Investigating Dairy Merger and its Effects on Market Pricing
AAEA members published new research in AEPP
Today, a typical U.S. consumer drinks 40% less cow’s milk than in 1975. Americans are increasingly seeking plant-based or low-sugar alternatives to cow’s milk, which contains natural sugars. Changing consumer preferences have made even the largest U.S. milk processor—Dean Foods (DF)—struggle in recent years. Although DF marketed about 50 popular labels including Dean’s, TruMoo, Dairy Pure, Land O’Lakes, and Tuscan, its prices were falling, and it eventually went for voluntary bankruptcy protection in early 2020. Dairy Farmers of America (DFA)—a Kansas-based farmer-owned cooperative—bought a substantial part of DF. As a result, their products will jointly cover about half of the cow’s milk sold in the U.S. market.
This merger raised antitrust concerns because dairy farmers benefit from higher milk prices, but milk processors benefit from lower milk prices. Small farms feared that a large dairy cooperative that buys the largest milk processing company might monopolize the milk market and raise prices. This research investigates whether a hypothetical merger affects the market price of cow’s milk and by how much.
In the recent article “Foaming up a milk empire? Projected effects of a dairy merger” released in the Applied Economic Perspectives & Policy, looks at the impact of a hypothetical merger.
One of the authors, Jill McCluskey, Regents Professor at Washington State University says, “Like all redistributive economic transitions, there are winners and losers from mergers. If there is a price increase, it will push consumers towards non-dairy alternatives faster. Struggling milk farmers will benefit if some of the price increase reaches them. On the other hand, if the merger increases the efficiency of operations and sufficiently lowers production costs, it could result in lower consumer prices, which would benefit consumers. Then dairy farmers involved in the cooperative will gain from the merger, and farmers outside the cooperative or have a higher cost of production may go out of business.”
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ABOUT AAEA: Established in 1910, the Agricultural & Applied Economics Association (AAEA) is the leading professional association for agricultural and applied economists, with 2,500 members in more than 60 countries. Members of the AAEA work in academic or government institutions as well as in industry and not-for-profit organizations, and engage in a variety of research, teaching, and outreach activities in the areas of agriculture, the environment, food, health, and international development. The AAEA publishes two journals, the American Journal of Agricultural Economics and Applied Economic Perspectives & Policy, as well as the online magazine Choices and the online open access publication series Applied Economics Teaching Resources. To learn more, visit www.aaea.org.
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