UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
`
`
`
`Food Lion, LLC, and Maryland and
`Virginia Milk Producers Cooperative
`Association, Inc.,
`
`
`Plaintiffs,
`
`
`v.
`
`DAIRY FARMERS OF AMERICA,
`INC.,
`
`
`Defendants.
`
`
`
`
`
`
`
`Docket No. 1:20-cv-442-CCE-JLW
`
`
`DAIRY FARMERS OF AMERICA, INC.’S ANSWER AND DEFENSES TO
`PLAINTIFFS’ COMPLAINT
`
`Defendant Dairy Farmers of America, Inc. (“DFA”), by and through its undersigned
`
`
`
`
`
`counsel, answer Plaintiffs’ Complaint, ECF No. 1, as follows.
`
`Introduction
`
`This matter involves failed bidders and failing competitors who are turning to the
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`antitrust laws to try to change the marketplace.
`
`On May 19, 2020, and after failing to convince the Bankruptcy Court for the
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`Southern District of Texas (“Bankruptcy Court”) to block the sale of certain Dean Foods
`
`Company (“Dean”) processing plants to DFA, Plaintiffs—Food Lion, LLC (“Food Lion”)
`
`and Maryland and Virginia Milk Producers Cooperative Association, Inc. (“MDVA”)—
`
`
`
`1
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`filed a Complaint seeking to undo this acquisition under Section 7 of the Clayton Act and
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`Section 2 of the Sherman Act.
`
`The thrust of Plaintiffs’ theory is that DFA’s acquisition of bankrupt Dean’s three
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`processing plants in North and South Carolina (the “Carolina Plants”) might, in 2021,
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`prevent MDVA from competing to supply those plants with raw milk, and that as a result
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`of MDVA perhaps not gaining that potential business, Food Lion might not receive as low
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`prices as it would like for future purchases of processed fluid milk (“Processed Milk”) from
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`the Carolina Plants.
`
`But the Plaintiffs also concede that competition remains unaffected in the market:
`
`the Carolina Plants still process raw milk from DFA (as they did prior to DFA’s acquisition
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`of these plants); MDVA still sells its raw milk to processors other than Dean or DFA; and
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`Food Lion still purchases its Processed Milk from processors other than Dean or DFA.
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`And there is no allegation that the competition, as it presently exists, is illegal or improper
`
`in any way.
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`The Plaintiffs also concede that the Carolina Plants were purchased by DFA through
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`procedures governed and approved by the Bankruptcy Court and in an orderly, public
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`process, overseen by the Bankruptcy Court. The Bankruptcy Court established bidding
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`procedures. MDVA and DFA were two of several potential bidders. DFA sought to
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`purchase the vast majority of Dean’s assets, 44 facilities, including corporate headquarters
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`and fluid milk and frozen operations across the country. MDVA sought to purchase a
`
`single plant, in High Point, North Carolina. Food Lion made no effort to bid for or acquire
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`
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`2
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`any plant. The Court approved Dean’s selection of DFA as the winning bidder of these
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`facilities, with full awareness of MDVA’s bid for the High Point, North Carolina plant, and
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`over the objections of Plaintiffs.
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`The incontrovertible reality behind these admissions is that but for DFA stepping
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`forward and buying these assets, all or most of the Carolina plants would have been
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`liquidated and critical fluid milk capacity and output would have left the market supplying
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`the Carolinas. Thus, the only “change” to the market and competition is that DFA
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`preserved competitive supply that would have otherwise left the market. Simple economics
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`says that is unambiguously procompetitive, not anticompetitive.
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`In order to claim that they could be harmed in the future, the Plaintiffs are forced to
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`allege a geographic market that is implausible. Plaintiffs argue the geographic market is
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`limited to North and South Carolina because of the Atlantic Ocean and Appalachian
`
`Mountains, omitting the existence of Virginia to the north and Georgia to the south.
`
`Plaintiffs admit participation in Federal Milk Marketing Order 5, which reflects the
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`movement of milk throughout the Southeast. And further, Plaintiffs admit seeking milk
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`from outside the Carolinas, such as Food Lion’s 2017 request for proposal sent to MDVA’s
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`Virginia processing facility.
