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S. HRG. 111–293 

CRISIS ON THE FARM: THE STATE OF COMPETITION AND PROSPECTS FOR SUSTAINABILITY 

IN THE NORTHEAST DAIRY INDUSTRY 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2009 

ST. ALBANS, VERMONT 

Serial No. J–111–47 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATT MINER, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement .......................................................................................... 126 

letter .................................................................................................................. 129 

Feingold, Hon. Russ, a U.S. Senator from the State of Wisconsin 

prepared statement .......................................................................................... 83 

letter .................................................................................................................. 85 

cheese reports ................................................................................................... 87 

WITNESSES 

Doton, Paul, Doton Farm, Woodstock, Vermont ................................................... 24 

Forgues, Travis, Forgues Family Farm, Alburg, Vermont ................................... 26 

Glauber, Joseph, Chief Economist, Department of Agriculture, Washington, 

DC .......................................................................................................................... 8 

Rowell, Bill, Green Mountain Dairy, Sheldon, Vermont ...................................... 22 

Sanders, Hon. Bernie, a U.S. Senator from the State of Vermont ...................... 3 

Varney, Christine, Assistant Attorney General for Antitrust, Department of 

Justice, Washington, DC ..................................................................................... 5 

Wellington, Robert, Agri-Mark Dairy Cooperative, Lawrence, Massachusetts .. 29 

QUESTIONS AND ANSWERS 

Responses of Joseph Glauber to questions submitted by Senators Feingold, 

Sanders and Schumer .......................................................................................... 43 

Responses of Christine Anne Varney to questions submitted by Senator Feingold ........................................................................................................................ 64

SUBMISSIONS FOR THE RECORD 

Allen, Alice H., AL-Lens Farm, Wells River, Vermont, statement ...................... 74 

Burlington Free Press, David Usher, article ......................................................... 76 

Bahler, Vern, President, Bahler/Oakridge Farms, Ellington, Connecticut, letter .......................................................................................................................... 77 

Chaput, Reg, Chaput Family Farms, Troy, Vermont, letter ................................ 78 

Doton, Paul, Doton Farm, Woodstock, Vermont, statement ................................ 79 

Fiske, Nancy and Wayne, Highgate Center Vermont, letter ............................... 89 

Forgues, Travis, Forgues Family Farm, Alburg, Vermont, statement ................ 91 

Glauber, Joseph, Chief Economist, Department of Agriculture, Washington, 

DC, statement ...................................................................................................... 95 

Gotham, Bryan, Dairy Farmer, Edwards, New York, memo and attachments .. 110 

Goodrich, Chase, Goodrich Family Farm, Vermont, letter .................................. 117 

Grimes, Janice and Todd, Windmill Farm Dairy, Webster, Iowa, letter ............ 118 

Howrigan, Harold, III, St. Albans, Vermont, letter .............................................. 120 

Keough, Kate, Burlington, Vermont, letter ........................................................... 122 

Kings-Ransom Farm, Edgar A. King, Schuylerville, New York, letter ............... 123 

Kohler, Mike, Manager, Dairy Producers of Utah, letter ..................................... 125 

McGarry, Ed and Diane, Vermont, letter .............................................................. 132 

Maroney, James H., Jr., Leicester, Vermont: 

letters ................................................................................................................. 133 

letter to editor ................................................................................................... 138 

McNall, Ralph, Dairy Farmer, St. Albans, Vermont, letter ................................. 142 

Montagne, David R., Swanton, Vermont, letter .................................................... 144 

NAJ Equity, Reynoldsburg, Ohio, Newsletter ....................................................... 145 

Page

IV 

NCFC, St. Albans, Vermont, statement ................................................................. 147 

New York Times, September 29, 2009, articles .................................................... 150 

Paradis, Lynn, Vermont, letter ............................................................................... 153 

Parsons, Bob, letter ................................................................................................. 155 

Pelham, Tom, letter and attachment ..................................................................... 157 

Plains Cotton Cooperative Association, Wallace L. Darneille, President & 

CEO, Lubbock, Texas, letter ............................................................................... 160 

Prent, Sue, St. Albans, Vermont, letter ................................................................. 161 

Rowell, Willard ‘‘Bill’’, Green Mountain Dairy, Sheldon, Vermont, statement 

and letter .............................................................................................................. 163 

Schneider, Mary, RN, Barnesville, Maryland, letter ............................................ 171 

Schubart, William, letter ......................................................................................... 172 

Seyfert, Trudy, letter ............................................................................................... 174 

Terrier, Lisa, letter .................................................................................................. 175 

Trainer, Kris, letter ................................................................................................. 176 

Varney, Christine, Assistant Attorney General for Antitrust, Department of 

Justice, Washington, DC, statement .................................................................. 177 

Wellington, Robert, Agri-Mark Dairy Cooperative, Lawrence, Massachusetts, 

statement .............................................................................................................. 183 

Windecker, Deb, letter and attachment ................................................................. 186 

(1) 

CRISIS ON THE FARM: THE STATE OF COMPETITION AND PROSPECTS FOR SUSTAINABILITY IN THE NORTHEAST DAIRY INDUSTRY 

SATURDAY, SEPTEMBER 19, 2009 

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:12 a.m., St. Albans 

City Hall, St. Albans, Vermont, Hon. Patrick J. Leahy, Chairman 

of the Committee, presiding. 

Present: Senator Sanders. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning. We have a good gathering here. 

We have a number of members of Vermont legislature, and between panels I’ll make sure that we acknowledge all of them who 

are here. I appreciate all the people for being here. Everybody has 

busy schedules, especially in dairy country. I know, because it’s 

also the Jewish holidays, some members of that faith will not be 

able to be here. I would wish for them L’Shanah Tovah Tikatevu, 

for them to have a good and sweet new year. It is the year 5,770. 

Also, this is something we’ve never seen in a Senate hearing in 

Washington: flowers. Howard’s, the flower shop, just brought those 

over. So, I don’t know. Is somebody here from the flower shop? 

They’re probably back working, but I want to thank them. That is 

unique. 

For both Assistant Attorney General Varney and Dr. Glauber, 

they’ve probably not seen that either. 

I want to thank Representative Peter Welch, who was unable to 

be here. He’s leading the charge in the dairy crisis in the House. 

Of course, nobody is working harder in the Senate on the dairy crisis than Senator Sanders, who’s sitting here beside me. I want to 

thank you, Bernie, for coming and joining the Committee. A lot of 

people have made an effort to be here and have traveled some distance. St. Albans’ mayor, Martin Manahan, I want to thank for the 

hospitality. I have used, over the years, this hall a number of 

times. Marcelle, who’s sitting here, knows we get kind of accustomed to it, and it’s a very, very convenient place to have. 

We invite anyone who’d like to express their views on the issue 

who are not on the witness list, of course, to give me their testimony and it will be included in the record. 

2 

Last Friday, Marcelle and I were here for the funeral of a very, 

very dear friend, Harold Howrigan. I said at that funeral that I 

would dedicate today’s hearing in honor of Harold Howrigan and 

his service to the community, to our State, and to Vermont’s dairy 

industry. One of the very few privileges you have as Chairman of 

a Committee is that you can dedicate the hearing to whomever you 

want, and I will dedicate it to Harold, a great and good man. 

Now, there were certainly a lot of years in his life—85 years in 

all—but there is also a lot of life in those years. I’ll look back with 

fondness at the time that I spent with Harold and Ann and all 

their families. I think I’d ask among the Vermonters, all those who 

knew Harold Howrigan, please raise your hand. 

[A showing of hands.] 

Chairman LEAHY. Let the record show, virtually every hand here 

went up. 

Here in Vermont, the dairy industry is a pillar of our State’s 

economy and our landscape, but also our culture. Dairy farmers 

have long contended with the volatility of milk prices, even more 

when they’ve had to adjust to changing weather. But today they’re 

facing changes of epic proportions. Prices have fallen to lows that 

no one in this room thought we would ever see. The fact that the 

cost of production is higher than ever only compounds the problem. 

It has increased the gap between what it costs our farmers to 

produce milk and what they are paid for that milk. 

In Vermont, we have lost 35 of our dairy farmers this year; last 

year, we lost another 19. Each one of these losses means we’ve lost 

part of who we are as Vermonters. The loss ripples through our 

families, through our communities, through our economy. It has 

been easy for many Americans to take American dairy farmers for 

granted. Those of us—both of us and so many here—who have 

spent time on dairy farms know how much work is involved. We 

know that the carton of milk you buy in the store does not grow 

on a milk tree; it is hard work that provides a highly perishable 

product that puts it more directly at the mercy of fluctuating markets and costs of production. We need both short-term solutions to 

get out of this crisis, but we need some long-term solutions to make 

sure we don’t return to the tumultuous cycle of volatility that is 

now threatening farmers’ very survivability. 

That’s the purpose of this hearing, all of the efforts that have 

been made to stimulate the dairy industry. The consolidation in recent years throughout the agriculture sector has had a tremendous 

impact on the lives and livelihoods of American farmers. It affects 

producers of most commodities in virtually every region of the 

country. It particularly affects Vermont dairy farmers. For decades, 

dairy farming in Vermont seemed immune from the consequences 

of restructuring and consolidation between cooperatives that serve 

as milk processors for local regional markets. National markets 

didn’t exist. 

But times have changed and now it’s dramatically different 

today. There has been a breakdown in competition. Vermont dairy 

farmers are not getting their fair share of the retail price of milk, 

but it seems that some of the corporate processors rake in profits 

even as they raise prices to the consumers. This is way out of 

whack. 

3 

As I think about the gap between retail and farm prices, I can’t 

help but think back to 2001 and the Dean Foods merger with Suiza 

Foods. That merger created the largest milk processing company, 

not just in this country, but in the whole world. 

I continue to be disappointed at the past administration. The 

Justice Department and the administration allowed it to happen. 

Just as I feared and said 8 years ago, it seems that market dominance is translated into overwhelming power in the dairy industry. 

We are seeing local dairies and processing facilities bought and 

then closed. 

We will hear firsthand testimony today about how and why 

Vermont dairy farmers are hurting. I think having a hearing here 

in St. Albans, where people don’t have to spend the money to go 

to Washington to testify, allows us to have a record that will then 

be provided to every member of the Senate Judiciary Committee. 

I want to build a hearing to let policymakers in Congress and the 

Federal agencies hear directly from the farmers. As part of that 

record, on behalf of Vermont’s Secretary of Agriculture, Roger 

Allbee, who is at an official meeting of secretaries of agriculture, 

I will submit and have as part of the record the copy of the 

Vermont Milk Commission’s final report. Roger has been a tremendous help and I appreciate having that. 

[The report of the Vermont Milk Commission appears as a submission for the record.] 

Chairman LEAHY. Now, Senator Sanders and I both realize, as 

I said earlier, that it’s a holiday for many. We understand why 

some Vermonters have not been able to travel to this hearing. So 

I will keep the record open until September 30, and if there are 

others in Vermont who wish to have, on this subject, testimony 

submitted, we will include it. 

But, first, I want to turn to Senator Sanders. You and I have discussed this so much. You should all have seen him breaking arms 

in the well of the Senate, getting an amendment through to help 

dairy farmers. 

Bernie. 

STATEMENT OF HON. BERNIE SANDERS, A U.S. SENATOR 

FROM VERMONT 

Senator SANDERS. Patrick, thank you very much. I think we all 

remember Harold Howrigan and the great work that he has done, 

and I appreciate that you’re holding this hearing in his honor. 

We thank our guests from Washington for being here, and mostly 

we thank all of you. I want to thank Senator Leahy not only for 

holding this hearing, but for holding it right here in St. Albans, 

which is the heart of dairy country in the State of Vermont, and 

for the work that he has done for so many years, both on the Agriculture Committee and the Judiciary Committee, in fighting for 

Vermont’s dairy farmers. Patrick, thank you very much. 

Chairman LEAHY. Thank you. 

Senator SANDERS. We all know why we’re here. We are here 

today because farmers, dairy farmers in Vermont and throughout 

this country are receiving the lowest prices for their milk that they 

received in 40 years. We are here because farmers in Vermont are 

being driven off of the land because of these low prices. 

4 

We are here because consumers, if this trend continues, will not 

be able to get the fresh, quality food that they want because increasingly people are concerned about having to get food from all 

over the world, where food regulations are not as strong as they 

are in America. People want wholesome, fresh food, and that’s 

what our farmers produce. We are here, as Senator Leahy just 

said, because while the price that farmers are getting for their 

product has plummeted, consumers have not seen much of that 

benefit. 

The focus of our hearing today is that, while we understand all 

of the issues of supply and demand, while we understand the nature of the volatility of the dairy industry, which is not new, it’s 

gone on for many years, we’re here to focus on one particular issue 

today, and that’s why we have the head of the Antitrust Division 

of the Department of Justice, Christine Varney, and we’re very appreciative she’s here. She and I chatted a couple of months ago, 

and I hoped that she would come to Vermont, and I’m glad she is 

here today. It may signal a new direction from the Department of 

Justice of the United States in dealing with these issues. 

Here’s what the bottom line is to me. As Senator Leahy indicated, what we have seen in recent years is a growing concentration of ownership in terms of the dairy industry, specifically in 

terms of dairy processing. My staff and I have taken a hard look 

at this issue. We’re trying to get as good information as we can, 

which is sometimes harder than you may think. But this is what 

we believe. 

According to the dairy industry press, one company, the largest 

milk processor in America called Dean Foods, controls approximately 90 percent of the milk market in Michigan, about 80 percent of the milk market in Massachusetts, 80 to 90 percent in Tennessee, over 80 percent in northern Alabama, over 70 percent in 

northern New Jersey, and in New England, about 70 percent. 

In the last year, as everybody in this room knows, the farm price of milk has plummeted from close to $19 per 100-weight to just 

over $11 per 100-weight. Farm prices, for the farmer, are plummeting. Meanwhile, Dean Foods reported $76.2 million in profits 

for the first quarter of 2009, up 147 percent from the first quarter 

of 2008. Let me repeat that. The price that farmers have gotten 

has plummeted to the lowest level in 40 years, while Dean Foods 

has seen a 147 percent increase in their profits. Is there anybody 

in this room who doesn’t see a connection between those two facts? 

