Government Accountability Office Report Shows Power Imbalances and Reduced Farmer Earnings As Dairy Co-ops Consolidate

At the request of New York Senator Kirsten Gillibrand, the US Government Accountability Office (GAO) released a report detailing the impacts of consolidation in dairy cooperatives on the farmers they represent. The report highlights power imbalances and reduced farmer earnings as a result of consolidation, as well as a wider range of farm sizes and geographic diversity in the membership. 

 

A slew of mergers, most notably the quadruple merger that formed Dairy Farmers of America (DFA) in 1998, have whittled the number of dairy co-ops down from 1,224 in 1964 to 118 in 2017. As dairy cooperatives get fewer in number and larger in size, they represent a broader range of farmer-members, oftentimes with disparate economic interests. According to the report, “as a cooperative grows and encompasses potentially competing interests, some farmers may feel that they have lost control over the cooperative’s priorities and strategic direction.” 

 

Power imbalances are exacerbated in cases where voting structures diverge from the traditional principle of ‘one member, one vote’. Several states have passed laws that allow cooperatives to base voting power on patronage, rather than maintaining equal voting rights for all members. This can be especially problematic in dairy co-ops where the majority of members are often small producers, giving a small number of farms that produce the most milk more control over financial decisions that impact everyone. 

 

Decisions about investments in processing or other infrastructure can also be a point of tension. “There is a trade-off between the amount of patronage refunds that cooperatives distribute as cash payouts to farmers and the amount that cooperatives retain for longer-term investments and other activities.” Co-op members often feel the sense that what is good for the co-op as a business conflicts with their immediate needs as members. This is particularly true when milk prices are low and farmers need every possible dollar to stay afloat.

 

Dean Foods Files for Chapter 11 Bankruptcy 

 

Right on the heels of the GAO release, one of the largest fluid milk processors in the U.S, Dean Foods, announced they are filing for bankruptcy. The largest Dairy Co-op in the world, Dairy Farmers of America, may purchase Dean Foods, a move that would result in further consolidation of dairy processing. 

 

Siting decreased demand for fluid milk among a host of non-dairy alternatives--from almond to oat to pea--Dean Foods has reported losses for the last two years. Perhaps more crushing to Dean’s earnings is the vertical integration of their largest customer, Walmart. In 2018 Walmart opened a processing facility in Fort Wayne, Indiana and began bottling fluid milk to supply some 500 of their stores throughout the Midwest. Soon after the plant’s opening, Dean Foods dropped the contracts of over 100 dairyfarmers.  

 

Consolidation begets further consolidation 

 

Farmer cooperatives were created to give farmers collective power to negotiate fair prices. But co-ops have consolidated within a consolidating marketplace, threatening the profitability and democratic control of the members. Restoring democratic control in cooperatives starts with breaking up consolidation throughout the agricultural economy, at every link in the supply chain. We need to take a hard look at the full economic impacts of horizontal mergers, like the potential purchase of DeanFoods by DFA, and vertical integration, like the Walmart milk bottling plant. And we need to have the courage to break up monopoly power in our food system. Our farmers, co-ops, rural communities, economy, and democracy will be better off for it. 

 

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