One in the ‘bit bizarre’  category. Dairy Farmers of America (DFA), a large milk buyer and dairy processor, has settled a class action antitrust lawsuit in the US. The suit alleged that  DFA colluded with other dairy processors (specifically Dean Foods) to hold down the price farmers were paid for milk. As the WSJ states:

The lawsuit alleged that Dean and DFA agreed to stop competing for farmers’ milk. Dean stopped buying milk from independent dairy farmers, effectively requiring them instead to market their milk through DFA. The lawsuit also alleged DFA flooded the Southeast with excess milk, depressing the price that processors paid.

Unsurprisingly, the class action was brought by the farmers.

Why bizarre? Well, DFA is a cooperative. As its website states:

Dairy producers are not just members of DFA, they are owners.

In other words, it appears that the farmers that DFA is alleged to have harmed are its own owners! In other words the owners have appointed executives who have colluded against those same owners!

Part of the answer to this odd situation may come down to history. The DFA was formed by an amalgamation of regional cooperatives starting in 1998. The alleged cartel covered 14 states in the SouthEast of the US, so it only harmed a fraction of the farmer/owners. Depending on how shareholdings are determined, it might be a case of one group of farmer/owners hurting another group.

Of course, it might also just be a simple failure of corporate governance. With around 15000 owners, the DFA may effectively be run by the management, not by the farmers. Colluding to hold down farmers’ milk prices might be an easy way for managers to make their bottom line look good.

Anyway, if readers have more details/explanations than I can glean from the story and the (rather unhelpful) DFA website I will be grateful.

3 Responses to Dairy Farmers of America: Is this an antitrust or a corporate governance issue?

  1. kme says:

    I suspect the answer to the question posed in your headline is “both”.

  2. BM says:

    Stephen,

    Looking at http://www.southeastdairyclass.com, it seems that there was indeed a corporate governance problem as part of the case. Specifically:

    “The lawsuit also claims Defendant Dairy Farmers of America, Inc. (“DFA”) breached the contractual terms of its membership agreement and bylaws by failing to operate for the benefit and advantage of its members as farmers. “

  3. Stephen King says:

    Thanks for the link BM.

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