If you don’t get that, let me throw a third fact at you. Over the 

last 5 years, while dairy farmers in the State of Vermont have 

struggled, in the last year while over 32 dairy farms in this State 

have gone out of business, the CEO of Dean Foods, a gentleman 

named Greg Engles, received $116 million in compensation in the 

last 5 years. One hundred and sixteen million for one person, profits soaring for Dean Foods, dairy farmers in Vermont and all over 

this country going out of business. That, my friends, is what we are 

here to discuss today. 

Can family based dairy farmers survive when we have that degree of concentration of ownership in the industry? Now, it is no 

secret—and we’ll discuss this in the questions—that this is an 

issue, in fact, that has been looked at for a number of years. SenVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
5 

ator Leahy is one of those people who forced that discussion. But 

it is also, in my view, a known fact that the last administration in 

Washington, having investigated that issue, decided that it was a 

little bit too hot to handle, that maybe they didn’t want to take on 

some of these big-money interests. We’re asking Christine Varney 

here today to move this country in a new direction and have the 

courage to go where the money leads her. 

So Senator Leahy, thank you very much for holding this important hearing. Let me conclude by saying that we have been working—Senator Leahy, Congressman Welch, I, and others—to try to 

get some short-term benefits for farmers. You know that we were 

able to raise milk prices maybe a little bit throughout working with 

the Secretary of Agriculture, Mr. Vilsak. We’ve got an amendment 

in that Senator Leahy and I worked on that also would do that. 

But long term, these are some of the issues that we have got to 

address. 

So, thank you again for being here. Senator Leahy, thank you 

very much for holding this hearing. 

Chairman LEAHY. Thank you very much. 

As I mentioned, we have two extremely important witnesses from 

Washington. The first, is Christine Varney. She is Assistant Attorney General of the United States, but a very important Assistant 

Attorney General because she is in charge of the Antitrust Division. Prior to her confirmation as Assistant Attorney General, she 

was a partner at Hogan & Hartson’s Washington, DC office, one of 

the most prestigious law firms in the country. 

She served from 1994 to 1997 as a Commissioner at the Federal 

Trade Commission, working on technology-related issues. She received her Juris Doctorate from Georgetown University Law Center. I am always pleased to see somebody else who went to Georgetown Law Center. She received her MPA from Syracuse, her BA 

from the State University of New York University at Albany in 

1977. She leads the enforcement of our Nation’s antitrust laws. 

I would note that she is no stranger to the Senate Judiciary 

Committee and she has testified on other matters before. 

So, Assistant Attorney General, we’re delighted to have you here. 

You go ahead and give your statement, please. 

STATEMENT OF HON. CHRISTINE VARNEY, ASSISTANT ATTORNEY GENERAL FOR ANTITRUST, DEPARTMENT OF JUSTICE, 

WASHINGTON, DC 

Attorney General VARNEY. Thank you so much, Mr. Chairman, 

and thank you, Senator Sanders. 

Let me start by saying, I will come to Vermont any time you 

want. Your State is absolutely beautiful. The people I’ve been talking with are terrific, and I’m looking forward to learning more. 

Let me also start on a personal note, maybe more for the people 

in the room. As I think you both know, I care deeply about this 

issue. My family in Ireland are dairy farmers. I am probably the 

only Assistant Attorney General in modern times who actually 

knows how to milk a cow, and have done it many times. I just 

came back from a family wedding in Ireland where, indeed, they 

are suffering—my family—the same constraints that we see here. 

I am concerned on a personal level, as well as on—— 

6 

Chairman LEAHY. Excuse me. Can everybody hear Ms. Varney? 

I always wonder about this question when I say ‘‘if anybody in the 

back can’t hear, please raise their hand’’ because you wonder how 

they’re going to know that I asked the question. 

[Laughter.] 

Chairman LEAHY. But please go ahead, Ms. Varney. 

Assistant Attorney General VARNEY. So I approach this from 

both a personal perspective, as well as the perspective of what is 

the best thing for our Nation, both our consumers and our farmers. 

I’m pleased to appear before you today and talk about the importance of competition in today’s agricultural marketplace, particularly in the dairy industry. I look forward to hearing from your 

other witnesses, meeting with farmers, and others in Vermont’s agricultural sector who can help me learn more about what is really 

happening in the dairy business. 

The Antitrust Division is aware that there is an unprecedented 

economic upheaval in the dairy industry and that dairy farmers 

have been going out of business at a record, and intolerable, rate. 

We are very concerned about these developments. In my remarks 

today I will briefly provide the Antitrust Division’s perspective on 

the state of the marketplace and our ongoing effort to better understand the industry and the role that public policy, including aggressive antitrust enforcement, can play to protect and promote competition. 

As I said, competition issues affecting agriculture have been a 

priority for me since I was confirmed as the Assistant Attorney 

General last spring. As a reflection of that priority, we announced 

in August, in partnership with USDA, that we will be hosting a series of workshops to examine the state of competition in agriculture 

markets. 

These workshops will provide us with an important opportunity 

to learn firsthand from those participating in these markets and for 

us to better understand the effects of competition and concentration in relevant sectors, including dairy, concerns about buyer 

power, and the economic impact of vertical integration, including 

contractual relationships between producers, distributors and retailers. 

In these brief remarks I will take just a few minutes to discuss 

the state of the marketplace and some themes we will be exploring 

in our workshops. As I noted, two particular issues, buyer power 

and vertical integration, are ones we have already heard a lot 

about and are interested in exploring further. 

Let me explain what these terms mean for us in antitrust to 

those of you who don’t speak antitrust regularly. A number of dairy 

producers are concerned about the exercise of what economists call 

‘‘monopsony power’’, or to use a more descriptive term, ‘‘buyer 

power’’. Traditional monopoly power concerns a dominant producer 

of goods or services that may be able to charge artificially inflated 

prices. 

Monopsony power is the other side of the coin. When there are 

a number of producers in an input market and a dominant buyer 

of those products, like a dominant dairy processor, the buyer, under 

certain circumstances, may exert its power to press the prices 

lower than would be the case if the buying market were more comVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
7 

petitive—that is, if sellers had more choices of where and to whom 

to sell their products. Consolidation among or between buyers can 

also lead to, or enhance, monopsony power. 

In looking at dairy markets, we know that competition is frequently local or regional in nature, meaning that the nature and 

extent of competition-related concerns will differ across different 

parts of the country. Thus, national statistics can be misleading. I 

was very interested to hear Senator Sanders break down, on a regional and State basis, the concentration. 

Parts of the dairy industry have experienced extensive consolidation in recent years, with fewer processors and, therefore, fewer 

buyers of dairy products. As a result of consolidation, the potential 

for an exercise of buyer power is increased. 

We are also aware that agriculture markets, including dairy, 

have become more vertically integrated in the last 15 years. 

Vertical integration occurs when a manufacturer also participates 

in other parts of the supply chain, such as distribution of its products or supply of its inputs. Vertical integration frequently involves 

ownership at multiple stages, though it may also be achieved 

through contractual commitments. 

Vertical relationships in dairy markets would include, for example, a processor entering into an exclusive agreement with a specific cooperative to buy raw milk. In many cases, such activities can 

lead to greater efficiencies and savings for consumers. Indeed, 

vertical integration is widespread in our modern economy. Under 

certain conditions, however, vertical integration may alter the incentives of parties and thereby facilitate the exercise of market 

power. A careful review of these arrangements is merited and is, 

thus, one of the areas that we will be focusing on in the Antitrust 

Division. 

Finally, I want to say a few words about the series of workshops 

that we have planned with the USDA. The Department of Justice 

and the Department of Agriculture announced in August our plans 

for a series of jointly run workshops in 2010 to be held around the 

country to address the dynamics of competition and agriculture 

markets. 

In the workshops, we will examine whether changes in the marketplace, including increased consolidation and vertical integration, 

have generated efficiencies or whether they have led to increases 

in monopoly or monopsony power. 

We are also actively soliciting input through the end of this year 

from farmers, ranchers, economists, lawyers, legislators, consumer 

groups, and processors about their views and experiences. The Division invites all contributions to the workshop process and looks 

forward to active participation, hopefully from many of you in this 

room and from others in the State of Vermont. This hearing will 

serve as part of my learning process to be continued through these 

workshops. 

Mr. Chairman, Senator Sanders, the Division recognizes there 

has been considerable change in agricultural markets, especially 

dairy. We take very seriously the concerns about the competitive 

consequences of those changes. At the same time, we are open to 

the fact that some marketplaces and technological changes may 

promote needed efficiencies. We intend to engage in careful and 

8 

critical evaluation of the relevant market conditions, informed by 

input from those of you here who live this market every day. We 

will approach these matters in a fair and reasonable manner, and 

I promise you, we will take whatever action we find warranted. 

Chairman LEAHY. Thank you very much. 

[The prepared statement of Assistant Attorney General Varney 

appears as a submission for the record.] 

Chairman LEAHY. What I was going to, I discussed with Senator 

Sanders, is we’ll hear next from Dr. Glauber, and then we’ll both 

ask questions. 

Doctor, I appreciate you coming to Vermont also. We have tried 

to make a nice sunny day here today. Dr. Joseph Glauber is the 

Chief Economist. Did I pronounce your name correctly, I hope? 

Dr. GLAUBER. Yes. 

Chairman LEAHY. At the United States Department of Agriculture. Before he was appointed as Chief Economist in 2008, he 

served as Deputy Chief Economist at the Department. He held positions with the U.S. Trade Representative, the President’s Council 

of Economic Advisors, and the USDA Economic Research Service. 

He is responsible for USDA’s agricultural forecast and projections, 

but also for advising the Secretary on economic implications of alternative programs, regulations, or legislative proposals. 

He received his Ph.D. in Agriculture and Economics from the 

University of Wisconsin, and holds an A.P. in Anthropology from 

the University of Chicago. I might note on a personal basis, those 

of us who also serve on the Senate Agriculture Committee look to 

those projections of yours all the time. 

You can imagine, sometimes we’re looking at them—and I never 

want to suggest that any Senator would take a parochial view—but 

the Midwesterners look at some aspects of it, we from the Northeast look at other aspects, and the Southwest looks at other aspects. But we all look to you as having some of the most definitive 

projections. 

Dr. Glauber, please go ahead, sir. 

STATEMENT OF DR. JOSEPH GLAUBER, CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Dr. GLAUBER. Mr. Chairman and Senator Sanders, I’d like to 

take this opportunity to provide you with an update on the dairy 

market situation, our forecast for the dairy market for next year, 

and the Department’s response to the sharp downturn in milk and 

dairy product markets. 

Unquestionably, the dairy industry has been one of the hardesthit sectors in agriculture in the past year. The all-milk price averaged a record $19.21 in 2007, as drought in New Zealand and Australia lowered milk production in those two major dairy product exporting countries, and strong global economic growth boosted world 

dairy product prices and the value of U.S. dairy product exports to 

record levels. In 2008, farm level prices remained strong, with the 

all-milk price averaging $8.41 per 100-weight, the second-highest 

on record. 

This spring and summer, however, producers received less than 

$12 per 100-weight and the milk-to-feed price ratio, one measure 

of the profitability of producing milk, was the lowest in over 25 

9 

years during the first half of 2009. USDA projects that the all-milk 

price will decline by 34 percent in calendar year 2009, to an average of $12.15 per 100-weight, the lowest average annual price received by farmers for milk since 1979. 

There are many factors contributing to the decline of farm-level 

milk prices. The drought conditions in Australia and New Zealand 

that I mentioned earlier have largely abated, leading to increased 

milk production globally. The global recession, the melamine scare 

in China, and the use of export subsidies by the EU have also lowered the demand for U.S. dairy products in world markets. 

At home, the economic crisis has curtailed domestic demand for 

dairy products, and until recently, milk product remained at historically high levels as producers responded to those high milk 

prices in 2007 and through the first half of 2008 by increasing the 

number of replacements, limiting the decline in dairy cow numbers. 

Producers are responding to the current depressed market situation by reducing herd numbers. Cow numbers dropped a year ago 

in March 2009 and are expected to average 125,000 lower in 2009 

than in 2008. Further cutbacks in cow numbers are expected, leading to lower milk production in 2010. 

Currently, we expect milk production to fall by nearly 1 percent 

in 2010, following a 0.8 percent drop this year. Reduced production, 

an improved economy, and lower dairy product prices are expected 

to lead to a gradual increase in milk prices and improve returns 

later this year and into next year. USDA is currently forecasting 

the all-milk price to average $11.80 per 100-weight in the third 

quarter, and $12.90 in the fourth quarter. For all of 2010, we are 

projecting an all-milk price of slightly over $15. 

The Consumer Price Index for dairy products peaked in August 

2008. Since August of last year, the CPI for dairy products has 

gradually declined, and in August was down 10 percent from a year 

ago. Over the same period, the CPI for fluid milk fell by 18 percent 

and the CPI for cheese and related products dropped by 11 percent. 

Nationally, the margin between the retail price of fluid milk, as 

reported by BLS, and the price fluid milk processors paid for milk 

dropped by 18 cents per gallon between August 2008 and 2009. The 

margin between the retail price and the price paid for milk by processors in August 2009 was also slightly less than the margin in 

2007 when farm level milk prices reached their peak. 

USDA has taken numerous actions to help producers through 

this difficult time. So far in 2009, the Farm Service Agency has 

provided over 1,100 direct loans to dairy producers, totaling approximately $70 million. We are also extending loan repayment 

terms for new loans and notifying FSA dairy borrowers of loan 

servicing options, such as a deferral of payments or rescheduling 

of their repayment terms. 

As announced on July 31, USDA increased the amount paid for 

cheddar cheese and nonfat dry milk under the Dairy Product Price 

Support Program. These purchase price increases, which were in 

place from August 2009 through October 2009, increased the price 

paid for nonfat dry milk by 12 cents per pound, and the price for 

cheddar cheese by 18 cents per pound above the minimum purchase prices specified in the 2008 farm bill. 

10 

From August 1, 2008 to date, USDA has purchased 277 million 

pounds of nonfat dry milk and 4.6 million pounds of butter under 

the Dairy Price Support Program, much of it during late 2008 and 

the first half of 2009. 

