CWT

The $220 million settlement reached between the National Milk Producers Federation and a group of butter and cheese buyers is a head-scratcher. The lawsuit claimed the NMPF and participants in its Cooperatives Working Together program violated the Sherman Antitrust Act.

The NMPF denies this, and points to the Capper-Volstead Act, which allows cooperatives to support prices for commodities in some circumstances.

At the center of the dispute is the CWT’s defunct herd retirement effort. Funded by producers, it paid dairy farmers to retire their entire herds, reducing the supply of milk and, presumably, increasing its price. Between 2003 and 2010, 500,000 cows were sent to slaughter, taking 9.7 billion pounds of milk off the market, according to the lawsuit.

The CWT program could best be described as an act of desperation on the part of many in the dairy industry. If the plaintiffs — and others who purchased milk during that time — had been paying a price at or above the cost of production, there would have been no need to try to increase prices.

Another thought: If CWT had such a big impact on companies that bought cheese and butter, why did the price of milk sink between 2003 and 2009, when it bottomed out at between $11 and $12 a hundredweight? That’s according to a chart in the plaintiffs’ lawsuit.

As a comparison, the USDA in 2017 estimated that the cost of milk production for a farm with up to 50 cows was $20.22 per hundredweight. For herds larger than 500 cows, it was $16.70.

That makes us wonder who was most damaged between 2003 and 2010, when the CWT program’s farmer-funded herd retirement effort was active.

For example, according to an analysis quoted in the lawsuit, CWT helped raise farm-level milk prices by 75 cents a hundredweight in 2007. In 2009, an analysis found milk prices had increased $1.54 per hundredweight, but they were still below $16 a hundredweight, the average cost of production.

So these buyers were getting milk for less than it cost to produce. Years later, they have sued and are getting hundreds of millions of dollars from the farmers who were losing money in the first place.

The folks at NMPF had a difficult choice to make. They had to consider the track record of cooperatives and other groups that have tried to influence the supply of another commodity, potatoes. That ran afoul of the Sherman Antitrust Act and they ended up settling for $25 million.

NMPF had to weigh going to court over the price allegations. The group’s own analyses found that CWT raised milk prices. Beyond that, the plaintiffs were seeking $1.3 billion in damages, which a judge could potentially triple. The would put them on the hook for nearly $4 billion if they lost.

Considering that potential outcome, NMPF decided to reduce its exposure and settle the case for $220 million — a difficult decision at best.

It all goes to show you: Life isn’t fair, and neither are the Sherman Antitrust Act and the Capper-Volstead Act.

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