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What happened? What’s next? - Southwest class action lawsuit targets DFA, Select Milk

Progressive Dairy Editor Dave Natzke Published on 07 May 2022

In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. Look for more extensive background and details at Progressive Dairy. Editor's note: This article has been updated to include additional information from the USDA regarding "mailbox" prices.

Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke.

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SOUTHWEST LAWSUIT

What happened?

In early April, multiple dairy farmers in New Mexico 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.

What’s ahead?

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.

In a statement released to Progressive Dairy, Kristen Coady, DFA senior vice president of corporate affairs, said “any allegations that we violated the intent of anti-trust laws lack merit” and that DFA would “vigorously defend ourselves in this case.”

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Bottom line

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 pricing and price-related activities beginning in at least January 2015, including unlawfully sharing pricing information though their various commercial joint ventures as well as through GSA, and driving down take-home pay for dairy farmers through selective and increasingly frequent non-pooling of milk.

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 and frequently $2 per hundredweight (cwt) less than the U.S. average all-milk price, according to Robert Hagevoort, associate professor and extension dairy specialist with New Mexico State University – Clovis.

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.

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ORGANIC DAIRY ‘ORIGIN OF LIVESTOCK’ RULE

What happened?

The USDA has released a long-awaited “origin of livestock” final rule establishing uniform standards for transitioning dairy cattle to organic production.

What’s ahead?

The rule will become effective on June 6. Certified organic operations must comply with all provisions of the rule by April 5, 2023.

The USDA’s National Organic Program (NOP) will oversee the new rule, which in general:

  • Allows a dairy livestock operation transitioning to organic, or starting a new organic farm, to transition non-organic animals one time.

  • Prohibits organic dairies from sourcing any transitioned animals. Once a dairy is certified organic, animals must be managed as organic from the last third of gestation. Variances may be requested by small businesses for specific scenarios.

Bottom line

The rule closes what many in the industry considered a “loophole” creating unfair organic marketing practices.

In a November 2019 article in Progressive Dairy (“Study finds loophole puts organic dairies at a disadvantage when raising heifers”), Fay Benson, project manager with the New York Organic Dairy Program, said the USDA Office of Inspector General (OIG) had published an audit report on organic milk operations stating that certifying agents were interpreting the origin of livestock requirements differently. Three of the six certifiers interviewed by OIG allowed producers to continuously transition additional animals into a herd after the initial herd made the transition to organic milk production, while the other three certifiers did not permit this practice.

A Cornell University study compared the costs of production for organically raised calves from day one to those raised conventionally and transitioned to organic before freshening. The study showed that dairies whose certifiers allowed conventional raising of the newborn calf to 1 year old could save $884 per animal for feed and labor.

MARCH FMMO MILK MARKETINGS

What happened?

Administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported March 2022 uniform milk prices, producer price differentials (PPDs) and milk pooling data, April 11-13. FMMO statistically uniform milk prices were up, while the spread between milk class prices again impacted handler pooling and the “Class I mover.”

What’s ahead?

Dairy pricing issues remain a hot topic, with potential reforms being pursued through two possible routes: the 2023 Farm Bill and/or a FMMO hearing process.

At Progressive Dairy’s deadline, the Senate Ag Committee was scheduled to hold its first field hearings on the 2023 Farm Bill on April 29, in Michigan.

National Milk Producers Federation (NMPF) CEO and president Jim Mulhern, noting the organization has been discussing potential FMMO modernization since early 2021, said any reforms through a FMMO hearing are likely a multiyear process.

Bottom line

With higher individual milk class prices, March blend or uniform prices at standardized test rose in all FMMOs, and in most cases were the highest since October 2014. The high uniform price for March was $27.77 per cwt in the Florida FMMO No. 6; the low was $22.66 per cwt in the Upper Midwest FMMO No. 30. March baseline PPDs were positive but slightly lower than February.

Looking at March data, about 13.1 billion pounds of milk were pooled on federal orders, up about 1.4 billion pounds from February. Factoring into that increase, of course, is the longer month.

The March Class III-IV price spread was wide, at $2.37 per cwt, again providing incentives for Class IV depooling. Class IV milk pooled across all FMMOs inched upward to about 1.058 billion pounds in March. However, with total milk pooled also higher, March 2022 Class IV milk utilization represented about 8.1% of total FMMO milk marketings, a pre-2018 low. In contrast, Class III milk represented about 54.8% of the total FMMO pool, the highest since pre-2018.

Class and uniform prices will move higher for April milk marketings, but some incentives for Class IV milk depooling will remain. The “average of plus 74 cents” Class I mover formula will take a smaller bite out of the Class I price.  end mark

Dave Natzke
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