On March 26, 2009, the Secretary announced that approximately 

200 million pounds of nonfat dry milk would be further processed 

or bartered for dairy products for use in domestic and international 

feeding programs. The nonfat dry milk is being further processed 

or bartered into higher value products, such as instantized nonfat 

dry milk, ultra-high temperature milk, cheese, and ready-to-eat 

milk-based soups. In addition, at least 1 million pounds of nonfat 

dry milk will be sold on a competitive bid basis for the production 

of casein. 

USDA is working with the Department of State to provide foreign assistance. This assistance includes about 500,000 pounds of 

nonfat dry milk for use in the McGovern-Dole International Food 

for Education & Child Nutrition Program, and about 1 million 

pounds for use by the U.S. Agency for International Development, 

based on anticipated requests from the State Department. 

The 2008 farm bill modified and reauthorized the Milk Income 

Loss Contract Program, which providers counter-cyclical payments 

to producers in times of low prices or high feed costs. In order to 

provide assistance as quickly as possible to dairy producers, FSA 

published regulations reauthorizing the milk program on December 

4, 2008. 

Declining milk prices caused the Boston Class 1 price to fall 

below $6.94 beginning in February, triggering payments under the 

MILC program. USDA began distributing payments in early April, 

and to date, over $700 million has been paid to producers under 

the program this year. We expect MILC payments to continue for 

the next several months, although we expect the payment rate to 

decline given the projected increase in milk prices this fall. 

On May 22, we announced the reactivation of the dairy export 

incentive program, with allocations for the export of 68,000 metric 

tons of nonfat dry milk, 21,000 metric tons of butter fat, and 3,000 

metric tons of cheese. These quantities reflect the maximum volume of dairy products the U.S. is allowed to export with subsidies, 

consistent with the U.S.’s WTO commitments. 

Last, on August 25th, USDA announced that nominations would 

be accepted to form a new Dairy Industry Advisory Committee. The 

Advisory Committee will review farm milk price volatility and 

dairy farm profitability and provide suggestions and ideas to the 

Secretary on how USDA can best address these issues to meet the 

dairy industry’s needs. 

Appointed representatives will include processors and processor 

organizations, producer and producer organizations, handlers, consumers, representatives from academia, retailers, and State agencies involved in organic and non-organic dairy at the local, regional, 

national, and international levels. 

This concludes my oral statement. I would be happy to answer 

any questions you might have. 

[The prepared statement of Dr. Glauber appears as a submission 

for the record.] 

11 

Chairman LEAHY. Thank you. I should also note that, both with 

you and Ms. Varney, we will keep the record open, as I said, until 

the 30th. So after you’ve seen the transcript, if there are things you 

wish to add to it, you will be able to, as well as any of the other 

witnesses. 

Chairman LEAHY. Thank you. And I should also note to both you 

and Ms. Varney, we will keep the record open, as I said, until the 

30th. So after you have seen the transcript, if there are things you 

wish to add to it you will be able to, as well as any of the other 

witnesses. 

I am looking at this chart behind this young woman with the 

camera. That would be you. If we might just move that out here 

a little bit. I do not want to interfere with the press here, but I 

just want you to all be able to see this, because it goes to what both 

of you have been talking about. This is something that every single 

dairy farmer here knows unfortunately all too well. It shows the 

Boston Class 1 prices down here at $13.51, the cost of production 

up here at $26.07. You can see the way those prices have gone. 

I was thinking of this, Doctor, because you made reference to 

that, the peaks and valleys, and your Department was helpful in 

preparing this. Obviously, something staying like that, farmers 

cannot stay in business and our State of Vermont will change dramatically, as will many other parts of this country. 

Ms. Varney, I have to thank you again for being here. You have 

one of the busiest Departments in the Department of Justice. And 

although I must admit, it is nice to have—I believe you are the 

first person to head up antitrust who’s actually milked a cow. 

[Laughter.] 

Chairman LEAHY. Trust me, I have pointed that out to a whole 

lot of people. You talked about the monopsony power, or buyer 

power, in the dairy industry. In New England, we have a situation, 

as Senator Sanders has pointed out, where one distributor is responsible for the purchase of more than 70 percent of Northeast 

dairy production. Now, that high level of buyer concentration is 

that something that concerns you? I would ask you to put on your 

professional hat as head of Antitrust. Does that concern you? 

Attorney General VARNEY. Senator, whenever you see that level 

of concentration in a market it is concerning. We are committed to 

the concept that a free market thrives on competition and competition is not very well served when you have one player in the market who controls 70 percent of the market. So, yes, that is something that we are concerned about and we look very carefully at 

the activity in a market when you have that kind of dominance. 

Chairman LEAHY. Well, as you look at this activity if you determined that action should be taken, what tools do you have? 

Attorney General VARNEY. Well, we have a number of tools. I 

think, going the range, we start with basic tools of learning what 

is happening in the marketplace. I think that is what we are trying 

to do here today. It is what we are going to be doing in our workshops. We escalate from there. If we believe there is activity in the 

marketplace that may violate the law, we have a number of investigative tools at the Department of Justice. 

We, as you know, open up investigations, we issue subpoenas, we 

depose witnesses, and we look for the kinds of activity that may 

12 

violate the antitrust law. And should we find evidence that there 

is a violation of the antitrust law, under my direction we will certainly not hesitate to prosecute and bring a case. 

Chairman LEAHY. Well, you know, it is interesting. You mentioned the workshops. I have been in the Senate for a number of 

years. I’ve been there through seven different administrations. I 

have never known of a time when the Justice Department has held 

such workshops for dairy farmers. Is this something unique? 

Attorney General VARNEY. I believe it is, Senator. As I said, we 

will be going all over the country and looking at dairies. As a matter of fact, we are planning a workshop specifically on the retail 

price spread to really try and get at some of the core issues that 

are driving that spread. I also think it is unprecedented that the 

Department of Agriculture and the Department of Justice have 

worked together on this issue. 

Chairman LEAHY. I would like very much, once those workshops 

have been completed, if perhaps you could arrange to have your office come up and give a briefing for my office, actually for a number 

of the offices of those Senators in both parties who represent dairy 

States. 

Attorney General VARNEY. I would love to do that. But I would 

also love to come back up here, if invited and brief you all on what 

we found. 

Chairman LEAHY. Preferably either at the height of foliage season—— 

Attorney General VARNEY. In the fall. 

[Laughter.] 

Attorney General VARNEY. Exactly. 

Senator SANDERS. We’ll bring you back in mid-January, how’s 

that? 

[Laughter.] 

Attorney General VARNEY. Well, I do ski, Senator so I’m okay 

with that. 

Chairman LEAHY. You state that within the agriculture sector, 

the companies have become more vertically integrated over the 

years. We see this where the cooperatives rely wholly on one company to manufacture their milk. Is this part of the things that the 

antitrust division has to look at? 

Attorney General VARNEY. It is certainly something you know, I 

want to understand because, as I said, I’m new to the structure of 

the dairy markets in the United States, and how we’ve evolved to 

the point where the co-ops are basically captive of one distributor. 

I want to understand how we got there and what kind of competition exists. Even if there is 70 percent concentration at the distributor level, how do we reinvigorate competition in that level, 

given the structure of the market where it is today? 

Chairman LEAHY. Well, my staff on the Judiciary Committee 

found that in the last administration, we found allegations where 

there were career lawyers in the Antitrust Division, who are usually, as you know, people we—they don’t take a Republican or 

Democratic position. 

Attorney General VARNEY. Right. 

Chairman LEAHY. They just give the best knowledge possible. 

They investigated competitive issues in the dairy industry. They ulVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
13 

timately concluded that there was a problem and the career, the 

nonpartisan lawyers recommended action against certain firms in 

the industry. But my staff tells me the Department of Justice back 

then never took any action. Did this actually happen? 

Attorney General VARNEY. Well, as you know Senator, I just got 

there in April and I’ve been very immersed in looking at the structure of the industry as it exists today and what we can do going 

forward. I too, am aware of the controversy surrounding the previous administration. I do want to point out that the Department 

did file a lawsuit after the merger of DFA Southern Belle, and they 

lost that lawsuit and went on to appeal it and won it. 

So I think that there is basis to continue to investigate and bring 

these suits and bring them in a way that can reach a successful 

conclusion for the dairy farmers, and I am very focused on what 

we are going to do going forward, looking at the record of where 

we’ve been in the past. 

Chairman LEAHY. Thank you. 

Doctor, I have to thank you and tell you how appreciative we are 

that the Department moved very quickly. Senator Sanders and I, 

and all the Senators from the various dairy-producing States, have 

had what I think was almost an unprecedented meeting with Secretary Vilsak. He demonstrated a real crisis. He actually took some 

very quick steps and he responded, but was, I think most appreciated by the Senators who were there. We had a secretary who actually understood the complexities of the dairy industry and could 

speak about it. He has traveled across the country. 

He has met directly with dairy farmers. He announced that in 

July, that they’re raising the dairy price supports. The OMB said 

that will cost about $250 million. The increase is currently set to 

expire at the end of October. Could you tell us what has happened 

in that with the raising of the price support, how much money was 

spent? What is that actually doing? 

Dr. GLAUBER. I don’t have exact figures, but I can tell you generally what’s been going on. 

Chairman LEAHY. Sure. 

Dr. GLAUBER. When we raised those price support levels in July, 

we did see an immediate increase in product prices. We have also 

seen, generally, an increase in product prices since that time. 

Whether or not they are directly related to the increase in price 

supports, I think there are a lot of other factors, but the point is, 

we’ve been—I think if I’m not mistaken we’ve only acquired a few 

million tons of product. That is far less than what we had originally anticipated largely because of the price increases. I would be 

happy to get you the exact numbers when I’m back in the office on 

Monday. 

Chairman LEAHY. Could you, please? 

[The information appears as a submission for the record.] 

Chairman LEAHY. I know on the MILC program, just in 

Vermont, the part I wrote in on the feed adjustment, that is about 

$15 million into Vermont. Overall, it is going to pay out a little 

over a billion dollars. A quarter of a billion of that comes from the 

feed cost adjustment. As I said, that $15 million that came directly 

into our State was very helpful, but we still have this huge disparity. You also spoke about the Livestock Gross Margin Dairy inVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
14 

surance program, the LGM Dairy. Most folks who don’t live on a 

dairy farm don’t fully understand that. I know it protects farmers 

against loss of gross margin, the market value of the milk minus 

the fee costs. How many farmers have signed up for that, and how 

does that work? 

Dr. GLAUBER. Well, let me explain. One of my other hats is, I’m 

chairman of the Federal Crop Insurance Corporation Board of Directors. Back in July of 2007, we had a submission where a private 

party brought forward this proposed insurance product for dairy 

producers. The board approved it in July of 2007. Essentially what 

it allows producers to do is guarantee a margin for the milk that 

is produced. 

Every day, we calculate the margin based on the futures price for 

milk, futures price for corn, futures price for soybean meal. And 

that allows you to lock in. If you purchase that insurance product 

on that day, it allows you to lock in that margin. So in 2 months’ 

time, when the contract comes due, one can then turn around and 

if the margin has declined precipitously by either a collapse of 

dairy prices or increases of feed prices, then you are able to then 

get a payment if it exceeds the deductible. 

Now, it is a very new product and we still have just a handful 

of producers who have signed up for the product. That said, I know 

just last fall we had a Board of Directors meeting where we expanded—at the request of several States, expanded the program 

into, I believe Kentucky and Tennessee, New Mexico, Washington. 

I would just say that the important thing is, this is particularly 

good when you have a reasonable margin out there. I mean, if you 

have a very low margin, well, it will help things from getting 

worse, but it won’t boost income above what the market anticipates 

that margin to be. That’s the important thing, much like any insurance product. 

Chairman LEAHY. You know, I remember all the pressure we got 

from the administration in 2002 to strip out the competition title 

which we had put into the Farm Bill of 2002. I and several others, 

we actually had a bipartisan coalition from the Senate in getting 

that in. Is that something we should look at again? I mean, this 

would have actually directly and legislatively addressed some of 

these issues. Is that something we should look at again in the next 

farm bill? 

Dr. GLAUBER. Well, certainly we work with Justice in their investigations. They will come to us and ask us for information because 

they seek the expertise that the Department has on a lot of these 

issues. I think through these workshops—again, unprecedented— 

that we will be conducting, we will be looking at these things very, 

very closely. As far as whether or not something like that is needed 

in the farm bill, I think that is something that would be presumably worked out among you members and the administration. 

Chairman LEAHY. Thank you. I’ve gone over my time. 

Senator Sanders, please. 

Senator SANDERS. No, you haven’t. I don’t see any clocks here. 

When you’re the Chairman, you never go over your own time. 

[Laughter.] 

Chairman LEAHY. The Chairman never goes over. There’s two 

things I’ve learned about being Chairman: I am never late for a 

15 

hearing because it starts when I get there, and we have flexibility 

in time. But this is an important matter. As you know, we’re trying 

to get as much detail on the record because this is going to be— 

both Senator Sanders and I are going to use this record in arguing 

with the other Senators about what should be done. 

Bernie. 

Senator SANDERS. Thank you, Patrick. 

Attorney General Varney, let me start off, picking up on a point 

that Senator Leahy made. It is fairly widely known that in late August 2006, career professionals in your division, in the Antitrust 

Division, and were not political appointees, but professionals, concluded a 26-month investigation into far-ranging anti-competitive 

practices in the dairy industry. It is my understanding that, in August 2006, that team—these are professional investigators—recommended action against some of the dairy industry’s biggest 

firms, including Dean Foods Dairy Farmers of America, and National Dairy Holdings. 

Unfortunately, under the Bush administration, when that was 

kicked up to the political people, they decided not to pursue that 

investigation or take any action. Can you give us assurance that 

you, in fact, will continue that investigation, and if it leads you to 

the conclusion that action should be taken, that in fact you are prepared to take action? 

Attorney General VARNEY. I can give you every assurance, Senator, that any investigation that I undertake that leads us to believe there is evidence sufficient to prosecute will be prosecuted. 

There is no doubt that we will prosecute that kind of activity 

should we find it. 

