simply because there is little more to add. It is
simply another unfortunate result of attempting to
legislate a marketing system.

The procedure for promulgating a federal milk
The Secretary gives

order is fairly straightforward.

notice of a hearing when an order is being contemplated. Such a hearing, as a practical matter, results from a petition by producers through their cooperative. All interested parties may appear at such a hearing, and a recommended decision and proposed order result. A short period of time elapses so comments and exceptions to the proposed order can be received, and a final order is issued.

In the case of a new order, a formal referendum, required by the statute, 9/ is held. Approval by twothirds of the producers selling milk in the area covered (by either number or volume) who voted is required for passage. 10/ Cooperatives are empowered to block vote for their members. 11/ This means that cooperatives. cast the votes of all its members regardless of a minority position within the cooperative.

9/7 U.S.C. S 608c (19).

10/ 7 U.S.C. § 608c (9). In some cases, a three-fourths majority is required, 7 U.S.C. S 608c (5) (B) i.

11/7 U.S.C. $ 608c (12).

If an existing order is to be amended, the

required two-thirds producer approval can be and
usually is determined by simply contacting the manage-
ment of the cooperatives involved. A milk order can
be terminated by the Secretary of Agriculture if he
finds either that the order no longer tends to effec-
tuate the purposes of the Act or that the termination
is favored by a majority of the producers. 12/
Currently, there are 56 orders, generally covering most
of the population centers except for California.

As should be evident even from this cursory discussion, there is substantial intervention by the federal government in the marketing of milk through the operation of the federal order system. However,

as mentioned at the outset, the marketing of milk is
impacted not merely by the order system, but also by
the operation of cooperatives within the order system.
The cooperative form of farmer organization is an
effective and reasonable means of creating some bar-
gaining power in farmers when they enter the market
to buy supplies or sell their raw milk. Historically,

and currently, farmer cooperatives provide valuable
services to their members and are and can be effective
and entirely appropriate, bargaining forces. In

12/ 7 U.S.C. § 608c (16).

addition, cooperatives have achieved some of the

efficiencies that the 1922 Congress envisioned when it

enacted the Capper-Volstead Act.

However, within the last ten to fifteen years, problems have arisen out of the action of cooperatives within the order system. In some instances, there have been clear abuses by cooperatives acting well outside the scope of any reading of the antitrust immunity: in these situations, antitrust enforcement resulted. However, two other categories of cooperative conduct are more troublesome. First, the order system frequently provides an incentive for conduct which is either inefficient, economically irrational (but for the order system) or anticompetitive. This conduct is generally protected from the operation of antitrust laws by the order system. The second category of cooperative conduct, generally anticompetitive, is generally .considered to be protected from operation of the antitrust laws, although the extent of the immunity granted might be open to some question. Mergers of cooperatives provide a good example of this type conduct, as

do certain forms of joint action and anticompetitive agreements among cooperatives. In both categories, the impact of cooperative conduct upon and within the order system has been substantial, recurring and in some cases

harmful.

What follows is an analysis of cooperative conduct, the market order system, and how one affects the other. The social costs and purported benefits of the current system of milk marketing regulation are also discussed. Finally, possible remedies for the problems created by the system's operation are presented, along with a projection of their impact.

CHAPTER 1

HISTORY OF THE DAIRY INDUSTRY

1.1 Background

A. The Beginnings of an Industry

Prior to 1900, the dairy industry was characterized by small scale production and very personal marketing relationships. The population of the United States was essentially rural, and production of dairy products

occurred close to the place of consumption.

Marketing

was limited; most families milked their own cows, and those who did not secured milk from their neighbors. 1/ Even as the nation became more urban, the large majority of remaining farms continued to keep milk cows. 2/

The health hazards associated with raw milk required that milk consumed in fluid form (fluid milk) be marketed locally. Prior to the development of pasteurization and refrigerated transportation, raw milk had a very short life, and deteriorated quickly. Producers could sell milk to consumers and handlers based on their reputation for quality. Thus, the marketing area for fluid milk was

quite small, and often completely isolated from neighboring markets.

1/ Dept. of Agriculture, Yearbook, "The Dairy Industry," p. 281 (1922).

2/ In 1922, seventy percent of all farms had cows.

Id.