DOJ finally eyes dairy antitrust

     Attorney General Eric Holder and Agriculture Secretary Tom Vilsack announced that the Department of Justice and the U.S. Department of Agriculture (USDA) will hold joint public workshops to explore competition issues affecting the agriculture industry, and the appropriate role for antitrust and regulatory enforcement in that industry.
     The workshops will address the dynamics of competition in agriculture markets including, among other issues, buyer power (also known as monopsony) and vertical integration.
     "The Antitrust Division is aware that there is unprecedented economic upheaval in the dairy industry, and that dairy farmers have been going out of business at a record rate," said Christine A. Varney, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. She spoke at a Senate Judiciary Committee hearing Sept. 19 in St. Albans, Vt. "We are very concerned about these developments," Varney emphasized.
     Varney noted 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 supracompetitive prices.
     Monopsony is the other side of the coin. When there are a number of producers in an input market and a dominant buyer or buyers 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 competitive, i.e., if the sellers had more choices of where and to whom to sell their products.
     "In analyzing developments in dairy markets, we are cognizant of the fact that competition is frequently local or regional in nature," Varney said.
     So, national statistics can be misleading. 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 has increased.
     "We are also aware that agriculture markets, including dairy, have become more vertically integrated over the last 15 to 20 years," Varney said. Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk.
     The DOJ Attorney General said, 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." Varney made the point that a careful review of the arrangements is merited, and is one of the areas their review will focus on.