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`DFA is a cooperative made up of a diverse group of dairy farmers who seek to
`
`work together to achieve the best price and distribution that they can for their product.
`
`Because of its diversity and the large number of farmers who it represents, DFA has
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`successfully advanced the interests of its farmers, enabling the survival of family and
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`3
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`small farms. It is laser-focused on both creating demand, and finding a home for
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`farmers’ milk, which includes capturing the plainly procompetitive vertical efficiencies
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`of operating fluid milk processing plants. MDVA sues because it has been unable to
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`compete in the marketplace; Food Lion, which is part of a $70 billion international
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`conglomerate, sues because it seeks to extract the lowest possible prices to enhance its
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`profit margins. This is an improper use of the antitrust laws.
`
`The allegations and argument in Plaintiffs’ eight introductory paragraphs constitute
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`Plaintiffs’ characterization of the facts and legal and economic arguments to which no
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`response is required. To the extent a response is required, the allegations in these
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`introductory paragraphs are denied. Further, the headings and sub-headings contained in
`
`Plaintiffs’ Complaint are improper statements of fact or legal conclusion to which no
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`response is required. To the extent a response is required, DFA denies those allegations.
`
`
`
`THE PARTIES
`
`Plaintiff Food Lion is a North Carolina limited liability company
`1.
`headquartered in Salisbury, North Carolina. It operates more than 1,000
`supermarkets, either directly or through affiliates, in ten states, including
`approximately 600 supermarkets in North and South Carolina and dozens more that
`purchase fluid milk from milk processing facilities in the Carolinas. Food Lion
`purchases processed fluid milk in interstate commerce and is one of the largest retail
`purchasers of processed fluid milk from processing facilities in North and South
`Carolina.
`
`ANSWER: DFA is without information or knowledge sufficient to form a belief
`
`as to the truth of the allegations in Paragraph 1, and on that basis, denies these allegations.
`
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`4
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`Plaintiff MDVA is a corporation organized and existing under the laws
`2.
`of the Commonwealth of Virginia with its principal place of business in Reston,
`Virginia. MDVA is a dairy cooperative with approximately 950 member farms in
`eleven states throughout the Mid-Atlantic and Southeast. MDVA also owns two fluid
`milk processing facilities outside of the Carolinas and two plants that produce bulk
`dairy ingredients for food manufacturers.
`
`ANSWER: DFA is without knowledge or information sufficient to form a belief
`
`as to the truth of the allegations in Paragraph 2, and on that basis, denies these allegations.
`
`Defendant DFA is a dairy cooperative organized and existing under the
`3.
`laws of the State of Kansas, with its principal place of business in Kansas City,
`Missouri. DFA is the largest dairy cooperative in the United States, representing over
`14,000 dairy producers in forty-eight states and recognizing $13.6 billion in revenue
`in 2018. In the wake of the Asset Sale, DFA is also the nation’s largest processor and
`direct-to-store distributor of fluid milk and other dairy and dairy case products. Now
`DFA not only engages in the production and marketing of raw milk, but it also
`manufactures, markets, and distributes processed milk to retailers, distributors,
`foodservice outlets, educational institutions, and governmental entities across the
`country, including from its legacy Dean plants in High Point, North Carolina;
`Winston Salem, North Carolina; and Spartanburg, South Carolina.
`
`ANSWER: DFA admits it is a not-for-profit corporation organized and existing
`
`under the laws of the State of Kansas. DFA denies its principal place of business is in
`
`Kansas City, Missouri. DFA admits it is a cooperative as defined under Chapter 17, Article
`
`16 of the Kansas Cooperative Marketing Act. DFA admits that it is the largest dairy
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`cooperative in the United States with over 13,000 producer members as of the date of this
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`response. DFA admits that it had $13.6 billion in net sales in 2018. DFA admits that it
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`markets its producer-members’ raw milk. DFA further admits it has ownership interests
`
`in entities that operate certain milk processing plants in multiple states in the United States
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`that manufacture fluid milk and other dairy-based products. DFA further admits that the
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`customers of these products include retailers, distributors, foodservice outlets, educational
`5
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`institutions, and governmental entities in multiple states in the United States. DFA further
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`admits that it owns the fluid milk processing plants in High Point, North Carolina, Winston-
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`Salem, North Carolina and Spartanburg, South Carolina. DFA denies the remaining
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`allegations in this introductory paragraph.
