Vertical Foreclosure: The Impact of the Proposed Reduction in Diversion Limits on the Exercise of Market Power and the Economic Performance of Milk Marketing Channels in the Mideast Federal Milk Marketing Area

My name is Ronald Cotterill. I am a Professor of Agricultural and Resource Economics at the University of Connecticut, and Director of University of Connecticut’s Food Marketing Policy Center. My curriculum vitae has been marked as Exhibit No. 1. I have been asked by John Vetne, attorney for White Eagle Milk Marketing Federation and other interested parties, to analyze the impact of proposed changes to pool qualification rules on pricing conduct and the economic performance of markets in Midwestern milk marketing channels. Proposal Number 2 at this Hearing would tighten pool performance standards by reducing the diversion limits for Sec 9c. cooperatives and other handlers from 60% to 50% in each of the months of August through February and from 70% to 60% in each of the months of March through July (Federal Register, 2/17/2005, p. 8045). Pool supply and cooperative plants would also experience a tightening of pooling standards, but the burden of these changes would fall more heavily on supply plants because supply plants qualify for pool participation on the merits of the individual plant’s conduct while cooperative plants qualify by paper designation based on the cooperatives system-wide performance. Dean Foods has proposed additional, and more restrictive, pool qualification rules.