came here. One of the things that struck
me, and you mention it here today too, you said one of your
major concerns is that cheese prices are below the support
price for much of the year, but no product was removed from the
marketplace. You talked about the cheese sitting in private
warehouses. Why is this happening? We have a dairy product
price support program. It's supposed to be buying cheese to
clear the market. Why is this happening?
Mr. Wellington. Well, I think because of the industry saw
that they had this great bargain with the cheese price. It
couldn't go any lower because of the support price, and they
knew that they were going to eat more cheese coming this fall,
this winter. So they said why sell it to the government if I
can just put it in my own warehouse at these cheap prices? The
government created a target price at a very low level. They
don't have to sell to the government. And, in fact, because the
standards are so much tougher without the price being higher,
it's actually a burden to sell it to the government.
So the market price was running 5 to 8 cents below the
support price, which is 50 to 80 cents 100-weight. I mean, it
was a terrible situation. If the government would have bought
several hundred million pounds of cheese that could have been
used by food banks and others, we wouldn't have that hanging
over our head right now and we could have had a lot faster
recovery, in my opinion.
Chairman Leahy. Do we need to reform Federal order pricing?
Mr. Wellington. I think we certainly need to take a look at
it. But I'll be honest with you, I've worked in the Federal
order program for 11 years. It does some very good things on
orderly marketing and having handlers accountable on their
prices and sales. But can it be improved, yes. But in many
cases it 's also a message-bearer. It takes other prices and
uses them through formulas. But it does decide those formulas,
and particularly on Class 1 pricing, there's no reason why you
should have an exact carry-through of lower cheese prices,
resulting in lower fresh milk prices.
Chairman Leahy. You know, when I became Chairman of the
Senate Agriculture Committee I was sitting in a room for a day,
having the whole Federal order pricing explained to me. I was
then committed to an asylum for several months to recover.
[Laughter.]
Chairman Leahy. And this is probably going to show up on a
You Tube somewhere that I actually said that. It is a joke. But
we had some of the best economists, and it's a very, very
difficult thing. As you know incidentally, what's been the
impact of the Dean-Suisse merger in 2001 on Agri-Mark's
business model?
Mr. Wellington. It hasn't affected us to a great degree
because we were never a major supplier to the plants that
merged into Dean Foods. Our major suppliers that we supplied
milk to was the H.B. Hood Company and Geides Dairy down in
Connecticut. So it didn't affect us. We actually had to step in
and work with the Justice Department to make sure it wouldn't
affect us. In fact we work with the Massachusetts Department of
Agriculture to try to stop some of the mergers when they were
Suisse Foods. So we were able to then intercede, keep our
independence, keep our supply. So we're not a major supplier
for Dean Foods, and that's probably a good thing for us.
Chairman Leahy. I asked that because I know you talked with
some of our folks at the time.
Mr. Wellington. Yes.
Chairman Leahy. And I appreciate that.
Senator Sanders.
Senator Sanders. Thank you, Senator Leahy.
Let me just begin by saying this. As all of you know,
everybody in this room pays taxes. We put money into the
Defense Department, we put money into transportation to build
roads, we put money into education to make sure our kids get a
quality education. And I know that there are a lot of people
out there who think that that's a terrible idea. The Federal
Government should kind of back off in every respect, including
agriculture.
But I don't think there's anybody in this room who should
be ashamed for 1 second that some of us at the Federal level
are trying to make sure that the people of this country get
good, quality food, and that in terms of food security, that we
are working hard to try to maintain family-based agriculture in
America. I don't think there's anything to be ashamed about
that.
Let me start off by asking, what I'd like to do is just
throw out a question. Also, I want to congratulate Senator
Leahy for putting together a great panel. The first panel was
terrific, but I think in these four folks here we see a good
cross-section of Vermont agriculture from smaller farms, to a
larger farm, to an organic farmer, to one of the best
agricultural economists in the country. So Senator, thank you
for this very good hearing.
My first question deals with a question on which there is
controversy, and that is the whole issue of supply management.
What I want to do, before I even ask the panelists, I'd like to
ask the members, I know we have a number of farmers here. How
many people, farmers here, dairy farmers here, believe that
this country has got to move to supply management? Please raise
your hand.
[A showing of hands].
Senator Sanders. How many do not?
[No response].
Senator Sanders. Now, that's interesting, Senator Leahy.
For the record----
Chairman Leahy. Yes. Let's--I was going to say it, but go
ahead.
Senator Sanders. Let the record note that, here in St.
Albans, Vermont, no farmer raised his or her hand in opposition
to supply management.
Now, in terms of the testimony that we've heard here we've
also heard that. Travis, you've indicated to us that you
already do supply management with Organic Valley. Bill, you
have been an active proponent of that. So why don't we just
throw it out and briefly, Bill, tell me what you're hearing
around the country as farmers are losing their farms, as prices
have plummeted.
