The Justice Department filed an antitrust lawsuit against the nation's largest dairy company Friday, alleging that Dean Foods Co. purchased a smaller dairy company in Wisconsin to quash competition and drive up milk prices.
The lawsuit — filed in concert with attorneys general from Illinois, Michigan, and Wisconsin — seeks to undo Dean Foods' 2009 purchase of Foremost Farms USA's Consumer Products Division and to require Dean to give 30 days notice before all future acquisitions of milk processing operations.
The suit signals a shift of antitrust policy in Washington, where regulators have promised to take more aggressive action in an agricultural sector dominated by big firms that have consolidated market share over the last two decades.
"This is highly unusual," said dairy analyst Pete Hardin, who publishes The Milkweed industry newsletter. "This is the first bark we've heard from (the justice department's) antitrust division on food issues in a very long time. I think there are a lot of rabbits in the field where they're hunting."
Dallas-based Dean Foods released a statement saying it was "disappointed" the department took action on a deal closed 10 months ago.
"The complaint challenging the Foremost transaction is unsound, both legally and economically," the statement said. "We're confident an objective review of the facts rather than conjectures will reveal competition is alive and flourishing in Wisconsin."
Dean Foods has acquired more than 100 smaller companies since 1996, according to the lawsuit. It's April 2009 purchase of Foremost was small enough that the company did not have to seek prior approval from the department.
The deal gave Dean two dairy processing plants in Wisconsin, and left many school districts with only one milk supplier, according to the lawsuit. Dean gained 57 percent market share in parts of Michigan, Illinois and Wisconsin through the deal.
The lawsuit portrays the acquisition as a strategic move to eliminate a strong competitor.
Starting in 2006, Foremost began to lose customers and slashed its prices to win back business from Dean Foods, according to the suit. In a 2008 speech to executives, Dean Foods Chief Executive Gregg Engles said the company was facing "irrational local competitors," who were cutting prices to boost market share, the suit says.
In notes prepared for a 2008 presentation to the board of directors, Dean's acquisition chief Ed Fugger said that buying up companies in markets with problematic local processors would help the company boost profit margins, according to the suit.
The company's acquisition plan for that year listed Foremost as a target, calling it as an "irrational competitor."
Dean's purchase was completed April 1, according to the suit. On April 20, the Department of Justice installed Christine Varney as attorney general over the antitrust division. She has since identified agricultural firms as a focus of antitrust enforcement, and the department is holding a series of public workshops this spring and summer to examine competition issues in the meat, dairy and grain sectors.
Varney was not available for comment Friday, but said in a statement that the "purpose of the department's lawsuit is to restore competition so that schools, grocery stores and other retailers in Illinois, Michigan and Wisconsin, will pay lower prices for their milk."
Foremost Farms said in a statement the company wouldn't comment because only Dean Foods is named in the lawsuit. The statement said Foremost will continue to supply Dean with milk under their agreement.
Chairman of the Senate Judiciary Committee, Sen. Patrick Leahy, D-Vt., praised the action. Dairy farmers in Vermont and elsewhere have complained for months that they have been hurt by low milk prices, even as big processors like Dean Foods keep milk prices high at the retail level and reap profits.
"The Department is following through with its pledge to examine market consolidation in the dairy industry," Leahy said in a statement. "It is appropriate for the Department to examine this acquisition closely, particularly at a time when dairy farmers are hurting, and dairy companies are not passing on savings to consumers."
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