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Dairy producers file class action complaint in Southwest

Progressive Dairy Editor Dave Natzke Published on 07 April 2022

Editor's note: The original article has been updated to include comments from Dairy Farmers of America.

Multiple dairy farmers in New Mexico have filed a class action complaint against Dairy Farmers of America (DFA), Select Milk Producers and the Greater Southwest Agency Inc. (GSA), alleging the organizations conspired to drive down prices for raw milk in the Southwest since 2015. The complaint (case 1:22-cv-00251), was filed in the U.S. District Court for the District of New Mexico, April 4.

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Among those listed as plaintiffs in the case are several current dairy operations: Othart Dairy Farms LLC, Desertland Dairy LLC, Del Oro Dairy LLC, Bright Star Dairy LLC and Sunset Dairy LLC. Two others listed as plaintiffs, Pareo Farm Inc. and Pareo Farm II Inc., ceased operations in September 2021 and March 2022, respectively. The plaintiffs are represented by three law firms: Peifer, Hanson, Mullins & Baker PA; Lockridge Grindal Nauen PLLP; and Hagens Berman Sobol Shapiro LLP.

As a class action suit, the complaint is also seeking participation from dairy producers who produced and sold Grade A milk independently or directly or through DFA and Select, or within DFA’s Southwest Area region (composed of all of New Mexico, most of Texas, the eastern portion of Arizona, the Oklahoma panhandle and southwestern Kansas) any time from at least Jan. 1, 2015, until the present. Read: Southwest dairy farmer antitrust litigation.

As the two largest dairy cooperatives operating in the region, DFA and Select Milk control at least 75% of all raw Grade A milk marketed in the Southwest. Also named as a defendant, GSA was founded in 1998 by DFA, Select Milk, Lone Star Milk Producers and Zia Milk Producers. Zia Milk Producers ceased to exist in late 2018, with its members joining DFA.

The complaint alleges that DFA and Select began coordinating activities after the milk price rates paid to Southwestern dairy farmers reached high levels in 2014. Among other things, the farmers allege that beginning in at least January 2015, DFA and Select Milk shared pricing information and coordinated pricing and price-related decisions to drive down the price paid to Southwestern farmers for the milk they produced. While DFA and Select Milk use different formulae and calculations for determining what each member will receive for their milk each month, the rates paid to members each month is nearly always within just a few pennies of each other, according to the court document.

The complaint alleges the organizations’ activities included: (a) unlawfully sharing pricing information though their various commercial joint ventures as well as through GSA; (b) driving down take-home pay for dairy farmers through selective and increasingly frequent non-pooling of milk, allowing the cooperatives as entities to market members’ milk at higher prices without passing those increases on to farmers; and (c) unlawfully coordinating pricing and pricing-related decisions.

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The plaintiffs also charge that, on or around Oct. 1, 2020, both DFA and Select Milk began to impose flexible maximum production amounts on their members under GSA’s “tiered pricing program.” The program established daily base milk production limits on individual producers, with market diversion assessments on excess production.

Monthly USDA "all-milk" and “mailbox” price announcements published by Progressive Dairy indicate milk prices received by New Mexico producers are generally the lowest in the country. Read: All-milk, mailbox price spread shrunk a little in 2021 and February DMC margin dips but no indemnity payments triggered.

New Mexico dairy producer pay prices are frequently $2 per hundredweight (cwt) less than the U.S. average all-milk price, noted Robert Hagevoort, associate professor and extension dairy specialist with New Mexico State University – Clovis. Read: State of the Dairy 2022: Southwest: The neighborhood is changing.

The lawsuit alleges that the effect of DFA and Select’s activities “has been devastating to many dairy farmers,” which “has led numerous farmers to borrow from generations of equity built up in their land, relying on that equity to pay themselves and keep their farms in operation. Many Southwestern dairy farmers have been forced to declare bankruptcy and/or completely closed their operations.”

Recently released financial reports by leading account firms continue to show significant financial losses for New Mexico dairy producers in the first six months of 2021.

“As a result, we are seeing very significant and accelerated consolidation, with larger-than-normal numbers of dairies calling it quits,” Hagevoort said.

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Federal Milk Marketing Order (FMMO) market administrator reports show New Mexico lost 15% of its dairies in 2021 (down 19 from 128), and total production decreased 5%.

The lawsuit alleges that the dairy industry is particularly susceptible to antitrust conspiracies due to high consolidation within the industry, complicated price formulas and a lack of price transparency.

In a statement released to Progressive Dairy, April 7, Kristen Coady, senior vice president of corporate affairs at DFA, said the cooperative is still reviewing the lawsuit.

“We were made aware of this lawsuit earlier this week. Our team is still in the process of thoroughly reviewing the filing,” Coady said. “We believe any allegations that we violated the intent of antitrust laws lack merit, and we will vigorously defend ourselves in this case.”

Officials with Select Milk and the Greater Southwest Agency couldn’t be reached.  end mark

Dave Natzke
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