When the struggling milk giant Dean Foods filed for bankruptcy protection in November, it also announced a possible path forward - a takeover by Dairy Farmers of America, a marketing cooperative.
But the news that Dean Foods, the parent company of Mayfield Dairy in Athens, Tennessee, was in "advanced discussions" with the co-op did little to alleviate the concerns of dairy farmers. Many argued that a merger would reduce competition and suppress the price of raw milk, especially in regions where industry consolidation has made it difficult for farmers to stay in business.
Now, federal investigators are examining those concerns. Since at least December, antitrust officials at the Justice Department have been scrutinizing the potential Dean Foods merger, speaking with farmers and the lawyers who represent them about how a deal would affect milk pricing and competition, according to emails reviewed by The New York Times and interviews with people familiar with the inquiry.
The Justice Department declined to comment on the investigation. But this month, a department lawyer sent an email to farmers who sell raw milk to Dean Foods, asking to discuss the possible merger over the phone.
"We are investigating Dairy Farmers of America's potential acquisition of Dean Foods and the potential loss of competition for selling raw milk," the email said, according to a copy reviewed by The Times.
The lawyer, Nate Harris, planned to ask the dairy farmers how they came to work with Dean Foods and whether they would have options to sell their milk elsewhere if Dairy Farmers of America acquired the company, according to Dana Zakarian, a lawyer representing a group of dairy farmers in a lawsuit against the cooperative in Vermont. Zakarian said he had discussed the email with Harris after one of his clients received it.
Dairy Farmers of America, the largest dairy co-op in the United States, was founded to help small farmers market their raw milk to dairy processing companies like Dean Foods, which prepare milk for distribution to retailers.
Over the years, however, the co-op has also invested heavily in processing, meaning it buys some of the raw milk that its marketing branch sells. Those investments have created a conflict of interest, some dairy farmers argue, because processors benefit from lower milk prices, while farmers benefit from higher ones. A deal to acquire Dean Foods would significantly expand the co-op's processing operations, heightening that conflict of interest, critics of the potential merger say.
Monica Massey, the executive vice president at Dairy Farmers of America, said the co-op had spoken with the Justice Department to "keep them apprised" of its thinking. A takeover deal with Dean Foods would require approval from the bankruptcy court as well as federal regulators.
"We have not reached an agreement with Dean Foods for its assets, so it may be premature, but the Justice Department has a job to do," Massey said. "If we reach a deal, we would fully cooperate with DOJ officials as we have with past transactions."