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`JURISDICTION, VENUE AND INTERSTATE COMMERCE
`
`This Court has subject-matter jurisdiction over this action pursuant to
`4.
`15 U.S.C. § 26; 28 U.S.C. § 1331; and/or 28 U.S.C. § 1337(a).
`
`ANSWER: DFA denies the allegations in Paragraph 4.
`
`This Court has personal jurisdiction over DFA under 15 U.S.C. § 22,
`5.
`because DFA may be found and regularly transacts business in this judicial district.
`
`ANSWER: DFA admits the Court has personal jurisdiction over DFA.
`
`Venue is proper in this judicial district under 15 U.S.C. § 22 and 28
`6.
`U.S.C. § 1391(b) and (c), because DFA may be found and regularly transacts business
`in this judicial district. Two of the three legacy Dean milk processing facilities at issue
`in this Complaint are located in this judicial district, and the anticompetitive effects
`of the Asset Sale will be felt throughout this judicial district.
`
`ANSWER: Paragraph 6 calls for a legal conclusion to which no response is
`
`required. To the extent a response is required, DFA denies the allegations.
`
`DFA is engaged in, and its activities substantially affect, interstate
`7.
`commerce, and the conduct alleged herein substantially affects interstate commerce.
`Among other things, DFA purchases, markets, processes, and ships milk across state
`lines. DFA receives substantial payments across state lines for the sale of raw and/or
`processed milk. DFA’s acquisition of three legacy Dean processing facilities in North
`and South Carolina will have adverse effects on competition and consumers,
`including for the production and processing of fluid milk sold, in the region.
`
`
`
`
`6
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`ANSWER: Paragraph 7 calls for a legal conclusion to which no response is
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`required. To the extent a response is required, DFA denies the allegations. DFA denies
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`the remaining allegations in Paragraph 7.
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`RELEVANT MARKETS
`
`The Relevant Product Markets
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`8.
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`There are two relevant product markets at issue in this case.
`
`ANSWER: Paragraph 8 consists of a legal conclusion to which a response is not
`
`required. To the extent one is required, DFA denies the allegations in Paragraph 8.
`
`The first market is an upstream market for the supply of raw Grade A
`9.
`milk (“raw milk”) by dairy producers, in which both DFA and MDVA compete, to
`milk processing plants like the legacy Dean facilities (the “raw milk market”).
`
`ANSWER: Paragraph 9 consists of a legal conclusion and definition to which a
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`response is not required. To the extent a response is required, DFA denies those allegations
`
`in Paragraph 9.
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`The second market is the downstream market for the processing, co-
`10.
`packing, and delivery of fluid milk products to retailers like Food Lion and other
`customers (the “processed milk market” or “processed fluid milk market”).
`
`ANSWER: Paragraph 10 consists of a legal conclusion and definition to which a
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`response is not required. To the extent a response is required, DFA denies those allegations
`
`in Paragraph 10.
`
`The milk industry, including DFA and Dean, treat these two product
`11.
`markets as being distinct in the ordinary course of business. These relevant product
`markets also have been treated as being distinct by federal courts in prior litigation
`involving DFA and Dean.
`
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`
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`7
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`ANSWER: Paragraph 11 consists of legal conclusion to which a response is not
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`required. To the extent a response is required, DFA denies those allegations in Paragraph
`
`11. DFA denies the remaining allegations in Paragraph 11.
`
`Raw milk is a fungible, homogenous, and highly perishable commodity.
`12.
`Dairy farmers milk their cows at least twice a day and the milk must be transported
`from farms to milk processors nearly every day and sometimes multiple times a day.
`Raw milk is typically stored in refrigerated tanks until it is picked up by a milk hauler
`who transports it in insulated trucks to milk processing plants. Milk processing plants
`process this milk for human consumption and package it for wholesale or retail sale.
