DFA, DMS Join Local Farmers in Filing Objection to Dean Foods Settlement

DFA and DMS cite concerns that the settlement creates both winners and losers in the class of dairy farmers represented by a single law firm by taking market access from one group of dairy farmers at the expense of another within the same class.

1/20/2011 --- Dairy farmers who say attorneys representing them are not looking out for their best interests have filed opposition to the proposed settlement submitted in the class action antitrust lawsuit in the U.S. District Court in Burlington, Vt. Acting on behalf of its dairy farmer owners, Dairy Farmers of America, Inc. (DFA), together with Dairy Marketing Services, LLC (DMS), also has filed objections to this settlement.

DFA and DMS' filing on January 18 joins at least 24 dairy farmers representing diverse cooperative members and independent producers who submitted their own affidavits challenging the fairness of the settlement.

"We objected on behalf of our members because the attorneys for the entire class of dairy farmer plaintiffs have favored one segment of the class while it penalizes another segment," said Brad Keating, chief operating officer for DFA's Northeast Area. "As the milk marketing entity representing many of the members of this class, we have a responsibility to ensure their interests are fully considered."

In its filing, DFA and DMS cite concerns that the settlement creates both winners and losers in the class of dairy farmers represented by a single law firm by taking market access from one group of dairy farmers at the expense of another within the same class. The filing also describes how, if the settlement is approved, dairy farmers stand to incur financial damages by receiving a lower pay price for their milk.

A provision in Dean Foods' proposed settlement would allow the dairy processor to determine, in its sole discretion, the competitive market price at which it will purchase up to 60 million pounds of milk per month from non-DFA and non-DMS sources for a period of 30 months.

DFA's filing recognizes the business rationale for Dean Foods to manage its ingredient costs. However, if approved, this settlement is likely to create a downward ripple effect on current pricing for milk purchases from DFA, DMS and other milk suppliers in the Northeast. In turn, other customers will make demands for price equality.

The result is price erosion for all dairy farmers.

"This provision seems to undercut the very reasons why we at St. Albans decided to join DMS in the first place — to work together with other co-ops to make sure that we were able to serve an increasingly consolidating marketplace, and to do so in a way that will protect prices and premiums for dairy farmers," said Ralph McNall, president of the board for St. Albans Cooperative Creamery and a dairy farmer who independently filed opposition to the settlement.

An additional component of the proposed settlement calls for a payment of $30 million in damages (less $10 million in attorney fees) to be paid to dairy farmers who produced raw Grade A milk in Federal Order 1 and pooled raw Grade A milk in Federal Order 1 from January 1, 2002, through December 9, 2010.

"This $30 million settlement has been touted as a real win for dairy farmers," said Greg Wickham, DMS general manager. "We believe the per-farmer award has been highly exaggerated, but more importantly, we believe the benefit of a small one-time cash payment is far over-shadowed by the long-term negative impact on farmers' wallets."

After the money is divided among the approximately 13,000 dairy farmers who pooled milk in Order 1 (based on the most current Market Administrator's Annual Statistical Bulletin, as of 2009), the average farmer stands to receive approximately $1,500.

If the market is disrupted such that there is even a meager reduction in milk price, the impact to farmers' milk checks would be swift and substantial, Wickham said. For example, a 5-cent-per-hundredweight reduction in pay price would cost a farmer milking 300 cows as much as $3,400 in lost revenues in a single year.

"The proposed settlement that these class representatives and their lawyers have negotiated takes sales away from dairy farmers, turns those sales over to someone else, threatens to help undercut our organization, and pits dairy farmer against dairy farmer with the end result that prices are bound to fall," McNall said.