LegiStorm

Summary:

Fluid milk is a unique agricultural commodity. It is highly perishable, produced on a daily basis, and challenging to store on the farm. As a result, milk must be frequently transported off the farm (e.g., every day or every other day) regardless of market conditions for milk and milk products. Partly as a result of the unique characteristics of dairy production, individual dairy producers have less market power than individual producers in other industries to negotiate the price they receive for their commodity. A dairy cooperative offers dairy producers the opportunity to collectively coordinate and negotiate prices. In general, U.S. dairy cooperatives are owned, operated, and controlled by the dairy producer members. Dairy producer members invest in and share in the profits earned by the cooperative. Dairy cooperatives have existed since the early 1800s. Since the 1920s, the number of U.S. dairy cooperatives has declined, and as of 2022, there were 89. At the same time, the value of milk and milk products sold through U.S. dairy cooperatives, when adjusted for inflation, has increased from about $3 billion in the 1910s to over $63 billion in 2022. In addition, dairy cooperatives account for 87% of the market share for U.S. milk and milk products. According to the U.S. Department of Agriculture (USDA), early antitrust laws made the legal authority ambiguous for agricultural producers to organize under a cooperative and slowed the development of dairy cooperatives. The Sherman Antitrust Act of 1890 (15 U.S.C. §§1-7) prohibited “every contract, combination, or conspiracy in restraint of trade” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize” for commerce that crossed state lines. In 1914, Congress passed the Clayton Act (15 U.S.C. §§12-27), which prohibited specified practices along with mergers and acquisitions whose effect “may be substantially to lessen competition, or to tend to create a monopoly.” The Clayton Act also included a provision clarifying that the antitrust laws do not prohibit the existence and operation of agricultural cooperatives. However, the Clayton Act did not indicate the types of activities in which cooperatives could lawfully engage. In 1922, Congress passed the Capper-Volstead Act, which authorized certain industries, including agriculture, to collectively organize under a cooperative. Congress also passed the Cooperative Marketing Associations Act of 1926 and the Agricultural Marketing Agreement Act of 1937, both of which expanded the provision set in the CapperVolstead Act. Although Congress passed legislation exempting agricultural cooperatives from certain antitrust laws, those cooperatives—including dairy cooperatives—are not exempt from all antitrust lawsuits. Dairy cooperatives may differ in their activities, organizational governance, and methods of raising capital, depending on the interests of their members. For example, a small dairy cooperative serving a local area (e.g., one or two counties) may have different interests than a dairy cooperative serving an entire state or multiple states. Examples of activities a dairy cooperative may perform include arranging for the sale of fluid milk, negotiating the price of fluid milk, and collecting payment from milk buyers. All dairy cooperatives are required by statute (7 U.S.C. §291) to operate for the mutual benefit of their members, and the majority of the milk marketed by a dairy cooperative must be from members. Federal Milk Marketing Order (FMMO) laws and regulations require USDA to establish a minimum milk price for each geographically designated region participating in the system. The FMMOs are designed to ensure that milk producers receive fair treatment in the marketplace while consumers receive a consistent and adequate supply of dairy products. Under the FMMO system, milk buyers (also known as milk handlers) are required to pay dairy producers no less than the minimum price and adhere to other specified rules. Dairy cooperatives with members in multiple regions, or with members not delivering milk under the FMMO system, are authorized to pay all members a reblend price. This price is the average income from fluid milk sales across the regions in which the cooperative operates and may be lower than the minimum FMMO price. Issues of potential interest to Congress include how dairy cooperatives vote on FMMO referendums; whether the Government Accountability Office’s findings on the effects of consolidation of dairy cooperatives warrant maintaining or amending laws governing agricultural marketing cooperatives, including dairy cooperatives; and whether to use dairy cooperatives as a mechanism for distributing supplemental disaster assistance funds.