`
`ANSWER: DFA admits that raw milk is highly perishable. DFA admits that dairy
`
`farmers generally milk their cows at least twice a day. DFA further admits that raw milk
`
`is typically stored in refrigerated bulk tanks until it is picked up by a milk hauler who
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`transports it in insulated trucks to raw milk processing plants. DFA further admits that
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`milk processing plants process raw milk. DFA denies the remaining allegations in
`
`Paragraph 12.
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`Federal milk sanitation standards distinguish between milk eligible for
`13.
`use in fluid products—called raw Grade A milk—and milk eligible only for
`manufactured dairy products. Pursuant to the 1937 Agriculture Act, the U.S. Dairy
`Association (“USDA”) classifies raw Grade A milk as milk that qualifies for use in
`fluid milk products for human consumption. The highest standards are established
`for raw Grade A milk because of safety risks associated with fluid milk products.
`
`ANSWER: DFA admits that federal milk sanitation standards distinguish between
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`milk eligible for use in fluid products, known as Grade A milk, but aver that those rules
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`and regulations speak for themselves. To the extent Plaintiffs’ allegations in Paragraph 13
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`characterize or contradict those rules or regulations, DFA denies those allegations. DFA
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`denies the remaining allegations in Paragraph 13.
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`
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`8
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`Each month, the USDA calculates minimum prices pursuant to its
`14.
`formula for raw milk marketed in different geographic regions, known as Federal
`Milk Marketing Orders (“FMMO”). Currently, there are ten FMMOs. The milk
`processing facilities at issue in this Complaint are included in FMMO 5.
`
`ANSWER: DFA admits that the United States Department of Agriculture
`
`calculates certain minimum prices for raw milk but avers that the United States Department
`
`of Agriculture regulations relating to such matters speak for themselves. To the extent
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`Plaintiffs’ allegations in Paragraph 14 characterize or contradict those regulations, DFA
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`denies those allegations. DFA further admits that there are currently ten FMMOs. DFA
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`further admits the High Point, North Carolina, Winston-Salem, North Carolina, and
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`Spartanburg, South Carolina, fluid milk processing plants are in FMMO 5. DFA denies
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`the rest of the allegations in Paragraph 14.
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`USDA regulations mandate that cooperatives and independent dairy
`15.
`farmers participating in the FMMO program receive at least the weighted uniform
`average or minimum “blend” price for raw Grade A milk that is “pooled” on an
`Order. Dairy farmers “pool” raw Grade A milk on an FMMO by delivering specified
`minimum quantities of such milk to USDA-regulated fluid milk processing plants
`associated with that FMMO.
`
`ANSWER: DFA admits that United States Department of Agriculture regulations
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`govern certain aspects relating to the pooling and payment for milk but aver that those
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`regulations speak for themselves. To the extent Plaintiffs’ allegations in Paragraph 15
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`characterize or contradict those regulations, DFA denies those allegations.
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`9
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`USDA minimum prices for raw Grade A milk represent the minimum
`16.
`prices that milk processors must pay for such milk marketed pursuant to USDA
`regulation. These minimum prices, however, are less than the farmers’ cost to
`produce the milk. Farmers must sell their raw milk for more than these minimum
`prices in order to survive.
`
`ANSWER: The first sentence of Paragraph 16 contains Plaintiffs’ characterization
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`of the operation of United States Department of Agriculture regulations. DFA avers that
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`those regulations speak for themselves and does not require a response. To the extent
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`Paragraph 16 is inconsistent with or contradicts those regulations, DFA denies those
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`allegations. DFA denies the remaining allegations in Paragraph 16.
`
`On the processed milk side, consumers have long-held cultural and
`17.
`taste preferences for processed fluid milk over other beverages, and processed fluid
`milk has particular nutritional benefits and qualities for use in cooking.
`Consequently, consumer demand for processed fluid milk is relatively inelastic; that
`is, processed fluid milk consumption does not decrease significantly in response to a
`price increase. Fluid milk is distinct from extended shelf-life milk, ultra-high
`temperature milk, and aseptic milk, which are produced by different processes, have
`numerous significant differences, and generally cost significantly more than fluid
`milk.
