A few weeks ago I began looking into the local operations of Dairy Farmers of America. I knew the dairy cooperative was a large entity and I knew almost every dairyman I spoke with was a member, but I had never honestly asked these people and others about DFA’s local impact.
A majority of the dairymen and dairywomen in Colorado are associated with DFA in some fashion. Producers who are not directly members of DFA are still forced to deal with the cooperative for transportation or purchasing of excess milk, simply because there are no other players in the game.
“DFA is the largest milk cooperative in the nation and has operations in every state,´ said Bill Wailes, head of the department of animal science at Colorado State University.
While Wailes milks a herd of 2,600 near Hudson and is a member of DFA, as a CSU official he is required to present unbiased facts on the issue. “In Colorado the cooperative controls almost 100 percent of the fluid milk. There are a few producer-distributors out there that are not part of the family, but they tend to produce outside of traditional milk. They are usually organic producers who are part of an organic cooperative.”
According to the DFA Web site, the cooperative has 547 member farms in the Mountain Area council, which includes Colorado, Utah, Nevada, Oregon, Washington, Idaho, Wyoming and Montana. There are 160 dairies in Colorado.
“The cooperative controls one-third of the full milk supply nationally and in Colorado they control 100 percent,´ said Terence Dye, owner of DyeCrest Dairy and a member of DFA. “I feel they short-change us in Colorado because there isn’t the competition that there is in Wisconsin or Idaho.”
Dye, who sold milk for 13 years with Royal Crest dairy in Denver, said he was forced to sell his milk to DFA after a change at Royal Crest.
When Dye was selling his milk to Royal Crest he received the standard Federal Milk Order or blend price – the federally mandated rate for farmers based on hundredweight of milk. Now that Dye is selling his milk through DFA, he said he has lost $105,000 for the first seven months of the year because DFA isn’t paying the same rate.
“For the year I will be $180,000 below blend price,” he said.
Dye said he believes the cooperative pays below blend price in markets without competition, then uses the extra money to attract producers in more competitive areas.
DFA resulted from the merger of the Western Dairymen Cooperative Inc. and three other dairy cooperatives in 1998. Many Colorado dairymen had been members of the Western coop for generations, and accepted the new national cooperative.
But some of those same producers are now fighting to find a market outside of the cooperative, citing mounting administrative costs and lower milk payment checks among other reasons.
Lugene Sas, owner of Taft Hill Dairy north of LaPorte, has found a market selling raw milk after leaving the cooperative four years ago.
“We were members for 20 years but we kept seeing increases on transportation costs,” Sas said. “The bigger dairies can send out more tanker loads, so they get better prices. The cooperative doesn’t buy for the quality, they buy for the quantity.”
Sas is not alone in the debate.
Many dairymen want to produce the highest quality milk, which often requires more cost on the input side. They make the financial decision to produce high-quality milk and don’t see the costs repaid in their milk checks.
Some make the difficult decision to leave, and soon discover the market is owned by DFA through exclusive contracts with many bottlers, cheesemakers and other outlets. So, they re-sign their contracts with DFA and get back to work.
‘Being in the family’
“There isn’t any competition, but that is nobody’s fault,” CSU’s Wailes said. “The producers could try and form another cooperative, but it is a tough issue to market milk.”
One of the good things about the cooperative and its size is its ability to sign great contracts with end producers, saving members money.
“They have great supply contracts with cheese plants especially in Fort Morgan, and with the fluid plants … they are shrewd business people,” Wailes added.
Les Hardesty, chair of DFA’s Mountain Area Council and a Weld County dairyman, said producers not signed up with DFA have several options including “being a producer-handler where they produce, handle and sell their own milk … there are several prominent people in the state doing this.”
Hardesty also mentioned the raw-milk option, but sellers of raw milk can only sell to people who have shares in the cows on their dairy.
“One of the advantages of the co-op is that you can market your milk without worries and know that it is safe,” he said.
Hardesty also mentioned that producer-handlers still work with DFA because the cooperative will buy excess milk produced at the dairies.
“The big-picture perspective, and the point I would like to get out, is that the milk marketing co-op is good for the dairy farmers and that we produce a wholesome product for the consumer,” he said.
On June 20, the Chicago Tribune ran a story on Dairy Farmers of America titled, “U.S. sour on tactics of milk’s top co-op.” The article discussed the U.S. Department of Justice’s ongoing investigation into allegations of monopolistic behavior by DFA in the states of Kentucky and Tennessee as the cooperative tries to eliminate competition in the raw-milk business.
According to the story, “DFA’s primary strategy for growth has been to control access to milk bottling plants, either by buying a stake in the plants or signing agreements that make its members exclusive suppliers. Because consolidation has reduced the number of milk plants nationwide, farmers and some rival cooperatives often are left with a stark choice: Join DFA or go out of business.”
While everyone I spoke with agrees DFA is the major player in the Colorado market and some would say outright the cooperative has a milk monopoly, the Colorado Attorney General’s office has not received any complaints to begin an investigation into the cooperative’s activities and tactics.
“I am aware of the Department of Justice investigation into the cooperative, but they are looking at the vertical acquisitions the group has made in other states,´ said Jan Zavislan, Colorado deputy attorney general. “Their investigation hasn’t raised any flags in Colorado.”
Zavislan, who has been with the attorney general’s office since 1988, said he has watched the industry and noticed Colorado has a history of large cooperatives operating in the market.
“We are not investigating and are not aware of anyone else looking into the Colorado market,” he said. “I am not aware of ever receiving a complaint even when it was WDCI.”
Kim Lock is the agriculture reporter for the Northern Colorado Business Report. To suggest column ideas contact her at (970) 221-5400 ext. 222 or at firstname.lastname@example.org.,/i>