Senator SANDERS. Thank you. 

[Applause]. 

Chairman LEAHY. I appreciate the applause especially as it is following a statement that I wholeheartedly agree with, but we do 

have to follow the Senate rules and we will have to—— 

Senator SANDERS. Even in St. Albans? 

[Laughter.] 

Senator SANDERS. We have a little flexibility can’t we here? 

Chairman LEAHY. During the break, we definitely will. 

Senator SANDERS. Let me ask Assistant Attorney General Varney 

another question. One of the problems my staff has had is I think 

everybody wants to know what the truth is and what the facts are. 

You can’t go forward unless you know reality. We have read and 

studied a lot the dairy industry, and we read the dairy press. What 

we have ascertained is what Senator Leahy and I indicated a moment ago about a significant concentration of ownership in various 

regions of this country. That’s what we believe to be the truth, 

based on what we read. 

Attorney General VARNEY. Right. 

Senator SANDERS. Meanwhile, what has happened is we want to 

confirm that fact about the likelihood of Dean controlling 70 percent, for example, of the fluid milk market in New England. But 

when we call up the milk marketing orders around the country and 

we say, this is what we believe, can you tell me if this is true or 

not they say that in fact that information is confidential. They say 

16 

that by law, the USDA collects all this data but they can’t share 

it unless it is in a lawsuit or in other limited circumstances. 

On the surface, this seems pretty absurd to me. I think the people of this country have a right to know, Congress has a right to 

know, to what degree there is concentration of ownership. Can you 

tell me if you think, in fact, that the public has a right to know 

this information, not only in Vermont, but all over this country? 

What do you think? 

Attorney General VARNEY. Well, it’s interesting Senator, because 

as—in my prepared remarks for the record I quote Justice Brandeis, who says ‘‘sunlight is the best disinfectant’’. I am a firm believer in transparency. As a matter of fact, just Thursday afternoon 

I was meeting with a group of dairy farmers who expressed their 

frustration about the lack of transparency generally in the industry. 

So with my colleagues at USDA, it is certainly something that 

we’re going to be examining, both from the perspective of, how do 

we ascertain and then inform the public as to what we believe the 

levels of concentration are, but more importantly, what are the real 

barriers to sharing that kind of information? We understand that 

business has a right to keep proprietary data and that they are not 

compelled in this country to provide certain proprietary data absent a lawsuit or another form of enforcement. 

On the other hand, this is a very distressed industry and transparency is something we all need in order to understand how we 

can improve the production and the health and life of the dairy 

market in the United States. So I think both USDA—and I would 

turn to my colleague—and I are committed to understanding not 

only what the concentration levels are, but how we introduce more 

transparency. 

Senator SANDERS. Well, I appreciate that. I mean we all understand that for business, certain kinds of proprietary information is 

vital and no one questions that. On the other hand, what we are 

here to try to do is to see how we save family-based agriculture in 

America. If we find in dairy and in other commodities—this is not 

unique to dairy—that there is monopoly control, the public has a 

right to know, Congress has a right to know. I think you agree 

with that? 

Attorney General VARNEY. I do agree with that Senator. 

Senator SANDERS. Let me ask you another question. When we 

talk about monopoly control with regard to Dean this is not, by the 

way, some new idea. As I’m sure both of you know, a number of 

private parties, including both consumers and dairy farmers, have 

filed lawsuits against Dean Foods alleging antitrust violations. In 

2007, for example, two classes, representing over 4,000 dairy farmers, sued Dean Foods, DFA, and National Dairy Holdings, alleging 

that they conspired to monopolize milk markets in the Southeastern United States. In other words, this is not just a Northeast 

issue, it’s a national issue, various regions. 

More recently, a class of consumers sued Dean Foods, DFA, National Dairy Holdings, and others for conspiring to fix the price of 

milk in stores. So you’re having farmers and consumers suing Dean 

Foods. My question is does the Department of Justice plan to invesVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
17 

tigate these allegations or request access to the documents in these 

cases, as appropriate? 

Attorney General VARNEY. Well, Senator, as you know, I can’t 

comment on any specific investigation the Department is currently 

involved in or may become involved in. I can tell you that we carefully monitor all private antitrust actions in this arena. We read 

every public document. We are very cognizant of the allegations at 

issue here. We are very aware of the proceedings, of the evidence 

that’s coming in on the records. 

Private antitrust is certainly an important—Senator Leahy asked 

me about the tools—private antitrust is certainly an important tool 

of the Department. We do watch those matters carefully and have 

in the past, in other industries, as appropriate, either intervened 

or brought our own lawsuits. So you can rest assured that that tradition continues. 

Senator SANDERS. Okay. Well, again, that’s good news, because 

the point to be made is the problems that we are having in 

Vermont and New England are not unique. They’re taking place all 

over the country and there have been lawsuits filed. It’s important 

that the Department of Justice work and investigate those as well. 

Ms. Varney, as you know, the Capper-Volstead Act provides an 

exception to the antitrust laws for agricultural cooperatives, but 

only if those cooperatives ‘‘are operated for the mutual benefit of 

the members thereof’’. My question is, how seriously do you take 

the requirement that a cooperative act for the benefit of its members in order to be protected by Capper-Volstead? Could a cooperative lose Capper-Volstead protection if it routinely acted against its 

members’ interest? 

Attorney General VARNEY. Well, Senator, Capper-Volstead is 

something that I have been recently introduced to as the Assistant 

Attorney General for Antitrust, and I’m really learning a lot about 

the history of the Act and the history of co-ops and how they’ve 

evolved. And without, you know, asserting any conclusions at this 

point, I understand that the act was intended to bring the small 

producers together in order to give them some ability to effectively 

market their milk. It does seem to me initially that some of these 

co-ops have grown extraordinarily beyond what anybody imagined 

when Capper-Volstead was enacted. 

Now, Capper-Volstead essentially provides antitrust immunity. 

We obviously take very seriously the congressional determination 

that some activity is exempt from antitrust scrutiny, even though 

we’re slightly allergic to antitrust immunity anywhere. Having laid 

that as a framework, certainly if an enterprise is acting outside the 

scope of their immunity, I believe they would be subject to antitrust review, and potentially prosecution. That is something I 

would want to think carefully about. Congress does not lightly 

grant antitrust exemptions, so I think there is a balance that I 

would have to strike there and I would look forward to working 

with the appropriate congressional committees on what they see as 

the limits of Capper-Volstead. 

Senator SANDERS. Okay. Thank you very much for your refreshing remarks. 

I just have a couple of questions, all right, for Dr. Glauber? 

18 

Chairman LEAHY. I might add though, if I could just follow on 

that on Capper-Volstead, I mention this because all antitrust legislation comes before the Judiciary Committee. The Congress, as you 

said very rightly, has granted this exemption from the antitrust 

laws. Congress having granted that can also take that exemption 

away, could it not? 

Attorney General VARNEY. Absolutely. 

Chairman LEAHY. And if Congress were to determine that there 

was a violation of the intent of the law, they could remove the law, 

could they not? 

Attorney General VARNEY. Well, and Senator, it does seem to me 

that an examination of whether the law is serving its intended purposes may lead to a conclusion that it is not the right law for the 

state of the industry at this time. 

Chairman LEAHY. I mentioned that Senator Kohl, I’ve appointed 

as chairman of the Antitrust Subcommittee in the Judiciary Committee. It is something that I know he and I will be discussing, and 

with Senator Sanders. Thank you. Please go ahead. 

Senator SANDERS. Thanks. 

Let me ask Dr. Glauber a few questions. One of the important 

points to be made right here in dairy country is, the fight to preserve dairy and family-based agriculture is not just an issue of 

dairy farmers. I used to be, as some of you know, the mayor of Burlington. Remember, there are no dairy farmers in Burlington. I can 

tell you that the people of Burlington and the people of cities all 

over this country want family-based agriculture to be preserved because they want to get access to fresh, high-quality food. They 

worry about the concentration of ownership, they worry about foreign imports that do not have the standards that we are used to, 

and want, in the United States. So this is an issue that goes just 

beyond dairy producers, as important as that is. 

Now, in connection with that point, Dr. Glauber explain in nonbureaucratese, in English, a very simple point. I think Senator 

Leahy started making it. Here’s the point: most people assume that 

when they go to the grocery store and they buy a product, a gallon 

of milk, they kind of assume that most of that money goes to the 

people who produce the product, i.e., farmers. 

I think most consumers would be shocked to know that if they’re paying, say, $3 for a gallon of milk today, $1, just $1, goes to the 

farmer. Under today’s conditions, that is significantly lower than 

the cost of production. Farmers are losing money every single day. 

So $1 goes to the farmer. My question to you: where do the other 

$2 go? 

Dr. GLAUBER. Well, in the case of dairy, it clearly goes for the 

transportation and processing of dairy products. There’s marketing 

bills put in there. We do a breakout every year for a number of 

commodities. In fact, the farm level value of total U.S. agriculture 

is only about 20 cents on the dollar. 

Senator SANDERS. Did everybody hear that? What you’re saying 

is, on average, farmers get 20 cents. 

Dr. GLAUBER. Yes. For all products. And certainly if you were to 

go to some of the grains like wheat, it’s very minimal, what the 

price—the farm level price of wheat in a box of Wheaties, for example. Now, when you move up the chain and go to things like higher 

19 

value products like fruits and vegetables, they command a slightly 

larger share of the overall dollar. But you’re absolutely right. 

There’s a lot of processing and transportation and other costs involved in getting farm level product to the retail—— 

Senator SANDERS. But it’s not just—well, let me take you another 

step further on that. Do you think it’s just transportation? Do 

you—are you concerned, in terms of the survival of family-based 

agriculture in America, by these ratios that 8 out of every 10 cents 

goes to the non-farmer? Does that sound viable to you? 

Dr. GLAUBER. I’m less concerned about the ratios. What I think 

I’m concerned about is what the farm level price is vis-a ́-vis the 

cost of producing that product for the farmer. That’s the—— 

Senator SANDERS. But there is a ratio—— 

Dr. GLAUBER. That’s the key thing. 

Senator SANDERS. But there is a ratio between them. I mean, let 

me ask you again: what do you think—what’s your understanding 

of a situation where dairy farmers are receiving 40-year low prices 

at the same time as a company like Dean Foods is making recordbreaking profits? Do you think there’s a connection between the 

two or do you think it’s just an accident and a coincidence? 

Dr. GLAUBER. Well, I wouldn’t say that it’s an accident or coincidence. I would have to look at the situation. I think that’s one of 

the things we’ll be looking at in terms of these margins. But understand that, over the last year, a lot of other things went on. We 

had very, very high energy prices. That increases transportation 

costs, it increases costs for a lot of that marketing bill. So, one has 

to look at a lot of factors, one factor of which may be the market 

structure. 

Senator SANDERS. Right. That’s actually my next question. 

Dr. GLAUBER. Okay. 

Senator SANDERS. Thanks. In your prepared testimony you mention that the Federal milk marketing order has its primary objective of assuring that fluid milk processors have an adequate supply 

of milk to meet the needs of consumers and farmers so that they 

can receive a fair price for their milk. My question is, do you believe that, in fact, the Federal milk marketing order system is broken? Is it no longer doing what it was supposed to do? 

Dr. GLAUBER. Well, as you know, it, too, is a system that dates 

back to the 1930s. We’ve had a lot of changes in the milk marketing order system. We had, as Senator Leahy can remember, a 

very, very extensive series of reforms that came out of the 1996 

Farm Bill, a very contentious set of reforms which essentially consolidated the number of orders, streamlined the number of class 

prices. 

There is certainly, if you go across—and understand that a large 

portion of milk produced in this country is outside of the orders entirely, and that, of course, as we’ve seen, large growth in production in some of those regions and that product, of course, flows into 

other regions. So they’re a very complicated system. 

As for the Federal marketing orders, I certainly think that a 

complicated regulatory structure like that is always worthwhile to 

review because I think that clearly, when you see the differences 

between, say, a Southeast order or the New England order in terms 

20 

of what percent goes to processed production, et cetera, you want 

to ensure that that order system is performing efficiently. 

Senator SANDERS. Let me thank both of you. 

Senator Leahy, thank you. 

Chairman LEAHY. Thank you. Just two very quick follow-ups. 

The dairy price supports are going to expire at the end of October, 

next month. 

Dr. GLAUBER. The increase that was put in place. 

Chairman LEAHY. The increase. The increase. Yes. What do you 

think will happen in the market when those support prices return 

to their previous level? 

Dr. GLAUBER. Given the fact that we have not purchased much 

in terms of product and given the forecast for product prices, I expect that product prices will continue to increase. We have seen 

some drop in production, in milk production, over the—— 

Chairman LEAHY. Product priced to the producer would continue 

to increase. 

Dr. GLAUBER. Yes. Yes. 

Chairman LEAHY. Is that what you’re saying? 

Dr. GLAUBER. Yes. Yes. 

Chairman LEAHY. I just want you to know, everybody here is 

paying very close attention to your answer on that. 

Dr. GLAUBER. Yes. 

Chairman LEAHY. Would the Department consider extending the 

current price levels beyond October? 

Dr. GLAUBER. Well, I think Secretary Vilsak has made it clear 

that he wants to work with Congress to get the dairy industry 

through this very tough time, and I think more importantly, look 

longer run about ensuring—getting a better solution to combat future volatility because as you know, this market has been highly 

volatile over the last 5, 10 years. 

Chairman LEAHY. Well, I know. I mean, look at the chart. 

Dr. GLAUBER. Yes. 

Chairman LEAHY. Look at the chart I show here, and you can 

just see that volatility. We don’t have ski slopes that are that sharp 

here in Vermont. 

[Laughter.] 

Dr. GLAUBER. I was bicycling here last summer and it looks a lot 

like that. 

Chairman LEAHY. One of our bicycle clubs has a great tee shirt. 

It says, ‘‘Vermont: ’Taint Flat’’. 

[Laughter.] 