`
`
`ANSWER: Paragraph 17 contains economic conclusions and characterizations
`
`regarding consumer behavior about which DFA is without sufficient knowledge or
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`information to form a belief as to the truth of the allegations, and on those bases denies
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`those allegations. DFA admits that extended shelf-life milk, ultra-high temperature milk
`
`and aseptic milk are produced by different processes. DFA denies the allegations in
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`Paragraph 17.
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`10
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`Retailers, supermarkets, distributors, and other processed fluid milk
`18.
`customers are unlikely to substitute other products for fluid milk because the
`individual consumers that they serve continue to demand fluid milk.
`
`ANSWER: DFA is without sufficient knowledge to form a belief as to the truth of
`
`the allegations in Paragraph 18, and on that basis, denies those allegations.
`
`Dairy farmers and dairy cooperatives sell raw milk to milk processors
`19.
`who have no feasible substitutes. Similarly, milk processors sell processed fluid milk
`to retailers, who can sell other beverages, but none that are good substitutes for fluid
`milk.
`
`
`ANSWER: DFA admits that dairy farmers and dairy cooperatives can sell raw milk
`
`to milk processors. DFA admits that fluid milk processors can sell fluid milk to retailers.
`
`DFA denies the remaining allegations of Paragraph 19.
`
`The markets for raw and processed fluid milk satisfy the well-accepted
`20.
`“hypothetical monopolist” test set forth in Part 4.1 of the DOJ and Federal Trade
`Commission 2010 Horizontal Merger Guidelines, and incorporated by reference into
`Part 2 of the Draft Vertical Merger Guidelines (released for public comment on
`January 10, 2020). A hypothetical monopolist of raw milk could impose a small but
`significant non- transitory increase in price (“SSNIP”) to milk processors. Processors
`have no reasonable substitute for raw milk that would render a SSNIP on raw milk
`unprofitable. A hypothetical monopolist of processed milk could impose a SSNIP to
`customers of processed milk, such as grocery retailers. Retailers and other processed
`milk customers could not turn to purchasing other products in sufficient quantity or
`numbers to render a SSNIP on processed milk unprofitable.
`
`ANSWER: Paragraph 20 consists of legal and economic conclusions to which no
`
`response is required. To the extent a response is required, DFA denies those allegations.
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`11
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`The Relevant Geographic Market
`
`The relevant geographic market in this action for both the supply of
`21.
`raw milk and its processing and co-packing consists of the milk processing plants in
`North and South Carolina. Dairies and cooperatives to which these plants may
`reasonably turn for supply of raw milk for these facilities are included in the
`geographic market for raw milk. Similarly, customers of processed milk including
`retailers that can reasonably turn to these facilities for the purchase of processed milk
`are included in the geographic market for processed milk.
`
`ANSWER: DFA denies the allegations in Paragraph 21.
`
`Transportation costs and perishability limit the distance over which
`22.
`raw milk can profitably be shipped. As stated above, farmers generally milk their
`cows at least twice a day, and the milk must be stored in refrigerated tanks and
`transported to milk processors nearly every day and in some cases multiple times a
`day. Raw milk is highly perishable and is costly to transport because it must be
`shipped in insulated tanks. Shipping costs are estimated to increase by approximately
`$0.10 per gallon for every additional 100 miles shipped. This makes the need to
`transport milk to the closest processing facility even more important in order to
`manage transportation costs.
`
`ANSWER: DFA admits that raw milk is highly perishable. DFA further admits
`
`that dairy farmers generally milk their cows at least twice a day. DFA further admits that
`
`raw Grade A milk is typically stored in refrigerated bulk tanks until it is picked up by a
`
`milk hauler to transports it in insulated trucks to raw Grade A milk processing plants. DFA
`
`denies the remaining allegations in Paragraph 22.
`
`The region surrounding the milk processing facilities in North and
`23.
`South Carolina has two geographic features that limit the region within which milk
`can reasonably and profitably be shipped to and from milk processing facilities: the
`Atlantic Ocean to the East and the Appalachian Mountains to the West. Shipping
`across the Appalachian Mountains is not economically feasible because of the
`transportation costs associated with crossing the mountains.
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`
`
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`12
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`ANSWER: DFA admits the Atlantic Ocean is east of North and South Carolina.
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`DFA further admits that the Appalachian Mountains run along the western edge of North
`
`and South Carolina. DFA denies the remaining allegations in this Paragraph.
