In an unpublicized, late night session, the US congress turns an entrepreneur's lifetime work upside down while monopolizing the prices in a multi-billion dollar industry. Fully spun press releases are distributed and an old dairyman goes back to work.
In a previous article I described the convoluted schemes exploited by multinational corporations in cooperation with the US government to monopolize the profits in the milk industry. I mentioned then that a Yuma Arizona dairy farm “Sarah Farms” was being squeezed by Washington bureaucrats, and a trio of southwest Senators on behalf of the heavy hitters in the Dairy industry collectively referred to as the “Milk Cartel”.
Senate Minority Leader Harry Reid (D-NV), with the help of Diane Feinstien (D-CA) and John Kyl (R. AZ) finally delivered what the Milk Cartel desired ... no competition.
The pertinent part of the story begins 11 years ago. Responding to market demand and customer requests, Hein Hettinga opened a dairy plant in Yuma Arizona. The rules in the dairy industry then required that dairy farmers sell their milk into a “pool” at government set prices rather than at market based prices. This rule however did not apply to what is termed the “producer handler”. Producer Handlers not only raise and milk their own cows, but they process and bottle their own milk and ship it to their customers themselves eliminating the need to participate in pools and co-ops. These producer handlers take the risk of investing in all of the infrastructure required to get milk from the cow to the store. Quite a risk for a family farmer like Hein. But the Hettingas, renowned for their work ethic, felt that they could employ their hard work and ingenuity to create a win / win situation for them and their customers.
It worked ! Over the next 11 years, Hein's Sarah Farms pumped milk, processed, bottled and transported it to their customers throughout the southwest at competitive prices.
Sarah Farms also produced a very high quality product. Unlike like many industrial dairy farms, Sarah does not use the “Bovine Growth Hormone” (rBGH). rBGH is used in some dairy cows to cause them to produce as much as 15% more milk than they would naturally. There are claims however that rBGH is not entirely safe causing many consumers seek rBGH free products.
Agricultural giant Monsanto says that milk produced by rBGH is no different from "natural" milk in terms of safety. Critics like Dr. Samuel Epstein, however disagree. Epstein is professor of environmental and occupational medicine at the University of Illinois School of Public Health. He says dozens of studies say otherwise.
Although this is a separate debate, the point is worth noting as Sarah Farms chooses not to use rBGH in it's cows. Therefore they are out producing their competition even with a 15% handicap.
Well you know what happens when a hard working entrepreneur provides a quality product at a fair price. His customers come back for more... again and again. The Hettingas built a thriving milk business. It is no wonder they began to be seen as a thorn in the side of corporate dairy giants like Dean Foods.
Unfortunately in the dairy industry as in many industries, there are “shot callers”. They can't be bothered with small timers picking up their crumbs, but when Sarah Farms began nibbling at the cookie, something had to be done. And that something was to enlist the strong arm wing of the dairy monopoly known as the US Senate.
We all know that politicians peddle influence. It is part of the business of politics in Washington. But to see how this works in this particular case, one need go no further than the recent legislation sponsored by US Senator Harry Reid.
The Milk Regulatory Act (S.2120) passed last week and was signed into law by President Bush. This act now places a 3 million pound limit on the amount of milk a producer handler like Sarah Farms can bring to market. If they exceed that limit, they must participate in the federal milk pooling program. This means all that increased value and quality the Hettingas have created with their hard work will be averaged in with the rest of the pool members. The result is that efficient quality producers like Sarah end up subsidizing less efficient producers and all of their milk goes to market at the same price. In effect they become penalized for taking risk and investing in their production infrastructure. For this privilege Sarah Farms will pay several million dollars each year. The increased savings formerly shared by Sarah and their customers now ends up being wealth transferred to others in the Milk pooling program. More importantly to the members of the milk cartel, the last vestiges or true free market competition are removed leaving milk prices to be set not by supply and demand, but by Washington bureaucrats at the behest of the milk cartel.
Even those who support government meddling in the free market will be shocked at the most obvious travesty in the new legislation. The entire state of Nevada ... Senator Reid's home state ... is exempt from these laws... and Nevada is the only state exempted.
I asked Gerben about the Nevada exemption. “Well ... what can I say, Senator Reid has done good by some of his constituents”. This seemed to me a huge understatement. Gerben would not say what is so painfully obvious regarding this exemption. After all he still has to deal with the same bureaucrats that have changed the rules on him and his father in mid game. Badmouthing them would serve no purpose. Ones suspects too, that it is just in the nature of the Hettingas to take the high road.
Even a poor student should have little trouble putting 1 + 1 together and coming up with 2. The Milk cartel calls on a senate leader, he gives them what they want, but with one exception ... not in his back yard. That is what the legislation screams without even reading between the lines.
Curious about Reid's special exemption of Nevada? In a seemingly unrelated 2005 Wall street journal opinion piece, James Taranto commented on Harry Reid's negative opinion of Supreme Court Justice Clarence Thomas. Taranto was confused as to Reid's choice when asked to cite an example of Thomas' poor judicial skills. The case Reid cited was obscure and apparently irrelevant. That case was Hillside Dairy vs. Lyons. Taranto, speaking of Reid makes the following comment:
He must immerse himself deeply in legal scholarship to be familiar with a case like Hillside Dairy v. Lyons, which doesn't exactly rank up there with Marbury v. Madison, Brown v. Board of Education and Roe v. Wade among famous Supreme court rulings.
So what was this Hillside case?
The Weekly Standard explains:
The plaintiff-petitioners whom Justice Thomas would have ruled against in the Hillside case were out-of-state milk producers upset about protectionist regulatory practices by the state of California. No fair, argued Hill-side Dairy, Inc., a family-run milk-cow complex headquartered in--where else?--Harry Reid's Nevada.
So it appears Senator Reid has a history of exempting Nevada from protectionist anti-free market schemes which he otherwise supports.
Some have framed the struggles of the Hettingas as a “David vs. Goliath” story. But they forget that Goliath did not have the power of the US Government behind him. Had Goliath had such power David would have been but a biblical footnote. When asked of the financial costs involved in fighting the milk cartel, Gerben says he lost count after $1.5 Million. He estimates that Sarah Farms was out gunned by as much as a hundred to one in terms of financial resources by the likes of Deans foods and the milk cartel.
Seeing Sarah's success, some other farmers thought perhaps they should consider taking the risks and making the investment necessary to go it on their own outside of the government's schemes. Amazingly, Gerben was willing to councel these potential competitors. He apparently knows what Washington ignores... that competition improves the entire industry and gives consumers the best value.
Although the Hettingas would prefer that the government simply stay out of the milk business and let the market work, they recognize that will probably not happen any time soon. Accepting this situation Gerben said “I guess what we need is for one bureaucracy to keep an eye on the other because this is just not right ... it is as if they have taken one of my legs.”
Hein Hettinga is a first generation American who immigrated here from Holland. He built a small family farm into a thriving business. Last month, Subsequent to Senate passage of S.2120 and prior to passage by the house, Hein and his son Gerben stood before a Lubbock Texas judge seeking injunctive relief to slow down the political steam rolling process. They both had the feeling that their life's work was at that moment in the hands of this one judge. Unfortunately for them, he deferred to the wisdom of the senate. After the judge dropped his gavel and declared “motion denied”, Gerben asked his father “what are we going to do now”?
“Go home and go to work” was Hein's simple reply.