How Modern Milk Monopolies Function

How Modern Milk Monopolies Function

Monopolies result from a single company or group of companies undertaking to control supply, demand and pricing of a particular product or service in order to reduce competition for increased financial benefit. In the dairy industry, monopoly control is most often seen in the way dairy “co-ops” contrive to establish themselves as the primary or exclusive hauler, pooler, and processor of milk products [see footnotes for definitions]. Co-ops also contrive to reduce the number of milking dairies and increase their scale, usually by offering bulk milk prices that require very large herds, expensive automation, and externalizing coats.

Co-ops also work hand-in-glove with large retailers. In Colorado, five national grocery chains sell 88% of milk products to retail customers: Walmart/Sam’s, Kroger, Costco, Target, and Safeway/Albertson’s dominate the conventional food trade. While Kroger and Safeway (soon to be a single entity) operate dairy plants in Denver, they appear to be entirely dependent on one co-op for bulk milk deliveries to their plants.

The co-ops have a long history of eliminating competition by consolidating milk pooling and processing by acquiring competing dairies. They often do this by working with retailers to shift demand away from a particular dairy, forcing it into insolvency, and then purchasing the brand and its processing plants. Large retailers such as Kroger have also participated in this industry consolidation by agreeing preferentially to purchase certain co-op milk products or by opening their own processing plants to increase their internal profit margins and eliminate dependence on traditional dairies. In short, modern coops use the anti-trust exemptions provided to agricultural cooperatives by the Capper-Volstead Act to compete unfairly against other cooperatives.

Currently, there are only 180 operating dairies in Colorado; of those only 87 milk more than 100 cows. Almost all of them are located in three northeastern counties, from where the haulers move raw milk to pooling facilities including Leprino cheese, Safeway, Kroger, DFA Meadow Gold, and DFA Ft. Morgan. The only other pooling facility is the Sinton plant in Pueblo, which is foreign-owned and collects milk from parts of southern and eastern Colorado to produce limited products.

The supply chain for dairy starts with hay and grain, which are fed to the cows. The cows are milked twice a day, and the milk is cooled in refrigerated tanks on the farm awaiting pickup. Milk haulers collect the milk in specialized stainless steel tanker rigs and deliver it to the pooling dairies where it is pasteurized (sterilized against pathogens) before being processed into various packaged products or sold in bulk to other manufacturers. The only cow-milker that also does full processing is Aurora Dairy, which packages products under private label branding for specific retail customers.

The co-ops have been sued many times, over many years, for violating anti-trust laws by way of conspiracy, collusion, preferential pricing to affiliates, contriving to reduce supply by killing off milk cows, and generally using every method available to achieve economic dominance. In many states, including Colorado, the co-ops now appear to control the industry and manipulate it to their benefit. Note that many of these lawsuits are filed by co-op members against the executives who manage the co-op business.

Dairy co-ops were originally subject to the anti-trust laws under the Sherman and Clayton Acts. Later, dairy co-ops were specifically exempted from anti-trust enforcement by the Capper-Volstead Act under the condition that they acted solely in the collective best interest of their members. For a time, this allowed thousands of small producers to collectively manage supply volumes and set prices at levels that allowed them to be profitable. In the highly consolidated milk industry in Colorado, this deregulation seems to have resulted in very few large dairies that are the members of the dominant co-op acting against their members’ interests. Some co-op members have sued the co-op itself, and its management, to force more transparent and fair treatment of its members.

However, these anti-competitive actions have resulted in the elimination of thousands of small dairies through the methods described above. If a small dairy cannot attract a milk hauling company, can’t find a processor, can’t get reliable access to retail shelves or institutional buyers, and must compete on price with a handful of mega-dairies, they are not a viable business and can no longer serve their local community. This is how “legal” monopolies eliminate competitors.

How such monopoly control is consolidated has been documented in a number of research papers, books, and — especially revealing — federal anti-trust lawsuits. Dairy activists have also raised concerns about why powdered and evaporated milk is exempt from pricing oversight, and point out that DFA Fort Morgan is the primary beneficiary of this exemption. Similarly, yogurt is also exempt, which leads to questions about how co-ops leadership may benefit from the production and sale of certain national yogurt brands. One thing is sure: in every case where a federal anti-trust lawsuit has entered the discovery phase, the dairy co-ops have opted to settle for tens of millions of dollars rather than disclose their secret dealings.

Dairy: raises and milks cows. Hauler: collects milk from individual dairies.  Pooler: receives milk from haulers from multiple dairy sources. Poolers also pasteurize milk against pathogens before it is used in the supply chain. Processor: converts pasteurized milk into cartooned milk, cheese, cream, etc. Sometimes referred to as a Handler.

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