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June 22nd, 2011

Corporate Food Executives Aren’t Struggling Quite as Much as Farmers

By Rich Bindell

This week we focus on our campaign for fair food by calling on President Obama to enact a rule on livestock marketing that would let USDA finally use authority given to them back when Woodrow Wilson was President. The “GIPSA rule” (named for the USDA branch that governs livestock marketing) would even out the playing field in the meat industry and allow small-to-medium-sized independent farmers to fairly compete with large-scale factory farms. Of course, industry is pushing back, using delay tactics to put off implementing the rule. Which is why Sunday’s Washington Post article was so timely.

The article, “With executive pay, rich pull away from rest of America,” could be the answer to the question: when industrial food giants squeeze out farmers and small processing plants and consolidate the industry, where do their savings go? It sounds like a good deal of it may go to upper echelon executives.

The article is mostly about the abuses that result from decades of deregulation and unchecked corporate consolidation as it relates to the salaries of American business executives in the last five or six decades, but it focuses on one company in particular: Dean Foods. It describes two chief executives who led the company at different times: Kenneth J. Douglas, who held the reigns during the 1970s and Gregg L. Engels, who is the current CEO. The article claims that Engels makes the equivalent of about 10 times as much in compensation as Douglas did. If you’re familiar with the consolidation of power that exists in the food industry, this should come as no surprise.

In the past two decades, the dairy industry has changed dramatically, morphing from a regional network of dairy farms and processors to industrial mega-dairies. They sell their products to a small number of corporate-style milk cooperatives and processing companies. There are now fewer, more powerful companies in every segment of the supply chain within the dairy industry. In 1980, when Douglas was CEO, 435 dairy cooperatives marketed 77 percent of fluid milk. By 2002 — well into Engels time — there were only 196 cooperatives, but they marketed a whopping 86 percent of fluid milk.

When I was growing up in Allentown, Pa., my family bought milk in the supermarket from a local dairy called Lehigh Valley Farms. The processing facility was located in the heart of downtown. Several years later, I noticed that I could suddenly get Lehigh Valley Farms milk in places that were far away from eastern Pennsylvania. But, on a visit home, I had noticed that the plant had been closed down. The next time I saw a carton of Lehigh Valley Farms milk in a store, I investigated further and learned that Lehigh Valley Farms is now part of Dean Foods. Dean bought the label. I wonder if their milk comes from any cows in Lehigh County anymore.

Massive power grabs like this from the big players in dairy has a major effect on the price of milk at the store. Consumer prices have gone up, but farmer earnings have actually decreased. They have fewer options for selling their milk and the prices they are paid for their product are subject to marketing rules determined by traders, not according to a price determined in an open market or that reflects what the milk cost to produce.

The author of the article asked a few employees at Dean Foods for their opinions about how much their CEO earns, but it would have been interesting to ask a few of the farmers who supply the milk. Many dairy farmers struggle to keep their businesses going because the price they receive for the milk they produce is unfairly low. Anyone who buys milk can attest to the fact that milk prices have gone up quite a bit, so we know the money saved by low-balling farmers isn’t being passed along to consumers. How many homes did they say Engels has? Is it just one private jet?

This is what we mean when we call it, “fair food.” Those who labor to provide us with our food should be given equal opportunity to make a fair living. The changes we want to make to the Farm Bill would help even out the playing field and give food producers a real chance to fairly compete with big agribusiness.

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