`
`The economic and transportation costs of shipping milk dictate that the
`24.
`long-term viability and overall competitiveness of a dairy cooperative supplying raw
`milk to a milk processor in the Carolinas relies on the cooperative’s ability to
`transport its members’ milk to a local processing facility.
`
`ANSWER: DFA denies the allegations in Paragraph 24.
`
`These geographic and cost constraints leave dairy producers located
`25.
`near the processing facilities in North and South Carolina with only six processing
`and packaging facilities to which to sell raw milk: (1) the legacy Dean (now DFA)
`facility in Winston-Salem, North Carolina; (3) the legacy Dean (now DFA) facility in
`High Point, North Carolina; (3) the legacy Dean (now DFA) facility in Spartanburg,
`South Carolina; (4) Kroger’s Hunter Farms facility in High Point, North Carolina;
`(5) Ingles’ Milkco facility in Asheville, North Carolina; and (6) the Borden Dairy Co.
`facility in Charleston, South Carolina. Because geographic and transportation costs
`also constrain the shipment of processed milk, downstream purchasers of processed
`milk also rely on nearby milk processing facilities. Below is a map identifying these
`facilities’ respective locations.
`
`
`
`
`13
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`Figure One: Milk Processing Facilities in the Carolinas
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`ANSWER: DFA denies the allegations in the first sentence of Paragraph 25. DFA
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`admits Figure One purports to show six milk processing facilities in North and South
`
`Carolina. DFA is without sufficient information to form a belief as to the truth of the
`
`allegations, and thus on that basis, denies the remainder of the allegations in Paragraph 25.
`
`A hypothetical monopolist of cooperatives and independent dairies
`26.
`selling raw milk to the processors located in North and South Carolina could impose
`a SSNIP. This is because the high transportation costs associated with raw milk mean
`that processors cannot turn to more distant cooperatives to defeat a SSNIP.
`
`ANSWER: Paragraph 26 calls for legal and economic conclusions to which no
`
`response is required. In addition, DFA is without sufficient information to form a belief as
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`to the truth of the allegations, and thus on both of these bases, denies the allegations in
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`Paragraph 26.
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`14
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`A hypothetical monopolist of milk processors located in North and
`27.
`South Carolina could impose a SSNIP in price to customers such as retailers. This is
`because retailers, collectively, would not be able profitably to offset such a price
`increase by shipping milk from more distant milk processors. Even if some customers
`closer to the market boundary did find it economical to substitute more distant
`processors, this would not be sufficient to offset the aggregate profitability of a price
`increase.
`
`ANSWER: Paragraph 27 calls for legal and economic conclusions to which no
`
`response is required. In addition, DFA is without sufficient information to form a belief as
`
`to the truth of the allegations, and thus on both of these bases, denies the allegations in
`
`Paragraph 27.
`
`
`
`DFA’S CONSOLIDATION OF THE U.S. DAIRY INDUSTRY
`
`Milk Cooperatives
`
`
`The dairy industry in the United States is highly concentrated, at both
`28.
`the raw milk producer and processor levels, and has become increasingly
`concentrated over time as DFA has sought to monopolize the dairy supply chain.
`
`ANSWER: DFA is without sufficient information to form a belief as to the truth
`
`of the allegations regarding the dairy industry at large, and thus on that basis, denies the
`
`allegations in Paragraph 28. DFA denies the remaining allegations in Paragraph 28.
`
`Dairy cooperatives are associations of dairy farmers who agree to
`29.
`market collectively their raw milk. Cooperatives are supposed to be voluntary
`associations— owned, operated, and controlled by their farmer members.
`Cooperatives “market” their farmers’ raw milk, which usually consists of locating
`buyers, negotiating sales prices, coordinating hauling, performing testing, recording
`and reporting related data to milk market regulators, and paying member farmers
`for their raw milk.
`
`
`
`
`15
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`ANSWER: DFA admits that dairy cooperatives are associations of dairy producers
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`who agree to collectively market their dairy products and that such cooperatives are owned
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`by their member-producers. DFA further admits that dairy cooperatives may locate buyers
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`for their member-producers’ raw Grade A milk, negotiate sales prices, coordinate the
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`hauling, perform testing, record and report related data to milk market regulators, and
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`process payments to member-producers for their raw Grade A milk. DFA denies the
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`remaining allegations in Paragraph 29.
