Cooperatives Working Together uses herd retirement to fix milk prices

A half-million cows were worth more dead than alive, and now we're all paying the price

The organization killed another 52,783 cows by June 2007. The slaughter coincided with a dramatic rise in milk prices. From January to July that year, the all-milk price rose by almost 50 percent. In November, the all-milk price peaked at an all-time high, earning farmers $21.90 per hundred pounds.

On the heels of its success, Cooperatives Working Together decided to up the ante. The next year, the group began accepting heifers—young cows not yet producing milk. During two herd retirements announced that year, more than 75,000 cows were slaughtered. Milk prices stayed strong during the first half of 2008, falling just slightly in August and September.

In October 2008, the credit crisis and the collapse of the global economy sunk milk prices into their most prolonged period of month-to-month decline ever recorded. International demand for American dairy products dried up almost instantly.

Joe Sonneker was a dairy farmer his entire life, but sold all of his cows  to herd retirement in 2009
Andy Mannix
Joe Sonneker was a dairy farmer his entire life, but sold all of his cows to herd retirement in 2009
Sonneker's grandfather cleared the 160-acre lot more than 100 years ago to start the family farm
courtesy of Joe Sonneker
Sonneker's grandfather cleared the 160-acre lot more than 100 years ago to start the family farm

The next year, the dairy consortium launched a rapid succession of herd retirements. In all, 200,493 milk cows were butchered or designated for slaughterhouses that year, including thousands of heifers, removing nearly four billion pounds of milk from the market.

Prices rebounded in 2010, but Cooperatives Working Together went forward with another round of herd retirement that summer. In the press release announcing the upcoming slaughter, Kozak crowed that the group was responsible for the reduction in milk cow population the previous year, but that more was necessary.

"This latest herd retirement will push cow numbers lower still," Kozak said, "which is what our industry needs to better align supply and demand."

At the completion of its 10th and final herd buyout, the dairy consortium had taken 506,921 milk cows out of production. Each was given a number and a purple tag and led to an early slaughter.

This eventually grabbed the attention of Compassion Over Killing, a nonprofit based in Washington, D.C., that makes headlines by publishing hidden-camera footage of factory farms.

"Our position is for people to realize just how unethical the dairy industry is," says Cheryl Leahy, general counsel for Compassion Over Killing. "This is just one more thing when they're cheating consumers by creating this scheme to unfairly and illegally jack up their profits—at the expense of cows, and the expense of consumers."

No commodity in the supermarket had a better 2011 than milk. With a 35 percent increase in price over 12 months, milk was the biggest gainer of the year, outpacing even oil and gold. Though a long list of factors influence milk prices, analysts say herd retirement played a significant role in the increase.

"Anytime you can tighten that milk supply up ... whether it's production or sales, you get a pretty good price response," says Bob Cropp, professor of agricultural economics at the University of Wisconsin-Madison.

In 2004, following the first year of herd retirements, the effect on the consumer was relatively modest, adding less than two cents a gallon to the all-milk price, according to an independent analysis of the program conducted by Scott Brown, a dairy economist from the University of Missouri. A rise in the farmer-to-processer price is eventually passed on to the consumer in a similar increase at the supermarket.

But as milk supply continued to decrease, the effects were more powerful. According to Brown's analysis, the herd retirement program increased the all-milk price by about 15 cents a gallon in 2010, and 12 cents per gallon in 2011.

The higher cost would be most noticeable to the poorest Americans, says Chris Waldrop of the Food Policy Institute. "I think it's clear that this program was designed to benefit the producers, and not the consumers," Waldrop says.

On February 28, Land O'Lakes will hold its annual meeting at the Hilton in downtown Minneapolis. Among the items on the agenda is how to lobby Congress for the importance of keeping the Capper-Volstead Act, the federal law that allows farmers to legally join co-ops. The law offers limited exemption from federal anti-trust laws, but it's not a free pass to manipulate the market, says Jason Foscolo, an attorney who specializes in agriculture cases.

"You can't have a bunch of guys sitting around a table smoking cigars saying, 'We're gonna cut production and show these Americans how dearly they're going to pay for their milk,'" says Foscolo.

The exemption has become the subject of heated legal debate in the past few years. When it was created in the 1920s, the average farmer co-op consisted of a few dozen neighbors who would gather in a living room once a month to pool resources. But in an age where a few giant co-ops control the industry, some believe Big Ag should be held to the same standards as Microsoft.

"Whenever one of these cases falls into the agricultural field, we have this argument," says Arthur N. Bailey, an attorney who has worked on similar cases. "And for the past 50 years, it worked, in most cases. But you watch, I'm predicting the end of that era of Capper-Volstead protection until you get clear to the marketing stage."

Cooperatives Working Together and Land O'Lakes declined to answer questions for this story. In a written statement, CWT Chief Operating Officer Jim Tillison denied the allegations in the lawsuit and vowed to vigorously defend the program.

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