Tuesday, December 6th, 2016

Means to the end of Golden Guernsey

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If you were listening to WISN’s Mark Belling yesterday afternoon, he discussed the Golden Guernsey closing during the second half of the second hour of his show.

Belling was correct. Steve Means from the Attorney General’s office wrote a defense of Attorney General JB Van Hollen joining the anti-trust lawsuit that was in direct response to my Waukesha Freeman column on the topic.

Belling was also correct that Means’ defense is absolutely ridiculous. If the plant was going to fail, why would Dean Foods fight the anti-trust lawsuit? Why even have an anti-trust lawsuit if Van Hollen and Means were such experts in the dairy industry that they knew the plant was going to fail?

And if suing failing industries is such a great economic tool, why isn’t Van Hollen suing more businesses? Where was his lawsuit against General Motors to keep the Janesville plant open?

But let’s dispense with one lie, and yes it’s a lie, by Means right away. “Since Van Hollen took office, only the Dean Foods transaction has been challenged in court, because the facts and the law demanded action.”

1. Shortly after Van Hollen took office, he challenged the Sirius and XM satellite radio merger. Yes, it was not in court, but that’s just Means being too cute by half.

2. If the rest of Means’ letter has any validity, then the plant was doomed to fail and there was not reason to sue Dean Foods in the first place.

However, I question Means’ statement that the dairy plant was in danger prior to Van Hollen and Means becoming the Dairy Czars of Wisconsin. In a report by the Wisconsin Reporter,

“This was entirely driven by the federal Department of Justice and Attorney Generals from Wisconsin, Illinois, and Michigan theorizing that there may be some price collusion in milk for schools,” said Chris Olsen, chief executive officer of ECO, Inc., an Elkhorn-based specialized transportation and distribution company, which also has a dairy division.

‘Train wreck’

At the time of the lawsuit, the U.S. Department of Justice approached Olsen for consultation because of his expertise in the dairy industry. What Olsen, a 40-year veteran of the dairy trade, told Justice in June 2011 appears prophetic now.

“You may as well have an auction and let the place go along with the 150 jobs, numerous distributors, bulk haulers and support personnel,” he wrote to the Department of Justice June 28, 2011. “I cannot believe that this type of a train wreck is occurring under your auspices.”

Waukesha’s longstanding Golden Guernsey shuts down, and some say the U.S. and state attorneys general and their anti-trust lawsuit are in part to blame. A state official says it’s not their fault: “We rely on economists, people with advanced degrees who study these things.”
Olsen went on to suggest the DOJ work out an operating agreement with Dean Foods to ease regulators’ fear of collusion.

Work out a deal with Dean, Olsen said, and “you would have competent dairy people running a plant with adequate funding. Without a player operating the facility … or Dean Foods, it will be a slaughter of that plant. It should be obvious to you NO ONE wants the plant based on the oncoming slaughter simply by reviewing the interest in purchase presented,” he wrote.

The DOJ ignored Olsen’s advice. Instead, officials gave Dean Foods 90 days to sell off the plant, along with its customers and machinery used in bottling milk. Dean also had to promise to report any plan to purchase a bottling plant for $3 million or more in Wisconsin or within 150 miles of the state border.

Of course, the more we learn, the more it’s embarrassing for Van Hollen. The Wisconsin Reporter also reports,

The larger problem, according to Gowey and Olsen, was contained in the terms of the antitrust settlement.

“When DOJ allowed Dean Foods to remove ice cream production from the facility, it put the plant in an uncompromising financial dilemma,” Gowey said. “Local management made it clear it would be difficult to keep the plant going without ice cream. I don’t know what DOJ was thinking when they allowed it. You’re not going to stand alone with school districts serving school milk.”

Because the lawsuit focused on the monopoly of “fluid milk,” Dean’s was allowed to remove its ice-cream processing equipment from the Waukesha plant. Dean’s used the cream left over from milk production to make ice-cream, a product with higher profit margins than milk.

In removing the proverbial cash cow from Golden Guernsey, critics argue the trust busters essentially hamstrung the purchaser, now left with nearly the same fixed operating costs, but fewer products to sell. Milk processors typically have other plants within 150 miles to supplement the fluid milk business with butter, sour cream or yogurt production.

OpenGate purchased Golden Guernsey as a stand-alone plant, meaning the company had to sell its cream to buyers who could process it.

So while Means is in full Cover Your Attorney General mode, the truth is Van Hollen, more than any other currently elected official, is responsible for the demise of the Golden Guernsey Dairy plant in Waukesha. It’s disgusting that Means is actually trying to spin this disaster as a success, but it’s a cruel reminder that whether the government agency is run by a Republican or a Democrat, it’s far preferable to let the market run its course. Unfortunately, 112 workers had to learn the hard way Van Hollen and Means are not experts at running the dairy market.

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