Is there a growing understanding that not every farmer in
America can continue to produce as much milk as he or she wants
to without paying a consequence for that? And maybe if you want
to, as an aside, say a word about what's going on 50 miles
north of here in another country which does have quotas and so
forth.
Mr. Rowell. Yes, sir. It has become apparent across the
Nation that if we don't control our supply that many of us
won't remain as our equity runs out.
Chairman Leahy. If you don't.
Mr. Rowell. If we don't control the supply.
Senator Sanders. Paul, what do you think?
Mr. Doton. It is absolutely necessary to have a program so
people understand that the supply is getting too large and
demand is not meeting that, and in some way to tell farmers,
you need to cut back, either by getting a lower price or some
sort of a program. The whole concept is there.
Senator Sanders. Travis, now, you guys at Organic Valley
have understood this for many years.
Mr. Forgues. Well, we tried to manage--I think in October
we ran into the whole national economic global meltdown. The
problem with organics is, we sign year contracts ahead before
farmers actually get on the truck because we want to give them
security when they're transitioning. So we had to deal with the
fact that we had milk that we had already contracted on, and
what were we going to do with it?
Because we're not 5 percent over-supplied, we were more
like 10. So we had to make a decision, were we going to get rid
of farmers, were we going to slash pay prices, are we going to
go to this or are we going to try something that nobody wants
to deal with, $1,050 farmers in our co-op that are dairymen,
you could get 1,050 different ideas. The reality is, we did it
in July. We came up with a plan. Is it perfect? No. Are we
talking? We will be.
Senator Sanders. But it's working fairly well.
Mr. Forgues. It has worked.
Senator Sanders. You have $27 100-weight. ain't bad, right?
Mr. Forgues. No. And if we hadn't done that, I can tell you
that this independent co-op would have lost millions of dollars
in the month of July.
Senator Sanders. Bob, from your perspective as an
economist, what are you hearing?
Mr. Wellington. Well, you've got to keep something in mind.
This is not a case of having no supply control or supply
control. We have supply control right now, okay, and it's harsh
and it's cruel and it's all related to low prices. So we have a
system in place, so we've got to be asking----
Senator Sanders. You mean, as we've driving farmers off the
land.
Mr. Wellington. Right. But I'm just saying, we have to be
asked, which system do you prefer.
Senator Sanders. Right.
Dr. Glauber. Not necessarily saying, do you like supply
control or not, but which system is better for your family and
your operation.
Senator Sanders. All right. Let me ask all of you to
respond to this. Dean Foods saw, in the first quarter of 2009,
a 147 percent increase in their profits from the preceding
year. All of you are struggling to keep your heads above water,
or at least in the State of Vermont.
Bill, what do you think about a processor whose profits are
soaring while farmers that you know are going out of business?
What does that tell you?
Mr. Rowell. It seems rather unfair not to be able to play
on a level playing field, and it needs to be looked into and
straightened out. If we are able to manage or balance the
supply of milk with demand and we don't have a level field to
operate on, we still have an insurmountable obstacle, and that
has to be taken care of.
Senator Sanders. Paul?
Mr. Doton. I don't like to put it the wrong way, but 3
years ago when we were getting $24, the same situation was in
place. Dean was controlling the marketing. So the Federal milk
marketing order is the one that sets the rice. What little
dealing that you have to do with Dean Foods is on the premium
or the service fee, that the co-ops can get above and beyond
the minimum price that the milk marketing order allowed. And
you're talking about, in the neighborhood of $2 at the most.
Senator Sanders. Do you have concern, Paul, about the
alleged concentration of ownership, of one company owning
perhaps 70 percent of New England?
Mr. Doton. Yes, I do.
Senator Sanders. And tell me, why is that?
Mr. Doton. Well, for situations----
Senator Sanders. I know the answer, but I want it in your
words.
Mr. Doton. For situations like what are going on right now.
As Mr. Wellington stated, it has not directly affected Agri-
Mark at this point, but the overall system and the condition,
and the dairy industry is affected by that program.
Senator Sanders. Travis, I'm going to skip you on that one
because you're not selling to Dean. But Bob what do you think
about that?
Mr. Wellington. Well, I mean, as an economist, there's
nothing wrong with profit. The problem is the distribution of
that profit and where it ends up. I think you have to look at
the fact, if one player has more power than the other, that's
going to end up with that profit going in that direction. So in
some cases you're going to have to try to justify that. It
might be the government action.
Senator Sanders. All right. Let me go back to Bill again.
Bill, can you explain to us the way that voting works within a
cooperative and the term ``bloc voting'' and do you think bloc
voting gives you and the average farmer enough opportunity to
have input into the cooperative?
Mr. Rowell. I would liken bloc voting to something along
the lines of the legislative process, Senator. If you have a
deal that you want to move along and your colleague is asked to
participate in that deal to move it along, then it will happen.
