Press Release Coronavirus Economic Crisis and Recovery

Consolidation Created Dairy Industry Unable to Adjust to Pandemic Stress


August 20, 2020

Contact: Karen Conner, 202-281-4159Mail_Outline

Washington DC — Early in the pandemic shutdown, news clips showed rows of empty shelves in supermarket dairy aisles juxtaposed by fields streaked with rivers of white, as farmers dumped gallons of milk they could not sell. The real story behind those starkly contrasting images is explained in detail in a new study published today by The Institute for New Economic Thinking (INET).
 
Spilt Milk: COVID-19 and the Dangers of Dairy Industry Consolidation, by CEPR’s Co-Director Eileen Appelbaum and Researcher Jared Gaby-Biegle, is a cautionary examination of nearly 40 years of consolidation and specialization in milk and dairy foods processing that left the industry dominated by a handful of large dairy processors, inflexible, and unable to adjust to challenging circumstances. The pandemic was the dairy industry’s perfect storm.
 
“The ultimate solution is to break up the largest dairy cooperatives that no longer serve the interests of the member owners and break up the monopolized investor-owned corporations that process dairy products,” said co-author Appelbaum. “But states have shown that we don’t have to wait for breaking up these behemoths to begin to limit the domination of the industry and increase its resilience.”
 
Advances in technology made large-scale dairies more productive and able to produce milk cheaper than small farms and large-scale dairy product processing feasible. But in 1982, antitrust rules aimed at protecting against market domination by a few firms was redirected to protect so-called consumer welfare, narrowly interpreted as lower consumer prices.
 
Soon buying sprees lead to mergers among dairy cooperatives and powerful corporations. Specialization and rigid supply chains that could not adapt to changed circumstances were one result. Low prices paid to dairy farmers for raw milk was another. Efforts by farmers to increase the scale of operations to achieve greater productivity and greater volumes of milk led to an oversupply. Even before the pandemic, this oversupply resulted in a 40 percent drop in price of raw milk between 2014 and 2019, driving thousands of smaller farms into bankruptcy.
 
Enter the pandemic. High volume buyers like restaurants and schools shut down. The dairy industry’s highly specialized processing plants and inflexible supply chains choked under pressure. Some farmers had no choice but to dump milk.
 
The industry received a $16 billion bail-out from the pandemic emergency CARES Act. Although milk dumping has slowed considerably since May, distribution of CARES Act funds favored large dairy farms.

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