Chairman LEAHY. But you understand, Dr. Glauber. Just, those 

of us who aren’t dairy producers, we go to the grocery store and 

we see the price of a gallon of milk may come down slightly, but 

then I go to the charts that I get every week and it shows that the 

price of the producer has gone down much, much more. Or conversely there are times when the price at the grocery store has 

gone up, but the price hasn’t gone up to the producer. I think everybody is very similar to the way my wife and I are, and our 

whole family. We don’t mind paying the price, if we are actually 

keeping farmers in business that they are actually getting the 

value from that. We do feel pretty perturbed if, as Senator Sanders 

has pointed out, it may go to enormous profits and enormous salaVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
21 

ries to people who own a conglomerate. But I thank you both. 

We’re going to do—in just a moment we’re going to recess for 5 

minutes while we set up the next panel. Ms. Varney, could you 

stay and hear the next panel? 

Attorney General VARNEY. I plan to, Senator, yes. 

Chairman LEAHY. Good. Thank you. I mean, you’re both welcome 

to, of course. 

Before I recess, could I note there are—I look around here and 

I see a number of my friends from the Vermont State legislature. 

Would all the legislators please stand? And you are allowed to applaud. Would you please stand, all the legislators who are here? 

[Applause]. 

Chairman LEAHY. And we will stand in recess for 5 minutes 

while we set up the next panel. I thank you both very, very much 

for taking this time. 

Dr. GLAUBER. Thank you. 

[Whereupon, at 11:17 a.m. the hearing was recessed.] 

AFTER RECESS [11:35 a.m.] 

Chairman LEAHY. If we could reconvene, please. Thank you all. 

It was interesting. I see the enormous difference between having 

the hearing in Washington and having it here, is during the break, 

Marcelle and I, and certainly Senator Sanders and others, were 

seeing people we’ve known forever coming up and people have— 

some have raised questions of everything from market concentration to over-production. 

I have suggested that all—again, as I said before we will keep 

the record open. If people have testimony they want heard on this 

subject, the subject we are talking about, we will keep the record 

open for it. This is unusual. A Saturday hearing is unusual in the 

Senate but certainly a hearing out of the normal Senate hearing 

room. So, take advantage of it. 

The first person we’re going to recognize is Bill Rowell. He’s the 

owner of the Green Mountain Dairy farm in Sheldon, Vermont. I 

didn’t realize, Bill, until I was looking at the background, you’re a 

descendent of the original Vermont settlers who farmed in Orleans 

County. 

Mr. ROWELL. Yes, sir. 

Chairman LEAHY. And Franklin County. 

Mr. ROWELL. Yes, sir. 

Chairman LEAHY. I knew you were raised on a dairy farm in Albany because you’ve told me that before. 

He received his B.A. from Johnson State College, his graduate 

degree in Urban Environmental Planning from Old Dominion University in Norfolk, Virginia. Along with his brother, Mr. Rowell’s 

farm was awarded the prestigious title of ‘‘Vermont Dairy Farm of 

the Year’’ in 2008. We’ll start with your testimony. We’ll do it the 

same way we did before. I want to hear from each of you, and then 

Senator Sanders and I will ask questions. 

Please go ahead, Mr. Rowell. 

22 

STATEMENT OF BILL ROWELL GREEN MOUNTAIN DAIRY, 

SHELDON, VERMONT 

Mr. ROWELL. Very good. Thank you, Senator, Senator Sanders. 

Thank you both for being here. Our industry is looking for some 

hope, and your very presence gives us hope and we thank you. 

Mr. Chairman, testimony of Willard Rowell. As you’ve said previously, I operate a farm with my brother, Brian and his family in 

Franklin County, Vermont. We produce 23 million pounds of milk 

annually. Our herd numbers 900 lactating Holsteins, 150 dry cows, 

and 650 replacement heifers. Our waste stream is processed 

through an anaerobic digester, which offers the farm multiple benefits. Crop land for the dairy consists of 1,000 acres of corn, 500 

acres of hay land. We utilize best management practices and operate the farm in a highly efficient manner. 

Today we find ourselves in yet another dairy crisis. We recognize 

that dairy farmers nationwide are producing milk well below their 

cost of production. Here in the Northeast, the cost of production is 

approximately $18 per 100-weight. The pay price for raw milk is 

presently—I think last milk check was $11.60 per 100-weight. 

That’s $2.5 million short this year of what we were paid last year. 

In fact, if everything goes well, by the end of the year we will only 

be $1.6 million short of breaking even for the year. 

Our national annual milk production in the U.S. amounts to 190 

billion pounds and depends on export markets to achieve a balance 

between supply and demand to ensure fair pricing for our product. 

The world economy is in recession, consumer demand is down at 

home and abroad. Last year’s export markets of 11 percent have 

dwindled to about half that this year. The market over-supply or 

surplus determines the pay price for 100 percent of the milk produced, which has created an untenable situation for the dairy farmer. 

The first 6 months of this year, dairymen have converted $4.5 

billion worth of equity to loans and continue doing so at a rate of 

$800 million per month across this country. Upcoming months will 

prove disastrous for many as equity is depleted and survival of the 

fittest plays its role. 

Presently, there is no dairy farm in the United States supplying 

raw milk to the market at a profit to the farm. That’s unbelievable. 

The need to balance supply with demand seems obvious, since the 

over-supply determines pricing on all milk. During the past several 

years, this country has struggled with the concept of supply management. Our inability to recognize the role played by surplus milk 

today has us working for half price, or in other words, producing 

50 percent of our product for nothing. 

Regarding the matter of balancing supply with demand, producers from across the Nation are expressing interest in a plan developed by Holstein USA and the Milk Producers Council. The plan 

is known as the Dairy Price Stabilization Program. It provides for 

the establishment of a national 15-member producer board, directed by the U.S. Secretary of Agriculture. 

The Dairy Price Stabilization Program is a budget-neutral supply 

management tool, by which the supply of milk can be balanced 

with demand through the national board representative of the 

dairy industry to stabilize milk prices. 

23 

As a member of the St. Albans Dairy Cooperative, I’m very encouraged with their recent board decision to endorse the concept of 

a supply management program in this country. That’s the first in 

the Nation, and I hope others will soon follow. The matter of antitrust, being pursued by Senator Leahy and Senator Sanders, Ms. 

Varney and Dr. Glauber, is of vital importance to our industry. It 

ensures that we’ll be able to play on a level playing field in a competitive environment. If the farmer gets the balance of supply and 

demand in line but can’t operate on a level playing field, he can’t 

overcome that obstacle. That’s a job for you folks, and we thank 

you for your efforts. 

Finally, to ensure stability in the dairy industry there needs to 

be a comprehensive evaluation of Federal milk marketing orders to 

determine if they function as intended, to determine the effectiveness of their design and to determine if they’re representative of 

today’s needs. 

Senators, it is rather humbling to look at all the decent, hardworking people associated with agriculture and then have to recognize the state of our dairy industry today. Today’s world consists 

of 6.4 billion people presently; 9 billion will have arrived by the end 

of the century, and we represent the people who will feed them. 

We extend our gratitude to Senator Leahy and the Federal delegation for these hearings and thank you for providing responsible 

leadership. 

[The prepared statement of Mr. Rowell appears as a submission 

for the record.] 

Chairman LEAHY. Thank you. Thank you, Mr. Rowell. Thank you 

for taking the time to be here. You have worked on these issues 

for a long time and it’s been very helpful to the State. 

The same with Paul Doton, who’s going to speak next. Mr. Doton 

is from—has a farm—in fact, the Doton farm in Barnard, Vermont. 

Owns and operates a dairy operation and milks 60 Holsteins, along 

with his wife Sherry and his son Brian. He produces—and please 

correct me if I’m wrong on the numbers—about 1.1 million pounds 

of milk or around 128,000 gallons of fresh milk each year? 

Mr. DOTON. That’s correct. 

Chairman LEAHY. He’s a member of Agri-Mark Dairy Cooperative, board member of Yankee Farm Credit, and a member of the 

Vermont Milk Commission. As I noted earlier, the report that I received from Commissioner Allbee, or Secretary Allbee, has been 

made part of the record. Roger and Tom Berry and others from my 

office have been talking yesterday, and it’s only because of the agriculture heads who are meeting is why he’s not here. But we let him 

know that you were going to be here too. 

So, please go ahead, Mr. Doton. And nice tie. 

[Laughter.] 

Mr. DOTON. Thank you. My brother bought it in Dallas, Texas for 

me. 

[Laughter.] 

Chairman LEAHY. Does he know that those are Vermont cows on 

there, though? 

Mr. DOTON. We’re guaranteed they are: I’m wearing them in 

Vermont. 

[Laughter.] 

24 

Chairman LEAHY. You’re going to make sure you had Holsteins 

on it, huh? 

Mr. DOTON. Correct. In spite of what my sister says. She has Jerseys. 

Chairman LEAHY. I notice Mr. Wellington does, too. 

So go ahead, please. 

STATEMENT OF PAUL DOTON, DOTON FARM, WOODSTOCK, 

VERMONT 

Mr. DOTON. Good morning. Thank you to both of you for having 

this hearing in the State. As you stated, my name is Paul Doton. 

I run a small dairy operation—as compared to Mr. Rowell it’s 

small, anyway—in Barnard Vermont, where I milk 60 Holsteins 

with my wife, Sherry and our son Brian. 

I’ve been working on the farm since birth, but I did take a break 

to go to college and I worked off the farm for 5 years. I have four 

younger siblings, and they had to matriculate through the farm so 

I could come back in 1977. I guess you could say that I’ve been 

farming for almost 60 years. 

Our son Brian is 23 years old and he’s fully involved in the farm 

with us. In fact, we formed an LLC to make sure he understood 

that when he graduated from high school, he was going to be part 

of the operation. We’re using that to be able to pass the farm on 

to him before I kick the bucket and he has to pay the high estate 

tax. 

[Laughter.] 

Mr. DOTON. We own 200 acres of land and rent or use another 

200 acres of land in our local area for growing hay and corn. As 

you stated, we do produce 1.1 million pounds of milk and we market it through the Agri-Mark Dairy Cooperative. As I’ve stated before, I have been dairy farming my whole life. When I worked off 

the farm it was for a feed, seed, and fertilizer company. This is the 

worst I have seen on the farm as far as high production costs, but 

devastatingly low milk prices are concerned. 

Right now as I speak, my operation is losing in the neighborhood 

of $75 per cow per month. That’s a little lower than what some people are stating, but we use intensive grazing, so we cut back on the 

grain in the summer and hopefully we’ll make it through and we 

won’t have cows that are a little gaunt going into the fall. 

How are we making ends meet? Fortunately we have a maple 

syrup business, we sell vegetables, we do custom mowing, we plow 

snow. We haven’t figured out a way to do custom mowing or plowing snow year-round, or making maple syrup. Without this income, 

I would already be out of business. Doton Farm, much like many 

other farms, cannot hang on much longer. How long can we go on 

losing $4,500 per month? My answer is, not long at all. 

Dairy farming is a business. When I spend money economists tell 

me that it circulates several times throughout the local economy. 

They estimate that for every cow I milk, it means $13,000 in annual economic activity in the local economy each year. If that holds 

true, my farm contributes almost $800,000 to my town in taxes and 

other benefits in addition to open space and wildlife habitat. I do 

spend money locally, but only when we have money to spend. 

25 

As an example, my veterinarian service is local, as is my farm 

equipment dealer. My repair work for farm trucks and tractors is 

also performed locally if we cannot fix it ourselves. Our farm is 

starting to show the wear and tear, not only on the equipment, but 

on the three of us that are the entire workforce on our farm meaning myself, my son and my wife. In spite of what my son says, I 

do go to several meetings a month, but I am there. I milked this 

morning. If this gets done in time, I will milk tonight. 

Chairman LEAHY. At least the sun is shining. 

Mr. DOTON. Yes. 

Our vet, for example, now does not visit our farm as often since 

we cannot afford to have her every month. It’s important to have 

a regular herd check every month to check for pregnancy or lack 

thereof in our cattle. She used to come every month, but now we’ve 

stretched that to one and a half or 2 months. In talking to her I’m 

not the only one that’s doing that. So it is affecting the economy. 

We also are trying to repair all the farm equipment and milk 

equipment ourselves, even more so than in the past. Everything 

must be fixed if it is broken, as new equipment is certainly out of 

the question at this point in time. 

We are struggling to make ends meet, even though we are diversified and have more than one source of income. But when my business suffers, so does the business of many of my neighbors, like, 

as I mentioned, the veterinarians and the mechanics. Their businesses are stressed by this downturn in our economy in the milk 

prices. 

I feel strongly that the end result of this hearing is that we must 

find a way for dairy farmers to recover their cost of production plus 

profit, and that’s the only reason to have a hearing like this. Every 

other group in the marketing chain can recover their costs if import 

costs rise, except the dairy farmer. That situation is unfair and 

cannot continue. What other business in the United States is in a 

position where they cannot raise their prices to recover their costs? 

Even our non-farming friends cannot believe that we’re working 

365 days a year but cannot make ends meet. 

Am I worried about my future and Sherry’s future? I certainly 

am. But I worry even more about the future of dairy farming for 

my son Brian. He is 23. How can he survive if milk prices do not 

even cover the cost of production? How can he raise a family, send 

his children to school, invest in the farm and keep it going for the 

next generation? Because the next generation will certainly not 

milk cows and work the land if there is not a way to make a profit 

on their investments. 

I also serve on the board of Yankee Farm Credit which is part 

of the farm credit system. Earlier this week I was at a meeting in 

North Carolina, where I had a chance to talk to farmers and Farm 

Credit officers from around the country. I can tell you that dairy 

farmers all over the country are struggling and are going out of 

business at an alarming rate. That is also happening here, as you 

have heard, in this region as well. 

I am also on the Vermont Milk Commission and have heard some 

testimony from all aspects of the dairy industry, from farmers, to 

processors, to retailers. There’s no quick or easy solution for the 

26 

Commission or the State to take, but we must work together to address this problem. 

Finally, I am also director of Agri-Mark Dairy Co-Op which markets milk for farmers not only in Vermont, but throughout New 

England and Eastern New York. During the past 3 months alone, 

our co-op has just over 50 dairy farms that have gone out of business. With many of those in Vermont, I know this trend will continue if something is not done to increase the milk price. 

Thanks for this opportunity to testify, and I will be glad to answer questions later. Thank you. 

Chairman LEAHY. Thank you very much. 

