Editor’s note: U.S. Sen. Herb Kohl made this statement at a dairy antitrust workshop today in Madison.
The dairy industry is vital to our state’s economy – contributing $26 billion annually. So ensuring a fully competitive dairy marketplace is crucial to the health of the industry and our hard working dairy farmers.
Recent years have been difficult for dairy farmers through out the country. Record high farm milk prices quickly turned to record lows. While farm milk prices plummeted, the price consumers paid for dairy products saw only a modest price decline. This discrepancy in price changes forces us to ask whether or not consolidation in the industry is leading to excess market power by some firms. We have to ask if our farmers are getting a fair shake.
Over the last several years the dairy industry –like many sectors of agriculture that we have looked at — has seen considerable consolidation in marketing, processing and retail. The growing market power by some firms leaves family farmers with few bidders for their milk and tough terms of sale.
This consolidation means we need strong antitrust enforcement now more than ever.
We’ve worked hard to preserve and enhance competitive markets in agriculture though my Subcommittee on Antitrust. We’ve held several hearings to review competition in agricultural markets. In 2008 we conducted an investigation on the proposed JBS Swift meatpacking acquisition to expose the danger that further consolidation would have in meat packing and urged that the deal be blocked, a recommendation that the Bush Justice Department followed in large part.
The lessons we learned from that investigation apply equally to dairy – when processors gain too much market power and too much leverage, farmers suffer and lose the benefits of a competitive market. That is unacceptable. This is why I plan to develop a working group here in Wisconsin to further analyze and make policy recommendations to address competition, consolidation and other issues impacting the dairy industry in the state.
We must also make sure that dairy pricing is transparent. In 1997 the spot market for cheese was moved from Green Bay, Wisconsin due to concerns that it was thinly traded with only a small number of buyers and sellers who could potentially manipulate the market.
The spot cheese market is now housed at the Chicago Mercantile Exchange, but the concerns about potential market manipulation persist. The Commodity Futures Trading Commission has reported that the volume of cheese traded in Chicago generally represented less than 1 percent of all cheese produced in the U.S. Why is this concerning? Because the spot market sets the price – directly or indirectly – for almost all the cheese and milk in the country.
This is a situation where the tail, controlled by a few traders in Chicago, can wag the dog of the market for milk across the country. At a time when Americans’ trust in financial markets is low, relying on a market that can be easily manipulated should worry all of us. I call on CFTC and the CME to strongly monitor the spot cheese market. We must have market transparency that ensures a fair price for farmers.
Additionally, we could get better market transparency through more frequent price reporting and expanding the number of products USDA uses to set prices under the Federal Milk Marketing Order to include a more representative sample of products sold in the commercial markets.
As the chairman of two committees with direct jurisdiction over competition and agriculture I’m very worried about the consolidation happening in agriculture. Strong competition for farmers’ milk is the best insurance that they will get a fair price.
Democrat Herb Kohl is a U.S. Senator from Wisconsin.