June 2, 1998

With the aim to improve distressed dairy farmers’ income and promote retail sales, June Dairy Month 1998 celebrates the second anniversary of state law allowing retailers to use milk and other dairy products as "loss-leaders" to reduce consumer prices during the month, according to the Minnesota Dairy Producers Board. A "loss-leader" is any article that a store sells cheaply or below cost in order to attract customers. "This is good medicine to help the state’s dairy industry combat the unhealthy economics of declining farm income, rising consumer prices, and growing uncertainty over the future existence of neighborhood and rural dairy cases," said one of the board’s consumer representatives Holly Harjes of the Minnesota Food Association.

"Remedies are certainly needed for prices that are too low to allow farmers to milk cows, too high for consumers to buy dairy products, and too uncertain for smaller retailers to maintain their dairy cases," Harjes said. "The board applauds any effort to maintain the farmers, consumers, and local retailers in our dairy industry because they provide the foundation on which rests our processors and distributors. What better way is there to celebrate Dairy Month," she proclaimed.

The law was a response to the plummet in farmers’ mailbox prices in the fall of 1996 combined with rising consumer prices in the Twin Cities, both allegedly caused by processor price fixing, the board explained. Along with the "loss-leader", the law required the Minnesota Department of Agriculture to investigate the dairy trade practices used by wholesalers and distributors to sell milk and dairy products to large, medium, and small retailers, the board said. The investigation was prompted by suspicions that some large supermarkets were given a competitive advantage over smaller retailers by the wholesalers and distributors through the unfair use of volume discounts, promotion rebates, fees for shelf space, and a whole array of other trade practices, the board explained. Unfortunately, the investigation was inconclusive due to lack of cooperation by the majority of wholesalers and distributors which neglected to respond to the department’s survey of their trade practices, the board said.

"While the consumers and farmers on the board are very grateful for the ‘loss-leader’ as an effort to save the farming, consumption, and local retail parts of our industry, we’re concerned over the failure to learn if there is, indeed, unfair trade practices that may neutralize the ‘loss-leader’s’ ability to maintain our neighborhood dairy cases," said board president Jeff Kunstleben of Albany. The board said it commends Commissioner of Agriculture Gene Hugoson and Dairy Trade Practices Supervisor Mark Pochardt for conducting the investigation, and the legislative leadership of Senate and House Agriculture Committee chairmen Senator Dallas Sams and Rep. Steve Wenzel, and Committee members Senator Becky Louery and Rep. Bob Gunther for enacting the investigation.

However, the board said it is dismayed over the lack of compliance from the majority of wholesalers and distributors in the investigation. As a result, it is recommending that the state Attorney General’s office continue the investigation because of the vulnerability of neighborhood and rural dairy cases which would deprive local consumers of necessary dairy products if they were put out of business by unfair trade practices, the board said.

In other words, unfair use of dairy trade practices, if they exist, between certain wholesalers and large supermarkets negates any advantage the "loss-leader" would have for local retailers, Kunstleben argues. Large supermarkets don’t really need the "loss leader" in the first place, he said, because they already have year-round use of the other trade practices to put them at a competitive advantage over the local retailers. Unless there’s equity in how trade practices are used between large and small retailers, the "loss-leader" alone won’t save our local dairy cases, he predicts.

"The dairy case is the biggest draw for consumers at our grocery stores, ‘quick stops’, and ‘mini-marts’ which gets them to buy cereal, bread, and other items that they regularly need," explained consumer representative Harjes. "Therefore, loss of the dairy cases would discourage customers from coming into the stores for these other items which would put them out of business," she said. "Rural and neighborhood consumers, especially the elderly and lower-income families, would be denied access to affordable local shopping," said consumer representative Ken Christianson who represents the Minnesota Senior Federation on the board. "Dairy farmers would lose a major base of consumption which would lower their income and drive more of them out of business along with the local grocers," he said. "To prevent this from happening, we need trade practices that will keep local dairy cases a viable part of our economy and quality of life," he said.

"When you look at the elaborate arsenal of dairy trade practices used by wholesalers-- slotting fees, volume discounts, cents-off allowances, billbacks, promotional rebates, credit allowances, off-invoice arrangements, bulk sales discounts, and display preferences-- it’s easy to see how they could be manipulated to the advantage of certain large supermarkets," Kunstleben said. "Because these trade practices are so susceptible to manipulation, we’re calling upon the legislature’s agricultural leadership to support our request for the state Attorney General’s office to continue the investigation."

CONTACT PERSON: Jeff Kunstleben, Albany, 320-845-4336