Schumer: Parmalat Decision To Not Sell U.S. Assets Both Preserves Competition For Farmers And Helps Prevent Milk Price Hikes
New decision to restructure Parmalat instead of selling company to competitor prevents a single company from controlling 80-90% of NY milk market More competition means 2 things - NY dairy farmers more likely to get a good price for their product and NY milk buyers won't face near-monopoly situation with one company marketing almost all milk sold in NYC and suburbsSenator previously got Antitr
US Senator Charles E. Schumer today announced that the danger of a single company controlling as much as 80 or 90 percent of the New York milk market now appears to be averted because Farmland Dairies and Parmalat USA announced that they would restructure their bankrupt American operations rather than sell the company to a competitor.
Last week, the US Department of Justice revealed it had already launched an antitrust investigation Schumer had requested that was assessing the potential impact the sale will have on milk consumers and dairy farmers in New York. Schumer said that today's news will help to both preserve competition and fair prices for milk produced by New York dairy farmers and help prevent further milk price hikes in New York.
"The bottom line is sometimes the free market needs a nudge to make sure it stay free and open for regular people," Schumer said. "With dairy farmers struggling to stay afloat, we had to do something to prevent a milk monopoly that would drive prices lower and hurt their ability to put food on the table for their families. At the same time, with milk prices over $4.00 a gallon, we had to do something to prevent a milk monopoly that would take New York prices ever higher. It's a simple law of economics that if you have one big supplier that is looking to buy most of the milk from our farmers and marketing it to consumers, both sides lose out it will be harder for the farmers to get a good price and harder for customer to find an different brand. Parmalat not being swallowed up by another milk giant is some of the best news both New York dairy farmers and milk buyers have gotten in a long time.
Parmalat, which has 30 subsidiaries around the world, has been embroiled in an accounting scandal since it revealed last year that a bank account that supposedly contained $5 billion did not really exist. Auditors had used the fake account to certify the company's books, leading several Parmalat executives to resign while others are under investigation for fraud. Following the accounting scandal, Parmalat USA filed for bankruptcy February 25 and began the process of being sold. Since then, Parmalat was involved in negotiations with companies to acquire its US subsidiaries.
Schumer was concerned that an acquisition by one of the existing New York milk suppliers may reduce competition and lower the prices paid to dairy farmers for milk in an already concentrated market. At the same time, New York consumer would lose because such a move would reduce competition and raise prices for consumers in an already concentrated market. For example, had Dean Foods acquired Parmalat USA, the combined company would control as much as 8590% of the New York City market.
Schumer urged the Antitrust Division of the Department of Justice to closely follow the potential sale and ensure there is no reduction in competition in New York's dairy industry. Schumer said it was in the vital interest of both New York's dairy farmers and consumers that the Department of Justice remain vigilant and fully protect New Yorkers as the Parmalat sale proceeds. The Department of Justice has authority under Section 7 of the Clayton act to prevent mergers from substantially lessening competition in a market.
Last week, the Justice Department agreed to do the survey Schumer requested and had already begun work on it.
Late last week, Farmland Dairies LLC quietly announced that it will work with its creditors to develop a plan to reorganize and restructure the business rather than sell it.
Farmland management believes this plan will provide the necessary longterm financial and operational stability needed to ensure that Farmland continues to successfully operate its dairy business in the United States, including Parmalat USA. Parmalat/Farmland is now developing a reorganization plan to set up a new capital structure and make operational improvements to achieve longterm financial stability. Farmland is also initiating a search for a new CEO. Most important, all deadlines relating to the sale of Parmalat assets are being cancelled.
"Competition is what keeps prices fair and anyone who makes a living on a dairy farm or buys milk cheese or ice cream for their family dodged a bullet today. We're not out of the woods yet, it looks like a major hurdle that could have hit us has been cleared," Schumer said.