[The prepared statement of Mr. Doton appears as a submission 

for the record.] 

Chairman LEAHY. Our next witness is Travis Forgues of the 

Forgues Family Farm in Alburg. I should probably say, because 

this becomes part of the full record in Washington, Alburg, 

Vermont. We all know Alburg. 

But along with his family, he owns and operates an organic dairy 

farm with 70 cows, 240 acres. It’s been in his family for over 35 

years. I might note parenthetically, his wife and children are all 

here with him and we welcome you all. 

Mr. Forgues serves as a board member of the CROP, a cooperative, Organic Valley Family Farms. It’s a national organic dairy 

farmers’ cooperative, with approximately 1,300 members in 28 

States. 

Mr. Forgues, please go ahead, sir. 

STATEMENT OF TRAVIS FORGUES, FORGUES FAMILY FARM, 

ALBURG, VERMONT 

Mr. FORGUES. Chairman Leahy, Senator Sanders members of the 

Committee, thank you for inviting me to appear before you to discuss the important issue of sustainability of the dairy industry in 

New England. 

I grew up on my parents’ conventional farm in Alburg Springs, 

Vermont, just across the road from Lake Champlain near the Canadian border. I love life on the farm with my parents, Henry and 

Sally, and two younger sisters, but I was always aware of the 

stress my parents felt trying to make ends meet. It was always a 

struggle. Believing there was no future in farming, my parents encouraged me to go to college and carve out a career away from the 

farm. 

As my wife Amy and I began to think about raising our family, 

we realized we wanted to give our children the same rich, rural 

upbringings that my parents had given me. When I approached 

dad about making a go of farming however, he agreed to let me return, but insisted I had to come up with a way to make it work. 

We bought the house next door to the farm and started co-farming 

with my folks, both having jobs off the farm to make ends meet. 

Since my dad had been downsizing our farm to keep afloat, he 

hadn’t chemically treated his fields. He’d always resisted the use 

of drugs, genetic engineering and other conventional technologies 

used to get cows to produce more milk. He had already switched 

to grass pasturing to cut the high cost of feed. By the time we 

27 

began thinking about switching to organic, which commanded a 

higher price, we realized we were already well on our way. 

In 1997, we started shipping our milk organically to a small 

Vermont-owned organic milk company. We are very proud to be 

part of the small company that was shipping organic milk to local 

markets. It was not to last however, as the owner sold the company 

to a large corporate competitor. It was then I realized how important true ownership of our future was. With that in mind, I became 

the first Organic Valley cooperative farmer in the State of Vermont 

in 1999. We started as a small group, but Vermont is now the second-largest producer pool in Organic Valley’s family of farms totaling over 120. 

Just as a side note, if you start talking about how many farmers 

we have left in the State, Organic Valley has approximately 12 percent of those farms that are certified organic. If you talk to many 

of them, the vast majority of us would not be here today without 

what we had done. 

Organic Valley represents over 1,200 farmers across the country, 

all with the same goals: long-term, stable sustainable pricing. In 

2008, I was elected to the Board of Directors of Organic Valley, 

which I serve on presently. You have asked me to comment on the 

sustainability of the Northeast dairy industry: it is not sustainable. 

The conventional system that has developed over the last 50 or so 

years has done so on the back of the farmers, and while farmers 

are strong and can endure much, they are not invincible. 

The ongoing instability of the market, with ups lasting shorter 

and downs lasting much longer, relies on dairy farmers to bear 

most of the risk of oversupply weak markets, falling exports, and 

unregulated imports. The processors are able to take advantage of 

over-supply by making larger profits with lower paid prices to 

farmers or raising the price at the shelf. 

The government, encumbered by regulatory structures and fiscal 

realities, is forced to make small, short-term efforts that do not 

change the realities year after year. Without meaningful reform, 

the instability will continue until the farmers break. That moment 

is approaching, and one has to ask if that time is now. 

As a certified organic farmer, I am fortunate to have been able 

to avoid many of the troubles of the conventional dairy industry. 

For the past 10 years, I have received a stable pay price, steadily 

increasing to the price I continue to receive today, approximately 

$27 a 100 at mailbox. I believe I’ve been able to enjoy the stability 

because of three main central principles that I participate in, both 

on my farm and through the cooperative: setting our pay price, 

supply management and marketing. 

Setting our pay price. As a farmer in a cooperative I have been 

able to set my pay price for my milk that is a fair price and sustainable for my family. We have agreed as a cooperative to set our 

price and demand that price or we will not sell our milk organically. Many other organic farmers, whether members of our cooperative or not, have seen this model and followed it. We are able to 

do this because we have the alternative market for conventional 

milk. 

If we cannot find a market for organic milk at our price, we sell 

it conventionally. We do not bid it out and hope for a high price, 

28 

it is our price or none. Many will say this does not translate to the 

conventional market because there’s no alternative market. I think 

that there is a way to set up a two-tiered pricing method for conventional farmers. 

The farmers are able to receive a set price of, for example, $15 

for 100 for a certain amount of their milk; even if it’s just 30 to 

40 percent of their milk, they will be in a much more stable position than they currently are. A set price can be either regulated by 

the government, or the farmers can contract milk for a set price if 

the processors would be willing to do that contracting. 

But the only way for this type of system to be effective for farmers is if there is support from the government and the rest of the 

dairy industry. Whether through incentives or forced through regulation, the farmers must have some assurance that for at least part 

of their milk they will receive a stable pay price they can count on 

year after year. 

Supply management. Currently, the dairy industry works outside 

the bounds of any normal supply/demand doctrine. The dairy industry, processors, and marketers do not provide any information 

to farmers about the forecast of supply needs. Farmers, as a result, 

produce as much as they can because more production helps them 

pay their bills. This leads to chronic over-supply depressing prices 

and farmers in too much debt to survive. 

Without meaningful supply management, this cycle will only continue. Voluntary programs like CWT are not enough to be meaningful. I understand that farmers who sell their herds are simply 

buying back into herds when the price comes back. This program 

also results in over-supply in the beef industry, hurting those farmers. Meaningful supply management requires the marketers to 

make good assessments about their needs and communicating 

those needs to the farmers. Farmers who continue to produce and 

expand above those needs should not receive the same price for 

their milk. 

At Organic Valley, in response to this flowing market, we have 

instituted a mandatory supply management system. It has not 

been easy, but our membership has collectively decided to reduce 

milk production by 7 percent. We are seeing our supply slow and 

our utilization increase. This helps us protect our pay price. Again, 

we are a small microcosm, but we are also a model of how farmers 

can begin to take back control of their piece of the supply/demand 

puzzle rather than just being at the mercy of the market. 

Finally, marketing. Dairy farmers today are completely separated from their market, the ultimate consumers. Over a decade of 

marketing under the ‘‘Got Milk?’’ campaign has resulted in a consumer who drinks milk because a celebrity tells them to. There is 

no connection to the farm with a farmer who helps produce the 

milk. By taking this away, there is no way to educate the consumer 

about what a sustainable price is at the shelf for milk. 

At least 30 percent of our farmers in Organic Valley participate 

in the marketing of our milk. Whether through retail stores, trade 

shows, or farm tours, our farmers are making a connection with 

the consumer. In turn, our consumers understand that the milk 

they are buying is helping to keep a farmer on the farm and maintain the rural community in the United States. 

29 

In conclusion, these difficulties in the Northeast and across the 

country can be avoided by creating the atmosphere for a cultural 

shift in the dairy industry. Short-term cures like more exports or 

expanded purchases by government programs do not address fundamental structural problems in the dairy industry. 

A traditional dairy farm was historically naturally restricted 

from growth by barn size and land base. They are run by independent-minded farmers interested in working on the land. These 

small family farms form the basis of a vibrant and healthy rural 

community and diverse food supply. 

Common sense says it’s good to have tens of thousands of family 

farms providing diversity of farm operations and production, training tomorrow’s farmers and supporting rural communities. We 

must find a way to support these individual farmers in the midst 

of a global economy. By strengthening each one of these small 

parts we strengthen and protect the whole. But support is not only 

monetary, it is recognizing that these farmers are not just cogs, but 

are critical, co-equal parts of the whole. Thank you. 

[The prepared statement of Mr. Forgues appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much. 

Our last witness before we ask questions is Robert Wellington. 

He’s the senior vice president for Economics, Communications, and 

Legislative Affairs for Agri-Mark Dairy Cooperative. He’s a longtime dairy expert in the New England region. He works closely 

with the Departments of Agriculture in all the New England 

States, as well as New York. He has also been very active, working 

with my office to help increase milk prices. He frequently testifies 

before State legislative bodies, as well as Congress. He has a Bachelor and Master’s degree in Agriculture Economics from Rutgers 

and you taught there for several years, am I right, Bob? 

Mr. WELLINGTON. Yes. 

Chairman LEAHY. Thank you. Please go ahead. 

STATEMENT OF ROBERT WELLINGTON, AGRI-MARK DAIRY 

COOPERATIVE, LAWRENCE, MASSACHUSETTS 

Mr. WELLINGTON. Thank you both for all the work you have 

done. 

I want to get right to the point here, because things are so severe. Prospects for sustainability in the Northeast dairy industry 

are falling rapidly due to the severe financial crisis faced by dairy 

farm families in the Northeast and throughout the Nation. 

If a farmer cannot cover his costs and return a fair return for the 

investment and labors of its owners, then all other aspects of sustainability become irrelevant. If farmers are not buying the inputs 

needed to run their operations and the milk is not flowing to processing and manufacturing plants, then the other non-farm parts of 

the Northeast industry also are not sustainable. 

It has been estimated that each cow grazing on a hillside generates more than $13,000 of economic activity. This means that an 

average-sized farm in the Northeast, milking about 100 cows, results in over $1.3 million of economic activity. It has also been estimated that every nine cows support one job in the dairy economy, 

from the farm inputs, to the farm itself, to the use of the milk and 

30 

other products from the farm. If that average farm family is forced 

out of business, $1.3 million of economic activity and 11 jobs go 

with it. 

This past January, a number of dairy industry representatives 

went to Washington to warn legislators of the looming crisis on the 

horizon. The Vermont delegation listened and understood, but 

other areas of the country remained in denial. When we explained 

that an industry supporting over a million jobs and far over $100 

billion in economic activity was at risk, due in part to the national 

worldwide recession, Congress and the administration still refused 

to provide any relief for the dairy farming community in either the 

stimulus package or the supplemental appropriations bill, despite 

the support for that relief from the entire Vermont delegation and 

others. 

Now the situation has hit home and dairy farmers are facing the 

worst financial situation since the Great Depression. They are receiving 1979 milk prices, but paying 2009 production costs. The result is thousands of dollars of losses per month on small farms, up 

to hundreds of thousands of dollars of losses per month or more on 

large or multi-family farms. 

I have a chart in my testimony that was put together by Dr. Stevenson of Cornell. It shows a Milk Cost Index versus the Milk Price 

Index for the past 20 years. The situation has gotten progressively 

worse and is most severe in 2009, and with no surprise it’s almost 

exactly the same as that chart up there. 

The causes of farm milk price volatility are many but a primary 

one is the misalignment of supply and demand for milk and dairy 

products. It has been shown all too often that a mere 2 or 3 percent 

misalignment can move prices tenfold, that is, 20 to 30 percent. 

This is a terrible problem when prices are moving down, but a wonderful opportunity on the up side. 

The immediate problem today is cash on the farm. Either markets need to rise dramatically immediately or else another source 

of money needs to be reached on the farm. A doubling of the MILC 

payment level, as well as increasing the cap retroactive to February 2009, would be extremely helpful for most farms in the 

Northeast. Measures to enhance market prices, like the $350 million additional price support allocation in the 2009–2010 agriculture appropriations bill, could even be more helpful if used appropriately. 

One of my major concerns is that cheese prices were below the 

support price for much of this year, as it is right now, this week, 

but no product was removed from the marketplace. This was the 

worst of both worlds. The support price created a benchmark price 

to depress market prices, but it never resulted in any surplus product being removed from the marketplace. That cheese surplus is 

sitting in private warehouses and is a major factor why cheese 

prices are far less likely to recover very much this autumn. USDA 

needs to actually buy product to balance supply and demand. 

Market prices will eventually recover as more producers leave 

and market supplies tighten, but this is a long, painful, and terrible process. Low prices have gone on much longer and gotten 

much lower than anyone had foreseen a year ago, and now it will 

take well into 2010 before acceptable price levels are reached. HowVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
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ever even once milk prices recover, it will take a long time for 

farmers to repay the debt accumulated and equity lost in just the 

past 9 months. 

The one certainty appears to be that prices will likely fall back 

to the pattern shown in that table if nothing is done. We are looking at alternative long-term pricing programs to reduce volatility 

and low net farm income. The problems are many, and include 

reaching a consensus among the strongly opinionated dairy farmers. Farmers have funded a supply management endeavor known 

as CWT, Cooperatives Working Together, for several years. It 

worked well when small surpluses developed but has yet to fully 

impact the current dairy crisis, despite conducting three herd buyouts this year. 

This is a voluntary program funded by dairy farmers producing 

about 70 percent of the milk in the country. However, nonparticipants, often called free riders, gain the same benefits without paying a 10-cent assessment. Some co-ops would like to see a mandatory government-authorized CWT. Well, that could eliminate free 

riders but would also result in other problems that must be addressed. 

Some people would use the futures markets to address the price 

volatility problem. Well, that could work. It would not necessarily 

improve farm income over time and could depress it. I have another chart from Dr. Stevenson that shows that, and in that chart 

volatility was reduced. But the average contract price received 

through the futures market was less than those that farmers received—— 

Chairman LEAHY. Incidentally, these charts will be made part of 

the record. 

[The charts appear as a submission for the record.] 

Mr. WELLINGTON. Yes. Thank you very much. 

Some people have suggested using some type of farm revenue insurance. While this might help, one must keep in mind that insurance premiums are usually affordable because the event that one 

is ensuring against is rare. If 1 out of every 1,000 houses burns 

down each year, the premium rate can be low. However, if every 

house burned down every 3 years, the premium would be huge and 

likely unaffordable. 

