Some dairy farmers aren't sweet on part of a proposed $30 million settlement with a giant dairy processor that they say could hurt their income.
The proposal would settle a class-action antitrust lawsuit filed in 2009 by five Northeastern dairy farms, who accused Dallas-based Dean Foods Co., Kansas City, Mo.-based cooperative Dairy Farmers of America and its marketing affiliate Dairy Marketing Services of working together to dominate the milk-buying market and hold down prices paid to farmers.
Among the critics of the proposed $30 million deal: Howard Howrigan, a dairyman from Fairfield, who fears the move could lower prices paid to farmers if Dean starts shopping elsewhere.
"When farmers work together, we all do better," said Howrigan, a member of St. Albans Cooperative Creamery, which has 450 members and is part of DFA. "That's marketing our milk collectively. That's why co-ops were established, that's why co-ops are still strong, still market the bulk of the milk in the U.S.
"And so it goes against that premise," he said of the proposed settlement.
The lawsuit alleges that the defendants coerced farmers into joining Dairy Farmers of America to get access to bottling plants owned by Dean Foods and that they conspired to artificially lower the price of milk paid to farmers, Vermont assistant attorney general Sarah London said in 2009.
To settle the suit, Dean would pay $30 million that could be divided among 5,000 to 10,000 farmers as well as the attorneys in the case, the plaintiffs' lawyers say. A federal judge in Burlington is reviewing the settlement. It covers Delaware, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia and the District of Columbia.
The proposal also includes a deal that would require Dean get 10 to 20 percent of the raw milk it buys for three Northeastern plants from sources other than DMS for 30 months. The plaintiffs say the provision would jumpstart competition, but DFA and DMS object.
"It's the old strategy where you divide and conquer. What they want to do break up this DMS system where we go to the customers as one unified voice. Anytime you have farmers working together it's dangerous for them," said Mark Magnan, a Fairfield dairy farmer who is on the board of the St. Albans Coop and a DMS director.
They are not opposed to Dean settling but say the provision takes business from their farmers and gives it to someone else, said Steven Kuney, a Washington-based lawyer for DFA and DMS.
U.S. District Court Judge Christina Reiss appears to be lukewarm on the provision. She said she is likely to sever it from the settlement or said the two parties could.
"I'm optimistic," Howrigan said.
Kit Pierson, a Washington-based attorney for the plaintiffs, said he doesn't mind if the judge severs the provision since Dean says it has started to get milk from some independent farmers.
"If Dean is moving in that direction anyway ...," he said.
Dean also says it intends to honor any supply agreements with DFA and DMS under the provision.
But Howrigan worries that such competition could lead to lower prices paid to farmers.
"They could come back and say we're getting X amount of pounds at this price, why do we have to pay you more?" he said of the St. Albans Cooperative.
Dean could also decide to look elsewhere for milk if it's disgruntled by the lawsuit, he said.
"How long are they going to have a sour taste in their mouth after shelling out $30 million? They're going to look to recoup that from the market or in the process of selling milk," said Howrigan, who thinks he may be eligible for monetary part of the settlement.
Some other farmers, who are not connected to DFA or DMS and do not sell to Dean, say they don't have enough information to decide what they think of the settlement.
Beth Kennett of Liberty Hill Farm in Rochester says she's all for exposing that Dean Foods is a monolith in the dairy industry but she worries that part of the settlement will erode cooperatives like the one she is a proud member of, Agri-Mark.
"I'm afraid that this settlement telling Dean Foods that they have to restructure how they buy milk will indeed encourage large farmers to not be part of the co-op and that will have a really detrimental impact on the co-ops," which she believes was not the lawsuit's intention, she said.
The Vermont attorney general's office, too, is investigating whether the deal is good for farmers, providing court papers on its website for potential class members to peruse.
"At the end of the day, we have to sell our milk to Dean Foods," Howrigan said. "They control a big share of the market. We have to work with them, so building those relationships takes years and ruining them won't take very long sometimes."
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