Milk co-ops slaughtered 500,000 cows via a “retirement” program. Now they’ll pay $220 million in a price-fixing lawsuit.

Retirement has never been so expensive.

America’s biggest dairy cooperatives agreed on Wednesday to pay $220 million to settle a yearslong, class action price-fixing dispute with retailers. Filed in 2013, the case alleged that the co-ops, which supply up to 70 percent of milk in the U.S., conspired to raise prices by paying farmers to prematurely slaughter cows and thereby restrict supply. The settlement does not include any admission of wrongdoing.

In 2003, an industry trade group called the National Milk Producers Federation (NMPF) launched a herd retirement program that encouraged producers to shift their cows from dairy to beef production. It requested that farmers submit bids—dollar values for which they would be willing to slaughter their herds—and then accordingly paid accepted bidders to do so. Throughout the duration of the program, which ran from 2003 to 2010, more than 500,000 cows and 2,802 dairy farms were pulled from production, equivalent to a loss of 9.67 billion pounds of raw milk supply, according to a screenshot of the program’s website included in the retailer complaint.

“There is no way to sugarcoat a settlement of this size.”
For the past two decades, the dairy industry has faced significant turmoil due to issues including declining milk consumption, consolidation, and volatile milk prices that have been known to dip below the cost of production. NMPF instituted the herd retirement program explicitly to stabilize those finicky milk prices—an effort to curb industry-wide overproduction that “help[ed] to keep supply and demand in better alignment,” according to a 2016 NMPF document. Prices did, in fact, rise as a result of the herd retirement program, according to a handful of studies. The extent to which the program buoyed the entire industry, however, is questionable: To this day, milk prices remain an ongoing concern for many producers.

In a press release, NMPF characterized the settlement as the lesser of two evils: Its member cooperatives could be staring down years of litigation and billions of dollars in alleged damages if the lawsuit went to trial.

“There is no way to sugarcoat a settlement of this size, especially given that the herd retirement program was a well-publicized effort designed to serve dairy producers in difficult times,” said Jim Mulhern, president and CEO of NMPF in the release. “Given the potential damages and the uncertainties surrounding any jury trial, resolving this case eliminates the possibility of a truly crippling outcome.

The plaintiffs’ choice to come to a settlement was informed by a similar concern—that going to trial might be so economically perilous for stakeholders that it would ultimately backfire.

Whether the herd retirement program ultimately violated antitrust laws is unclear because there’s little legal precedent on the matter.
“The dairy industry is in financial difficulty,” says Don Barrett, lead attorney for the plaintiffs, citing the recent bankruptcy filing by Dean Foods, one of the country’s largest milk processors. “It was clear that there was a risk that the whole industry would [face] bankruptcy and then the case would be worth nothing. So, that weighed on our decision.”

Today’s case pertains specifically to business purchasers of milk, including Piggly Wiggly, a Southern supermarket chain, and Yarnell’s, an ice cream manufacturer. In 2016, the federation paid $52 million to settle a separate class action lawsuit on similar grounds filed by consumers.

Whether the herd retirement program ultimately violated antitrust laws is unclear because there’s little legal precedent on the matter, according to Yuliya Bolotova, an assistant professor of agribusiness at Clemson University who has conducted extensive research on milk pricing. NMPF previously argued that the program was protected by the Capper-Volstead Act, which gives cooperatives leeway to fix prices among its members. However, Bolotova points out, in a separate 2011 case, a U.S. district court issued a non-binding advisory opinion that Capper-Volstead pertains only to marketing decisions (such as milk pricing) rather than production ones (like how many dairies and dairy cows ought to be in business).

Some of the settlement details still have to be ironed out. For NMFS’s part, Mulhern said in the release, the association is looking forward to putting the ordeal in the past.

Update, Dec. 5, 2019 4:30 p.m.: A previous version of this story misstated that Dean Foods is the parent company of Land O’Lakes. They have a licensing partnership only.

Jessica Fu is a staff writer for The Counter.