Milk prices have been burning down every 3 years for all dairy 

farmers. Supply control programs such as those proposed by the 

Holstein Association have merit but only if dairy farmers are 

agreeable to the restrictions set therein. Whatever plan that is 

brought to Congress must enjoy an overwhelming consensus of 

dairy farmers if it hopes to have a chance at passage, in my opinion. 

We do not have the right message to send the appropriate signals to dairy farmers when too much milk is going to severely depress the milk price. A farmer is going to do what is best for their 

operation and their family, and rightfully so. However, when milk 

prices rise, farmers often increase production to capture more revenue and, hopefully, profit. 

But then when prices fall, farmers also increase production to 

maintain cash-flow and minimize losses. Farmers’ reaction when 

prices fall is bad for market prices, but appropriate for the farm 

32 

operation. Farmers must be told when marginal, additional milk 

has less value and given an incentive not to produce it. 

I have an example in here, and for the sake of time I won’t give 

you the details of it except to say there there was 5 percent too 

much milk in this last year and it dropped prices on an average 

of $18 to less than $12 a 100-weight. If you attributed that 5 percent to the drop in income, every 100-weight of that additional milk 

impacted farmers by a negative $102 per 100-weight. That was the 

value of that additional milk. 

Finally, Federal order pricing is needed to raise Class 1 differentials and floor those prices. Volatility in cheese markets should not 

have to produce volatility in fresh drinking milk markets. 

Thank you for this opportunity to address these issues and for 

all the help you have provided dairy farmers over the years. I will 

be happy to provide further details or thoughts, as needed. 

[The prepared statement of Mr. Wellington appears as a submission for the record.] 

Chairman LEAHY. Thank you very much. 

Throughout all this testimony there’s been—at least I’ve heard in 

various ways—talking about supply management, as well as the 

obvious things of marketing as well as what we’ve raised earlier 

with Ms. Varney and others about the whole issue of consolidation 

of the marketing ability. 

Mr. Rowell, you referenced the National Holstein Association, 

Dairy Farmers Working Together, supply management proposal. 

How could such a proposal have prevented the current crisis? 

Mr. ROWELL. That proposal, Senator, has a national producer 

board advising the U.S. Secretary on how to administer the program, and that calls for an annual forecast of the market, revised 

through quarterly meetings. It establishes a producer base for each 

licensed dairy producer in the country. If we see that we’re going 

to be 4 or 5 percent over-supplied, the order would be to reduce 

your supply. 

Chairman LEAHY. Well, let me make sure I understand that. Is 

that a voluntary thing or would that be done mandatory? 

Mr. ROWELL. No, sir. That is going to take an act of Congress. 

In fact, it’s being drafted into a bill as we speak. 

Chairman LEAHY. Do you have any concern about the government having a mandatory program? 

Mr. ROWELL. Yes, I have some concern about it. But I have some 

concern, Senator, about allowing a small single-digit percentage of 

over-production to determine the price of all of the milk and suffering like this on a repetitive basis. 

Chairman LEAHY. Speaking of the percentage that Mr. Wellington just spoke about. 

Mr. ROWELL. Yes, sir. 

Chairman LEAHY. Dr. Glauber’s testimony—I’ve got the numbers 

here. He talked about cow numbers being at 9.13 million at the end 

of 2006, then increased to 9.34 million by 2008. Now, milk prices 

were historically high at that time. The increase in the cows came, 

milk prices went down. Do you see a corollary? 

Mr. ROWELL. Yes. And we need to improve the market signals to 

the farm. The farmer is encouraged with the higher pricing, so he 

increases his herd, which then decreases his price as the export 

33 

market disappears. The export market is so fickle, depending on 

somebody else’s misfortune in another part of the world. When that 

is repaired and they can produce for themselves, our export market 

leaves us. We expect the government to come up with a subsidy so 

that we still have an export market but we have to compete with, 

say for example, the European Economic Union. They’re going to 

subsidize their dairy industry by $5 billion. So what do we do, ask 

the U.S. Government for $10 billion so we can—— 

Chairman LEAHY. Do they have a quota system? 

Mr. ROWELL. Yes. In Belgium they do, and they’re dumping milk. 

Chairman LEAHY. That was going to be my next question. I was 

struck by, in the last two or three days, I saw that photograph of 

dozens of trucks going across a field, dumping milk. 

Mr. ROWELL. They have a quota system. We had a couple of gentlemen from Israel visit the farm a couple of years ago. I said, what 

is the price of a bottle of milk on the shelf in your country? The 

gentleman said well, it’s about the same as the price of a bottle of 

water, unless it’s a well-known spring, then the water sells for 

more than the milk. So the world is flooded with milk. And it’s apparent to us on the farm that if we don’t manage the supply, we’re 

going to continue to suffer. 

Chairman LEAHY. Let me ask, and I want to make sure we can 

wrap up, and some questions may be placed in the record after. 

But Mr. Doton, you talked about Farm Credit. How is Farm 

Credit helping farmers and how are the lenders affected by this crisis? 

Mr. DOTON. During the crisis last September, Farm Credit was 

one of the only lenders that had an available supply of money. 

Chairman LEAHY. But how are they being affected? Is that lending going to continue? 

Mr. DOTON. As long as the supply of money is able to be continued, that the lending agency that lends the money to Farm Credit 

is able to access those funds. 

Chairman LEAHY. Would you say that’s—— 

Mr. DOTON. It is at a higher rate than it was previously. 

Chairman LEAHY. But that’s the only source of credit, basically? 

Mr. DOTON. The only—— 

Chairman LEAHY. Is that basically the only source of credit? 

Mr. DOTON. For agriculture? 

Chairman LEAHY. Yes. 

Mr. DOTON. Farm Credit, basically? I’d like to say that, but there 

are other funds. Farm Credit is one that’s been able to maintain 

that to credit-worthy borrowers. 

Chairman LEAHY. The Vermont Milk Commission, and I mentioned you being a member of that, and Secretary Allbee running 

it, has the Commission recommended changes to Federal policy? 

Mr. DOTON. That really wasn’t part of the scope of the Vermont 

Milk Commission because the Vermont Milk Commission is to oversee Vermont milk, and only about 6 percent of it, because it’s only 

that portion that is produced—manufactured and sold in the State. 

Chairman LEAHY. Let me talk about the Holstein Association 

and Dairy Farmers Working Together’s supply management proposal. How would you feel about a mandatory supply management 

program? 

34 

Mr. DOTON. I’ve been attending several of these meetings where 

the presentations were made by the Holstein Association, and it’s 

interesting that they have been able to change their program a little to conform to what people are bringing to them. 

I also had a meeting of my region in Agri-Mark, and the opinions 

were about as varied as they could be. You can understand; we 

have got a few—— 

Chairman LEAHY. I’ve been at those kind of meetings. 

Mr. DOTON. We’ve got a few people from New Hampshire and 

they add to the spice of the meeting. But there are some people 

that say ‘‘keep the government the heck out of this’’. Be careful 

what you ask for, because you might get it, at least some. 

Senator SANDERS. And how many of those people return their 

MILC checks? 

Mr. DOTON. Only one of them would not accept his MILC check. 

Senator SANDERS. One of them? 

Mr. DOTON. One of them. The rest of them all accepted their 

MILC checks. 

Chairman LEAHY. But they want government out. 

Senator SANDERS. After denouncing the Federal Government, 

they cashed the checks, right? 

Mr. DOTON. Correct. 

Chairman LEAHY. We’ve heard some similar things in the health 

debate. 

Senator SANDERS. One of the concerns that I might have, and it’s 

been brought up to me, is with this program, how would young people get started with a supply management program? 

Chairman LEAHY. That part does concern me, if it’s not a family 

farm. 

Senator SANDERS. Not to the detriment of the program, that it 

should be done away with for that reason, but it’s a concern that 

I have. 

Chairman LEAHY. Well, let me ask, Travis, you—one, I’m glad to 

see—and I apologize for using your first name. We usually try to 

be a little more formal and we’ll correct the record. 

Mr. FORGUES. No, I don’t like formal at all, so it’s all good. 

Chairman LEAHY. But I’m also glad to see a fellow Michaelman, 

another St. Michaels graduate here. 

Mr. FORGUES. Well, thank you. 

Chairman LEAHY. Now, you’re a member of the Organic Valley 

Cooperative, I believe you said. Is that correct? 

Mr. FORGUES. That’s correct. 

Chairman LEAHY. And the other major player in the organic 

dairy market is Horizon Organic. 

Mr. FORGUES. That’s correct. 

Chairman LEAHY. That’s owned by Dean Foods. 

Mr. FORGUES. Yes. 

Chairman LEAHY. What’s the competition between Organic Valley and Horizon for organic milk? Is it a real competition? 

Mr. FORGUES. When you talk about competition especially after 

listening to the Department of Justice discussing this, there’s two 

components to that. The one question is, is the competition at the 

farmer level—so talking about the programs, like how we’re paying 

farmers compared to how our competitors are paying farmers, is 

35 

that competitive? I would say that that has been competitive, especially when we were in a shortage of milk for the last few years 

of growth. The packages were very competitive, comparable. 

People make decisions, they want to be a part of a co-op, they 

want to have independent deals. I’d say that’s been competitive. 

When I start talking about retail level, for us, we’re a farmerowned cooperative. Our money is pretty finite. I mean, we’re farmer-owned that’s it. We need to make money based on how we do 

in the marketplace. I would say my competitors have a whole lot, 

more money to work with and a lot more resources to deal with the 

retail level than I would say we do. 

Chairman LEAHY. We have talked about this before we talked 

about it when you were down in Washington. I think one of my 

proudest achievements in the Senate was when I wrote the Organic 

Foods Production Act back in 1990, so at that time this would be— 

people kind of said it’s a niche market, crunchy granola is not 

going to amount to anything. It’s now projected to be $23.6 billion, 

billion with a ‘‘b’’, in 2009. That’s up from $1 billion in 1990. 

I don’t know of any part of agriculture that’s grown as rapidly. 

But if you’re going to keep that, you also have to keep the strong 

standards. We wrote in some very, very tough standards. What 

happens if those standards are relaxed? What happens if the label 

no longer means what it means today? 

Mr. FORGUES. Well, I mean, it’s important to note that the National Organic Program, which really took all the different certifier 

agencies, put it all underneath a national standard, is really a gold 

standard of organic production through the world, a well-written 

bill. If things get lax with that bill and consumer confidence goes 

down, then the ability to command a price for what you say you’re 

doing will go away. I think one of the biggest problems, as we look 

at the NOP—or not problems. 

But one of the issues we need to deal with is, I don’t believe, like 

you are saying, organics was ever expected to grow at the rate we 

were supposed to grow. I don’t think the Federal Government put 

enough resources or gave the resources to the NOP to keep up with 

us. You have a great set of standards. Are they perfect? No. Can 

they be always improved? Absolutely. But what you need to make 

sure is that the NOP gets enough resources to keep up with a 

growing industry in the food segment. 

Chairman LEAHY. Sure. I was just going to tell you, after the 

microphone are turned off, remind me to tell you what President 

George H.W. Bush said to me when he signed that bill. 

Mr. FORGUES. I’ll remember. 

Chairman LEAHY. It’s a funny story. 

Go ahead. 

Senator SANDERS. Let me ask you this, picking up on the point 

that Senator Leahy made on organic standards. Our friends at 

Dean Food are moving fairly aggressively into the so-called organic 

market. Is that right? 

Mr. FORGUES. Horizon Organics is a strong player in the organic 

market, yes. 

Senator SANDERS. Are you concerned in terms of what it means, 

what most people consider organic to be, that in fact Dean’s ownerVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
36 

ship of Horizon may be diluting that concept or are they maintaining the standards that you think should be maintained? 

Mr. FORGUES. I think—you know, I’ve always been an organicneutral kind of person in the belief that the standards need to be 

followed no matter if you’re a 30-cow dairy or a 1,000-cow dairy. 

I think if those rules are followed to what is supposed to be done 

and the NOP has the resources and the backbone to make sure 

that those standards are followed—and I will say, I’m highly impressed and very excited to have Kathleen Marrigan involved in 

making some changes and help with the NOP and the new administrator for the NOP, just being announced. 

If that’s followed, then Dean Foods being involved in Horizon 

shouldn’t really have anything to do with the organic standards 

and how those farms are producing. I can’t talk about the justice 

part. That’s a whole nother ball of wax that I don’t understand a 

whole lot, and that’s what Department of Justice needs to look at. 

But as for following standards, a Horizon organic dairy farmer or 

an Organic Valley dairy farmer should all be following the same 

standards and bringing a quality product to the market. 

Senator SANDERS. That’s absolutely correct. My understanding is 

that that may not necessarily be the case right now. 

Mr. FORGUES. That is hopefully why we’re getting more resources 

to the NOP, so the NOP can find out if that’s true or not. 

Chairman LEAHY. Mr. Wellington, I was reading over your testimony before we came here. One of the things that struck me, and 

you mention it here today too, you said one of your major concerns 

is that cheese prices are below the support price for much of the 

year, but no product was removed from the marketplace. You 

talked about the cheese sitting in private warehouses. Why is this 

happening? We have a dairy product price support program. It’s 

supposed to be buying cheese to clear the market. Why is this happening? 

Mr. WELLINGTON. Well, I think because of the industry saw that 

they had this great bargain with the cheese price. It couldn’t go 

any lower because of the support price, and they knew that they 

were going to eat more cheese coming this fall, this winter. So they 

said why sell it to the government if I can just put it in my own 

warehouse at these cheap prices? The government created a target 

price at a very low level. They don’t have to sell to the government. 

And, in fact, because the standards are so much tougher without 

the price being higher, it’s actually a burden to sell it to the government. 

So the market price was running 5 to 8 cents below the support 

price, which is 50 to 80 cents 100-weight. I mean, it was a terrible 

situation. If the government would have bought several hundred 

million pounds of cheese that could have been used by food banks 

and others, we wouldn’t have that hanging over our head right now 

and we could have had a lot faster recovery, in my opinion. 

Chairman LEAHY. Do we need to reform Federal order pricing? 

Mr. WELLINGTON. I think we certainly need to take a look at it. 

But I’ll be honest with you, I’ve worked in the Federal order program for 11 years. It does some very good things on orderly marketing and having handlers accountable on their prices and sales. 