But your colleague is going to be expecting a favor from you
later on his deal. So you are constrained by your deal-making
process. The legislative process isn't perfect. Bloc voting has
probably been able to achieve more of a majority on the CWT
issue than if it had been individual voting.
Senator Sanders. Okay.
Paul, any thoughts?
Mr. Doton. I think it's important to understand that
participation on an individual member basis for a vote like
might be required or suggested, to have a bloc vote, would be
very slim. Studies show that a 10 to 15 percent range is all
the return you get when you send out an individual balloting,
whereas if you put bloc vote, send a notice to each member
saying if you disagree with the bloc voting done by the co-op,
send in and that voice will be heard and that will be a
negative vote cast by that person.
Senator Sanders. The thrust of what I'm trying to get into
is, are farmers themselves--are their voices being heard within
the co-ops. That's kind of what I'm--and Travis and Bob, if
you----
Mr. Doton. Then let me continue a little bit.
Senator Sanders. Sure.
Mr. Doton. As Executive Director, I have information
meetings within my co-op of my region. And let me tell you,
there is input from those individuals. I have telephone calls.
It doesn't matter whether the profit is coming in to the co-op
or if the prices are low, the prices are high. I had one of the
largest turnouts with Mr. Wellington coming to my information
meeting last 2 weeks ago. Obviously the prices are low. They
were not angered. It was, I think, disbelief, your worst
nightmares are coming true. But we do have people that give
input to my co-op.
Senator Sanders. Travis, thoughts?
Mr. Forgues. I'm sorry. The bloc voting thing is something
that I have not--we don't pay a lot of attention to. We're a
one farmer, one vote kind of co-op. We have seven directors
that are voted on by the----
Senator Sanders. And are you satisfied with the nature of
the democracy within the Organic Valley co-op?
Mr. Forgues. Yes.
Senator Sanders. Okay. Good.
Bob.
Mr. Wellington. I think in many ways it's very similar. If
you had a bill, I think it was mentioned, and you wanted
support, but you had to pull all your constituents before you
could vote, it would just, like, slow down that process so
much. So you have to have people who represent you. They should
be elected or, for example, are elected every 3 years. They
should be accountable on it.
In the Dairy Compact, we actually had a provision that said
you can bloc both, but you have to inform your members and you
had to give them the opportunity to vote differently. Not very
many did, but you also had to inform them and educate them. So
there are ways to make it work, but I think it is an important
concept for cooperatives.
Senator Sanders. All right. My last question, Mr. Chairman,
is the following. We had Christine Varney, who is sitting right
here, with the Attorney General's Antitrust Division. She's
here, she's listening. Let's go right down the line. What
recommendations do you have for her? What would you like the
Department to do? Bill?
Mr. Rowell. I saw some information yesterday, passed to me
by our friend Bob Foster, regarding a newsletter on an
antitrust hearing, I believe, in Greenville, Tennessee on Dean
Foods, DFA, National Dairy Holdings. This may not be very
timely for them to be involved in that sort of a situation when
you have the Assistant Attorney General looking at them to see
if they should pursue antitrust against them today. I'd like to
see it pursued, you know.
If, in fact, everything is fine and that's the American
way, fine, then they're entitled to their profit. But don't
keep skinning it off the back of the farmer to the point where
you cause a large extinction of farmers and jeopardize the food
supply so that somebody can walk away with all the goodies. It
doesn't work for me. I'd like to see her pursue that
wholeheartedly. The way she spoke, I have a pretty good feeling
that she's going to.
Senator Sanders. Thank you.
Paul.
Mr. Doton. After that, what can you say? I agree totally
with what Bill just said, and just hope she pursues it and
brings it to a conclusion.
Senator Sanders. Travis.
Mr. Forgues. I would just want to remind everyone that,
regardless if farmers in this country are organic or
conventional, we are all connected at the hip. If Dean Foods is
doing whatever they're doing to conventional dairy and there's
something that needs to be fixed, it does nothing but enhance
all of us and I would hope that things are being looked into,
and I hope that Ms. Varney is taking care of what needs to be
taken care of.
Senator Sanders. Bob.
Mr. Wellington. I would hope that the Department could look
at the entire picture. There's a lot of things in the dairy
industry that we do that looks pretty convoluted at first until
you get to the bottom of how it developed and why we do it. So,
get a truthful picture of exactly what's happening and then
react to that. The light is good for all of us, in my opinion.
Senator Sanders. Good. Thank you. Thank you very much.
Chairman Leahy. Well, thank you. I thank everybody for
being here. This is actually a more lengthy hearing than we
probably would have had in Washington, but I think more
worthwhile.
Ms. Varney, I thank you for coming up here. I know how
extraordinarily busy your Department is. You took the time, and
Dr. Glauber, the same. I also thank the witnesses, the other
witnesses who came here. We will stand in recess, subject to
the call of the Chair. I thank you all very much.
We are in conclusion.
[Whereupon, at 12:42 p.m. the hearing was adjourned.]
[Questions and answers and submissions for the record
follow.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]