`
`One of the key responsibilities of cooperatives is to negotiate prices
`30.
`higher than the FMMO minimum prices. The amounts by which prices paid for raw
`Grade A milk exceed FMMO minimum prices are known generically as “over-order
`premiums.” Access to milk processing plants in North and South Carolina and receipt
`of FMMO minimum prices and over-order premiums are necessary and essential to
`the economic viability of dairy farmers in the region.
`
`ANSWER: DFA admits dairy farmers and cooperatives, including DFA, attempt
`
`to negotiate prices for raw Grade A milk that exceed the FMMO minimum blend prices,
`
`and that the price negotiated above the minimum blend price is sometimes referred to as
`
`an “over-order premium.” DFA denies the remainder of the allegations in Paragraph 30.
`
`Not all dairy farmers are cooperative members. Some dairy farmers
`31.
`seek to remain independent of cooperatives and are referred to as “independent dairy
`farmers.” Independent dairy farmers seek to market their raw milk to fluid milk
`processing plants by contracting with processing plants either directly or through
`agents and/or marketing associations. Many independent dairy farms are family-
`owned and operated and have been so for generations.
`
`ANSWER: DFA admits that dairy producers may be members of a cooperative
`
`and some may be independent (i.e., not a member of a cooperative) and that some of these
`
`dairy farmers may be referred to as “independent dairy farmers.” DFA admits that
`
`
`
`16
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`independent dairy farmers may market their own raw milk directly to milk processors or
`
`may rely on a marketing agent or marketing association to market their milk. DFA denies
`
`the remaining allegations in Paragraph 31.
`
`On January 1, 1998, DFA, a new marketing cooperative, was created
`32.
`from the merger of four competing dairy cooperatives. By 2000, DFA had emerged
`as the largest dairy cooperative in the United States and controlled more than 50%
`of the raw Grade A milk produced in the Southeast United States.
`
`ANSWER: DFA admits that the creation of DFA was effective January 1, 1998,
`
`and that DFA was created from the merger of four cooperatives: the Southern Region of
`
`Associated Milk Producers, Inc. (“AMPI”), Mid-American Dairymen, Inc. (“Mid-Am”),
`
`Milk Marketing, Inc., and Western Dairymen Cooperative, Inc. DFA admits that by 2000,
`
`DFA was the largest dairy cooperative in the United States. DFA denies the remaining
`
`allegations in Paragraph 32.
`
`Today, DFA is still the largest dairy cooperative and raw milk producer
`33.
`in the United States. DFA’s members, all of which are producers of raw milk, include
`both
`individual dairy farmers and other member-owned milk marketing
`cooperatives. In 2018, DFA produced 52.7 billion pounds of raw milk—
`approximately 30% of all raw milk produced in the United States—making it more
`than three times larger than the next largest dairy cooperative, California Dairies
`Inc., which is a DFA partner. DFA had 2018 revenues of $13.6 billion. DFA recently
`started issuing non-voting preferred stock, and its equity from this stock comprises a
`large portion of DFA’s total equity.
`
`ANSWER: DFA admits it is the largest dairy cooperative in the United States as
`
`of the date of this Answer. DFA admits that its members are all producers of raw milk.
`
`DFA further admits that its members include individual dairy farmers. DFA admits that in
`
`2018 it marketed 64.5 billion pounds of raw milk for both members and others, which
`
`represented approximately 30% of the total milk production in the United States. DFA
`17
`
`
`
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`admits that in 2018, it had net sales of $13.6 billion. DFA denies the remaining allegations
`
`in Paragraph 33.
`
`Through various transactions, partnerships, joint ventures, and
`34.
`contractual relationships, DFA has expanded its dominance of the milk supply chain,
`establishing vertical relationships and interests in everything from production, to
`processing, to delivery. Thus, DFA currently controls two critical product markets
`within the milk supply chain—production and processing—in many of the geographic
`markets in which it operates. Until the Asset Sale was consummated, the geographic
`region at issue in this Complaint