Lawsuit Against “Cooperatives Working Together”

October 20, 2011

Antitrust actions against agricultural cooperatives are pretty rare, and mainstream news coverage of such suits is rarer still. This kind of thing is usually just for the ag geeks. Late yesterday, though, the consumer advocacy website The Consumerist posted about a price-fixing lawsuit against Cooperatives Working Together, a national dairy industry trade group. The blurb has so far received 100 comments. There is a good reason for the mainstream coverage –  if you drank milk in the last few years, CWT made you pay more for it than you had to.

CWT instituted a policy for its members called the “Herd Retirement Program”. The initiative compensated dairies to retire old, diseased or otherwise unproductive cows out of production (and by “retire” they mean “eat”). Dairies were compensated for the retired cows and the lower production with cooperative funds, which ultimately derived from membership dues and capital investments from members. The initiative was labeled as a humanitarian measure because it removed the sick, weak and elderly cows from production, but what it really did was limit supply and drive up dairy prices.

CWT is organized as an agricultural cooperative, which would entitle it to some very important legal advantages any other business or industry would kill for. The ideally structured agricultural cooperative is exempt from federal anti-trust laws under the Capper-Volstead Act (7 U.S.C. § 291).  Once organized properly, producers of agricultural goods can do things like coordinate prices and marketing strategies with each other and it’s all perfectly legal. The Federal Trade Commission has no jurisdiction to even investigate the trade practices of agricultural cooperatives. (15 U.S.C.S. § 57b-5).

This special exception should have allowed CWT to carry out its stated purpose of stabilizing national milk prices by coordinating marketing and production strategies between its members. In order to qualify for Capper-Volstead, however, the cooperative must be comprised solely of agricultural producers. As it turns out, CWT’s org chart completely disqualified it to take advantage of this very powerful advantage.

The civil complaint zeroes in on the key defect in CWT’s plan to cooperatively take over the bovine universe:

Moreover, the limited protections of Capper-Volstead are not even available unless the organization engaging in the coordinated efforts is exclusively made up of producers. Members of CWT, however, include non-producers, such as United Ag Services Cooperative, Inc. and National Farmers Organization, whose membership is open to non-producers. Accordingly, CWT does not qualify as a Capper-Volstead entity.

This will be the linchpin of the civil case against CWT. In order to qualify for the anti-trust provisions of Capper-Volstead, a cooperative  must be comprised solely of producers. There is solid case law behind this principle. (See National Broiler Marketing Ass’n v. U.S., 436 U.S. 816, 824 (1978). See also Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384, 395-96 (1967)).

See? You do need a lawyer to make milk.

Categorized: Cooperative