Giant Factory Farms Exploiting Federal Regulatory Loopholes

CINCINNATI, OHIO: Organic farmers from around the country, and cooperatives and advocacy groups that represent them, converged on southern Ohio over the past two weeks to plead with federal regulators to close loopholes being exploited by a handful of giant factory farms. They argued that these mega-dairies were creating turmoil in the marketing of organic milk and forcing some family farmers out of business.

The multiweek USDA administrative law hearing, populated by many more lawyers than farmers, representing the interests of powerful dairy marketers on both sides of the argument, is taking testimony in order to decide the future of the “producer-handler exemption.”

When the nation’s farm regulators, over 70 years ago, devised a system to fairly share the extra profits from bottled fluid milk, which is more profitable than cheese and other dairy manufacturing, they allowed for an opt-out for farmers who produced their own milk and bottled it on the farm. These direct-marketers were generally small family-owned operations delivering milk to their local communities.

Flash forward to this century, and a number of giant producer-handlers, alleged to be “gaming the system,” are milking thousands of cows on industrial-scale dairies – certainly a far cry from the system that was established to benefit family farmers selling to local markets.

The concerns of the organic community’s approximate 1800 family farmers have focused on Aurora Dairy Corporation, a $100 million vertically integrated producer that operates five dairies in Texas and Colorado, milking between 10,000 and 20,000 cows.

“Corporations such as Aurora Organic Dairy, which are currently claiming the exemption for producer-handlers, have caused catastrophic marketplace disruption in the organic dairy industry, in part as a result of this outdated regulation,” said Mark A. Kastel, senior Farm Policy Analyst for the Wisconsin-based Cornucopia Institute. The exemption saves Aurora millions of dollars that would otherwise be equitably shared with dairy farmers around the country.

Cornucopia and others in the organic industry have claimed that Aurora, which is the country’s leading manufacturer of private-label organic milk, supplying such giant retailers as Wal-Mart, Costco, Target and Safeway, have used the exemption to undercut legitimate industry participants putting many farms at risk.

Lawyers for Aurora and other dairy interests spent over an hour arguing with the administrative law judge in the hearing in an attempt to exclude Cornucopia’s testimony. They especially objected to Kastel bringing up the fact that Aurora is widely viewed as a “bad actor” in the organic industry and thus their credibility in this matter should be questioned.

The USDA, pursuant to a formal legal complaint filed against Aurora, found that the giant dairy concern had violated 14 tenets of the organic regulations including illegally operating a feedlot, rather than grazing their cattle as required, and bringing in conventional cattle that did not qualify to produce organic milk. After recommendations by USDA staff to decertify the enterprise, Bush administration officials let the corporation off, requiring only some changes to their operations and a one-year probation. Aurora is now the subject of 19 class-action, consumer fraud lawsuits being adjudicated in federal district court in St. Louis (the USDA found that Aurora had marketed milk labeled as organic but did not qualify for the designation).

Rick Segalla, a certified organic dairy farmer milking 115 cows in Canann, Connecticut, and representing the Northeast Organic Dairy Producers Alliance, testified in support of a production cap of 450,000 lbs of milk per month to qualify as a producer-handler. “This honors the original intent and purpose of the exemption, makes allowance for existing small businesses, who have made capital investments, and takes into account the size of organic dairy herds in the twenty-first century,” Segalla said. He also testified at the hearing on behalf of the Federation of Organic Dairy Farmers.

Another farmer who made a trip to Cincinnati was Kathie Arnold, of Truxton, New York. Along with her husband and brother-in-law she described their investments to convert their 30-year-old business, managing 250 head of cattle, to organic production.

“One of the basic principles of the Federal Milk Marketing Order system is to provide equity between producers. That principle is being compromised with the current producer handler exemption, when some of today’s producer handlers are milking many thousands of cows. The economic advantage they have by not paying pooling costs creates an inequitable playing field.”

Unlike small, local or regional producer-handlers, Aurora ships milk from a single processing plant, in central Colorado, nationwide. It is accused of undercutting prices for family farmers in every federal marketing order in the country.

“They ship their milk from their one plant to Portland, Oregon, Portland, Wisconsin, and Portland, Maine, all regions of the country where family farmers milk cows locally, established a relationship with organic consumers, and have been building the business that Aurora is now exploiting,” Kastel testified.

Organic dairy producer Tony Schilter traveled all the way from Washington state to testify and answer questions during cross examination from the lawyers present. Speaking extemporaneously, Mr. Schilter justified closing the loophole currently being exploited by the giant dairies, by illustrating how two geographic regions in the country had already limited the size of producer-handlers operating and that it was time for this to happen on a national basis.

“The exploitation of dairy farmers around the country, by large corporations taking advantage of loopholes in the current regulations, needs to end,” explained Cornucopia’s Kastel. “Just like tax shelters where American corporations have moved headquarters or subsidiaries to Bermuda, or played games like transferring the ownership of their intellectual property to dummy corporations, we need our regulators to recognize when our laws need to change to protect the American public.”

State officials in Wisconsin, Vermont, New York, Pennsylvania, and New Hampshire also testified at the hearing in support of entrepreneurial dairy farmers who continue to legitimately utilize the producer-handler exemption, but the states joined organic producers in asking for the scale of these exempt direct marketers to be limited.

The hearing continues and is expected to stretch over a total of two to three weeks. Stakeholders will next file briefs, and USDA milk marketing administrators will then make a recommendation on potential reforms to the Secretary of Agriculture for implementation.

    The Cornucopia Institute, a Wisconsin-based nonprofit farm policy research group, is dedicated to the fight for economic justice for the family-scale farming community. Their Organic Integrity Project acts as a corporate and governmental watchdog assuring that no compromises to the credibility of organic farming methods and the food it produces are made in the pursuit of profit.

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