But can it be improved, yes. But in many cases it ’s also a messageVerDate Nov 24 2008 10:05 Mar 09, 2010 Jkt 054772 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54772.TXT SJUD1 PsN: CMORC
37 

bearer. It takes other prices and uses them through formulas. But 

it does decide those formulas, and particularly on Class 1 pricing, 

there’s no reason why you should have an exact carry-through of 

lower cheese prices, resulting in lower fresh milk prices. 

Chairman LEAHY. You know, when I became Chairman of the 

Senate Agriculture Committee I was sitting in a room for a day, 

having the whole Federal order pricing explained to me. I was then 

committed to an asylum for several months to recover. 

[Laughter.] 

Chairman LEAHY. And this is probably going to show up on a 

You Tube somewhere that I actually said that. It is a joke. But we 

had some of the best economists, and it’s a very, very difficult 

thing. As you know incidentally, what’s been the impact of the 

Dean-Suisse merger in 2001 on Agri-Mark’s business model? 

Mr. WELLINGTON. It hasn’t affected us to a great degree because 

we were never a major supplier to the plants that merged into 

Dean Foods. Our major suppliers that we supplied milk to was the 

H.B. Hood Company and Geides Dairy down in Connecticut. So it 

didn’t affect us. We actually had to step in and work with the Justice Department to make sure it wouldn’t affect us. In fact we work 

with the Massachusetts Department of Agriculture to try to stop 

some of the mergers when they were Suisse Foods. So we were able 

to then intercede, keep our independence, keep our supply. So we’re 

not a major supplier for Dean Foods, and that’s probably a good 

thing for us. 

Chairman LEAHY. I asked that because I know you talked with 

some of our folks at the time. 

Mr. WELLINGTON. Yes. 

Chairman LEAHY. And I appreciate that. 

Senator Sanders. 

Senator SANDERS. Thank you, Senator Leahy. 

Let me just begin by saying this. As all of you know, everybody 

in this room pays taxes. We put money into the Defense Department, we put money into transportation to build roads, we put 

money into education to make sure our kids get a quality education. And I know that there are a lot of people out there who 

think that that’s a terrible idea. The Federal Government should 

kind of back off in every respect, including agriculture. 

But I don’t think there’s anybody in this room who should be 

ashamed for 1 second that some of us at the Federal level are trying to make sure that the people of this country get good, quality 

food, and that in terms of food security, that we are working hard 

to try to maintain family-based agriculture in America. I don’t 

think there’s anything to be ashamed about that. 

Let me start off by asking, what I’d like to do is just throw out 

a question. Also, I want to congratulate Senator Leahy for putting 

together a great panel. The first panel was terrific, but I think in 

these four folks here we see a good cross-section of Vermont agriculture from smaller farms, to a larger farm, to an organic farmer, 

to one of the best agricultural economists in the country. So Senator, thank you for this very good hearing. 

My first question deals with a question on which there is controversy, and that is the whole issue of supply management. What 

I want to do, before I even ask the panelists, I’d like to ask the 

38 

members, I know we have a number of farmers here. How many 

people, farmers here, dairy farmers here, believe that this country 

has got to move to supply management? Please raise your hand. 

[A showing of hands]. 

Senator SANDERS. How many do not? 

[No response]. 

Senator SANDERS. Now, that’s interesting, Senator Leahy. For 

the record—— 

Chairman LEAHY. Yes. Let’s—I was going to say it, but go ahead. 

Senator SANDERS. Let the record note that, here in St. Albans, 

Vermont, no farmer raised his or her hand in opposition to supply 

management. 

Now, in terms of the testimony that we’ve heard here we’ve also 

heard that. Travis, you’ve indicated to us that you already do supply management with Organic Valley. Bill, you have been an active 

proponent of that. So why don’t we just throw it out and briefly, 

Bill, tell me what you’re hearing around the country as farmers are 

losing their farms, as prices have plummeted. 

Is there a growing understanding that not every farmer in America can continue to produce as much milk as he or she wants to 

without paying a consequence for that? And maybe if you want to, 

as an aside, say a word about what’s going on 50 miles north of 

here in another country which does have quotas and so forth. 

Mr. ROWELL. Yes, sir. It has become apparent across the Nation 

that if we don’t control our supply that many of us won’t remain 

as our equity runs out. 

Chairman LEAHY. If you don’t. 

Mr. ROWELL. If we don’t control the supply. 

Senator SANDERS. Paul, what do you think? 

Mr. DOTON. It is absolutely necessary to have a program so people understand that the supply is getting too large and demand is 

not meeting that, and in some way to tell farmers, you need to cut 

back, either by getting a lower price or some sort of a program. The 

whole concept is there. 

Senator SANDERS. Travis, now, you guys at Organic Valley have 

understood this for many years. 

Mr. FORGUES. Well, we tried to manage—I think in October we 

ran into the whole national economic global meltdown. The problem with organics is, we sign year contracts ahead before farmers 

actually get on the truck because we want to give them security 

when they’re transitioning. So we had to deal with the fact that we 

had milk that we had already contracted on, and what were we 

going to do with it? 

Because we’re not 5 percent over-supplied, we were more like 10. 

So we had to make a decision, were we going to get rid of farmers, 

were we going to slash pay prices, are we going to go to this or are 

we going to try something that nobody wants to deal with, $1,050 

farmers in our co-op that are dairymen, you could get 1,050 different ideas. The reality is, we did it in July. We came up with a 

plan. Is it perfect? No. Are we talking? We will be. 

Senator SANDERS. But it’s working fairly well. 

Mr. FORGUES. It has worked. 

Senator SANDERS. You have $27 100-weight. ain’t bad, right? 

39 

Mr. FORGUES. No. And if we hadn’t done that, I can tell you that 

this independent co-op would have lost millions of dollars in the 

month of July. 

Senator SANDERS. Bob, from your perspective as an economist, 

what are you hearing? 

Mr. WELLINGTON. Well, you’ve got to keep something in mind. 

This is not a case of having no supply control or supply control. We 

have supply control right now, okay, and it’s harsh and it’s cruel 

and it’s all related to low prices. So we have a system in place, so 

we’ve got to be asking—— 

Senator SANDERS. You mean, as we’ve driving farmers off the 

land. 

Mr. WELLINGTON. Right. But I’m just saying, we have to be 

asked, which system do you prefer. 

Senator SANDERS. Right. 

Dr. GLAUBER. Not necessarily saying, do you like supply control 

or not, but which system is better for your family and your operation. 

Senator SANDERS. All right. Let me ask all of you to respond to 

this. Dean Foods saw, in the first quarter of 2009, a 147 percent 

increase in their profits from the preceding year. All of you are 

struggling to keep your heads above water, or at least in the State 

of Vermont. 

Bill, what do you think about a processor whose profits are soaring while farmers that you know are going out of business? What 

does that tell you? 

Mr. ROWELL. It seems rather unfair not to be able to play on a 

level playing field, and it needs to be looked into and straightened 

out. If we are able to manage or balance the supply of milk with 

demand and we don’t have a level field to operate on, we still have 

an insurmountable obstacle, and that has to be taken care of. 

Senator SANDERS. Paul? 

Mr. DOTON. I don’t like to put it the wrong way, but 3 years ago 

when we were getting $24, the same situation was in place. Dean 

was controlling the marketing. So the Federal milk marketing 

order is the one that sets the rice. What little dealing that you 

have to do with Dean Foods is on the premium or the service fee, 

that the co-ops can get above and beyond the minimum price that 

the milk marketing order allowed. And you’re talking about, in the 

neighborhood of $2 at the most. 

Senator SANDERS. Do you have concern, Paul, about the alleged 

concentration of ownership, of one company owning perhaps 70 percent of New England? 

Mr. DOTON. Yes, I do. 

Senator SANDERS. And tell me, why is that? 

Mr. DOTON. Well, for situations—— 

Senator SANDERS. I know the answer, but I want it in your 

words. 

Mr. DOTON. For situations like what are going on right now. As 

Mr. Wellington stated, it has not directly affected Agri-Mark at this 

point, but the overall system and the condition, and the dairy industry is affected by that program. 

40 

Senator SANDERS. Travis, I’m going to skip you on that one because you’re not selling to Dean. But Bob what do you think about 

that? 

Mr. WELLINGTON. Well, I mean, as an economist, there’s nothing 

wrong with profit. The problem is the distribution of that profit 

and where it ends up. I think you have to look at the fact, if one 

player has more power than the other, that’s going to end up with 

that profit going in that direction. So in some cases you’re going 

to have to try to justify that. It might be the government action. 

Senator SANDERS. All right. Let me go back to Bill again. Bill, 

can you explain to us the way that voting works within a cooperative and the term ‘‘bloc voting’’ and do you think bloc voting gives 

you and the average farmer enough opportunity to have input into 

the cooperative? 

Mr. ROWELL. I would liken bloc voting to something along the 

lines of the legislative process, Senator. If you have a deal that you 

want to move along and your colleague is asked to participate in 

that deal to move it along, then it will happen. But your colleague 

is going to be expecting a favor from you later on his deal. So you 

are constrained by your deal-making process. The legislative process isn’t perfect. Bloc voting has probably been able to achieve 

more of a majority on the CWT issue than if it had been individual 

voting. 

Senator SANDERS. Okay. 

Paul, any thoughts? 

Mr. DOTON. I think it’s important to understand that participation on an individual member basis for a vote like might be required or suggested, to have a bloc vote, would be very slim. Studies show that a 10 to 15 percent range is all the return you get 

when you send out an individual balloting, whereas if you put bloc 

vote, send a notice to each member saying if you disagree with the 

bloc voting done by the co-op, send in and that voice will be heard 

and that will be a negative vote cast by that person. 

Senator SANDERS. The thrust of what I’m trying to get into is, 

are farmers themselves—are their voices being heard within the coops. That’s kind of what I’m—and Travis and Bob, if you—— 

Mr. DOTON. Then let me continue a little bit. 

Senator SANDERS. Sure. 

Mr. DOTON. As Executive Director, I have information meetings 

within my co-op of my region. And let me tell you, there is input 

from those individuals. I have telephone calls. It doesn’t matter 

whether the profit is coming in to the co-op or if the prices are low, 

the prices are high. I had one of the largest turnouts with Mr. Wellington coming to my information meeting last 2 weeks ago. Obviously the prices are low. They were not angered. It was, I think, 

disbelief, your worst nightmares are coming true. But we do have 

people that give input to my co-op. 

Senator SANDERS. Travis, thoughts? 

Mr. FORGUES. I’m sorry. The bloc voting thing is something that 

I have not—we don’t pay a lot of attention to. We’re a one farmer, 

one vote kind of co-op. We have seven directors that are voted on 

by the—— 

Senator SANDERS. And are you satisfied with the nature of the 

democracy within the Organic Valley co-op? 

41 

Mr. FORGUES. Yes. 

Senator SANDERS. Okay. Good. 

Bob. 

Mr. WELLINGTON. I think in many ways it’s very similar. If you 

had a bill, I think it was mentioned, and you wanted support, but 

you had to pull all your constituents before you could vote, it would 

just, like, slow down that process so much. So you have to have 

people who represent you. They should be elected or, for example, 

are elected every 3 years. They should be accountable on it. 

In the Dairy Compact, we actually had a provision that said you 

can bloc both, but you have to inform your members and you had 

to give them the opportunity to vote differently. Not very many did, 

but you also had to inform them and educate them. So there are 

ways to make it work, but I think it is an important concept for 

cooperatives. 

Senator SANDERS. All right. My last question, Mr. Chairman, is 

the following. We had Christine Varney, who is sitting right here, 

with the Attorney General’s Antitrust Division. She’s here, she’s 

listening. Let’s go right down the line. What recommendations do 

you have for her? What would you like the Department to do? Bill? 

Mr. ROWELL. I saw some information yesterday, passed to me by 

our friend Bob Foster, regarding a newsletter on an antitrust hearing, I believe, in Greenville, Tennessee on Dean Foods, DFA, National Dairy Holdings. This may not be very timely for them to be 

involved in that sort of a situation when you have the Assistant Attorney General looking at them to see if they should pursue antitrust against them today. I’d like to see it pursued, you know. 

If, in fact, everything is fine and that’s the American way, fine, 

then they’re entitled to their profit. But don’t keep skinning it off 

the back of the farmer to the point where you cause a large extinction of farmers and jeopardize the food supply so that somebody 

can walk away with all the goodies. It doesn’t work for me. I’d like 

to see her pursue that wholeheartedly. The way she spoke, I have 

a pretty good feeling that she’s going to. 

Senator SANDERS. Thank you. 

Paul. 

Mr. DOTON. After that, what can you say? I agree totally with 

what Bill just said, and just hope she pursues it and brings it to 

a conclusion. 

Senator SANDERS. Travis. 

Mr. FORGUES. I would just want to remind everyone that, regardless if farmers in this country are organic or conventional, we are 

all connected at the hip. If Dean Foods is doing whatever they’re 

doing to conventional dairy and there’s something that needs to be 

fixed, it does nothing but enhance all of us and I would hope that 

things are being looked into, and I hope that Ms. Varney is taking 

care of what needs to be taken care of. 

Senator SANDERS. Bob. 

Mr. WELLINGTON. I would hope that the Department could look 

at the entire picture. There’s a lot of things in the dairy industry 

that we do that looks pretty convoluted at first until you get to the 

bottom of how it developed and why we do it. So, get a truthful picture of exactly what’s happening and then react to that. The light 

is good for all of us, in my opinion. 

42 

Senator SANDERS. Good. Thank you. Thank you very much. 

Chairman LEAHY. Well, thank you. I thank everybody for being 

here. This is actually a more lengthy hearing than we probably 

would have had in Washington, but I think more worthwhile. 

Ms. Varney, I thank you for coming up here. I know how extraordinarily busy your Department is. You took the time, and Dr. Glauber, the same. I also thank the witnesses, the other witnesses who 

came here. We will stand in recess, subject to the call of the Chair. 

I thank you all very much. 

We are in conclusion. 

[Whereupon, at 12:42 p.m. the hearing was adjourned.] 

[Questions and answers and submissions for the record follow.] 

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