New dairy rules unfair, producer claims

By Andrew Martin: Chicago Tribune

Hein Hettinga bottles milk from his Arizona farms and trucks it to stores in Arizona and Southern California.

By controlling all stages of production, Hettinga says he can produce milk so efficiently that he and his customers can make a hefty profit at dirt-cheap prices. Such vertical integration, as it is known, is increasingly popular in agriculture as farmers and processors try to find ways to eliminate costs and increase revenues.

Under new regulations, Hettinga could continue to process his own milk only if he agrees to participate in a federally regulated pool of milk revenues, which would essentially require him to pay his competitors to stay in business, he said. A bill that would have a similar effect is working its way through Congress.

Hettinga, an outspoken 64-year-old who emigrated from Holland to California at age 7, said the pending regulations were an effort by dairy heavyweights such as Dean Foods and the Dairy Farmers of America, the nation’s largest dairy cooperative, to monopolize the milk business.

“Basically, I’m a pebble in the shoe of DFA and Dean Foods,” he said. “The only reason I’m a success is they are a milk monopoly and they have raised the price too high. The consumer is getting ripped off.”
Not true, DFA spokesperson Agnes Schafer said in an e-mail to the Clovis News Journal.

U.S. Department of Agriculture’s decision proposes to treat all plants and all farmers the same, Schafer said.

USDA’s decision affects large-scale producer handlers in the Arizona, Las Vegas, Nev., and Pacific Northwest markets, producing 3 million pounds per month of Class I, fluid drinking milk.

The decision is “Not applicable directly to New Mexico,” Schafer’s e-mail said. And only about 10 producer handlers in the affected region would feel the federal regulation change, according to Schafer.

DFA does not oppose producer handlers and vertical integration, Schafer said.

DFA believes that all commercial milk processors, producers and producer handlers, should be subject to the same pricing regulations, Schafer said.

“Under Federal Order rules, commercial milk processors, which are selling into defined marketing areas of the U.S., are regulated. However, these very large producer handlers, which compete in the same marketplace with everyone else, are exempt,” she said.

“They (producer handlers) are exempt from the same pricing and pooling provisions that regulate their competitors because of a regulatory loophole caused by out-of-date language in the Federal Order regulations,” Schafer said.

In legal briefs filed with the USDA in 2004, lawyers for Dean Foods and DFA argued that Hettinga’s operation flouted the original intent of the federal milk market order, a regulatory system created during the Great Depression to ensure a reliable milk supply and a reliable price for farmers. The regulations include an exemption for farmers who bottle their own milk, known as producer handlers.

Marvin Beshore, a lawyer for DFA, has said Hettinga’s dairy takes the idea of producer handler far beyond what regulators originally envisioned, “mom and pop dairies that bottled the little milk they produced and sold to their neighbors.” And he waxed apocalyptic about what would happen if other dairy farmers were allowed to follow Hettinga’s lead.

He has said that if Hettinga were allowed to continue, it “will lead to the disintegration of the entire federal order system and consequently, to chaotic milk markets across the United States.”

Charles English, an attorney representing Dean Foods and Shamrock Farms, a competitor of Hettinga’s in Arizona, said in a 2004 brief to the USDA that Hettinga’s operations had grown so large so quickly that they were depressing prices for other dairy farmers in Arizona by a penny or two per gallon.

English also argued that Hettinga had an unfair advantage over regulated milk bottlers because he didn’t have to pay the federally mandated price for raw milk. The result is that Hettinga is stealing customers by offering prices that regulated processors can’t match, English said.

The intense lobbying effort to curb Hettinga showcases what many, including lawyers in the Justice Department, say is an antiquated, unfair system for regulating milk. These critics question why the federal regulations are still needed, given an oversupply of milk and a burgeoning international dairy marketplace that bears little resemblance to the 1930s.

Furthermore, they argue that the rules of the federal order have allowed the giants of the dairy industry to tighten their grip on the marketplace by forcing competitors to comply with rules that favor larger outfits. Allegations that the DFA was trying to monopolize the raw milk market have prompted an ongoing anti-trust investigation by the Justice Department.

Most farmers sell their milk to manufacturing plants that produce bottled milk, cheese, ice cream or other dairy products, with the highest prices typically paid for bottled milk.

To prevent undue competition, farmers are allowed to vote for a federal order to regulate the dairy industry in their region. There are 10 regions in the federal milk order; California maintains its own state-run milk order, and a few parts of the country are unregulated.

Dairy processors pay at least a USDA-set minimum price for raw milk. Milk revenues are combined in a regional pool, and farmers receive an average price. So a farmer whose milk is shipped to a cheese plant receives the same price as a farmer whose milk is bottled into gallons.

But because of the exemption for producer handlers, Hettinga has bypassed the federal milk order. If the changes to the milk order are approved, there would still be an exemption for producer handlers, but only those that produce less than 3 million pounds of milk a month — about a sixth of Hettinga’s Arizona production.

“These laws have been in effect 60 years, 70 years, and they are changing the law just to do me in,” said Hettinga, who has spent nearly $1.5 million on legal fees during the past four years, about $1,000 a day. “If I’ve got such a better system, why don’t they deregulate everyone?”

Clovis News Journal staff writer Andy Jackson contributed to this report.