FDA on Adulterated Food:
'Don't Ask! Don't Tell!'

America's dairy farmers, already besieged with a chaotic national milk price structure, increasing concentration within the dairy industry, growing energy costs, corporate pressure to employ a questionable bovine growth hormone (rBGH). and the ever-present threat of foot and mouth disease are now being menaced by still another threat to their economic livelihood.

Milk Protein Concentrate (MPC) is today being widely used in the making of so-called cheese products, principally by Kraft, the nation's largest cheese manufacturer, and Land O'Lakes. The general definition of MPC is a blend of dry dairy ingredients from 42% to 90% casein (pure dairy protein). The World Trade Organization (WTO) has two Harmonized Trade Schedule (HTS) numbers to designate MPC -- 04049 and 3501.

HTS04049 is made by ultra filtering skim milk, retaining anything the size of a protein or larger (bacteria, somatic cell, etc.) and then drying that to form a powder. With HTS 3501 proteins obtained in other ways can be added (i.e., casein). Neither of these two products are considered milk by the Food and Drug Administration's (FDA) definitions.

MPCs are cheaper than domestic forms of dairy proteins (farm milk, nonfat dry milk, etc.). Not manufactured in the US, MPC's are added to cheese vats on the cheap, yielding more end products, with "savings" retained by the manufacturer. Traditionally, half of all US milk is destined to go into cheese production.

Imported MPCs come from traditional dairy countries such as New Zealand, which provides the US with 45% of its imports. Other countries exporting MPCs into the US include Argentina, Poland, India, China and the Ukraine, home of the city of Chernobyl. Between 1996 and 2000 imports of MPCs into the US increased by 400%.

Under US law, using an ingredient not approved by the FDA is one form of food adulteration. FDA defines food additives as "all substances ... the intended use of which results or may reasonably be expected to result ... in their becoming a component or food otherwise affecting the characteristic of food."

MPC is a food additive without exemption. FDA has no standard for MPC. The FDA does not list MPC among food additives "Generally Regarded As Safe" (GRAS). Thus, using MPC in any human food constitutes adulteration, EXCEPT when individual manufacturers have followed exact costly and complex rules for properly self-determining unapproved food additives to be GRAS.

If a food manufacturer like Kraft, which has 56.8% of the nation's cheese market and 62.2% of the "American" cheese market, and Land O'Lakes completes a self-GRAS determination then use of MPC in a non-standard food would be legal. FDA's GRAS self-determination rules require each food manufacturer using an unapproved food additive to conduct its own self-determination.

"As of late January, 2001," New York dairy farmer John Bunting notes, "no food manufacturer has voluntarily submitted any GRAS self-determination to the FDA. Nor has FDA reviewed any GRAS self-determinations by firms listing MPC in human foods. Don't ask! Don't tell!"

As Peter Hardin, editor and publisher of the authoritative monthly The Milkweed, who along with Bunting has done much of the investigation of MPC use in the US, shows "virtually EVERY Kraft processed 'cheese' product in the supermarket contains MPCs. Add up the Kraft products listing MPC as an ingredient: Cheez Whiz, Velveeta, the array of processed Singles products, Kraft emerges as a huge user of the 100-120 million pounds of MPCs that entered the US in 1999. Kraft now spells processed cheese products 'M-P-C'."

Hardin also has demonstrated that certain claims about Kraft's processed "cheese" products "appear to be less than truthful." For example, Kraft uses the word "Cheez," not cheese in Cheez Whiz, but still claims that Cheez Whiz is a "cheese dip." And, he adds, "good luck finding cheese in Velveeta, a Pasteurized, Prepared Cheese Product."

"Kraft has intentionally 'dumbed down' the quality and integrity of the processed 'cheese' products by using MPC," he adds. "But Kraft (and others) want more. The National Cheese Institute (NCI) has petitioned the FDA to allow ANY dairy ingredient (foreign or domestic) to be used in cheese manufacture. Kraft -- NCI's largest member -- wants to make it legal for all cheese manufacturers to 'dumb down' all cheeses, processed, natural ... whatever. Why? Cheaper ingredients boost corporate profits."

Supermarkets, Milk Processors Seek to Scuttle Northeast Dairy Compact

Legislation that would ratify dairy compacts in 25 states that have already enacted the compacts and in others that are still considering is being introduced in the US House of Representatives.

Currently the Northeast Dairy Compact -- which the Clinton administration allowed to be created originating from a provision in the 1996 farm bill -- sets the price of milk in New England. The new legislation being proposed by 19 House members, led by Rep. Asa Hutchinson, R-Ark., would permanently ratify the Northeast Dairy Compact, which is set to expire on Sept. 30, and allow a Southern Dairy Compact, stretching from Florida to Kansas and Oklahoma, perhaps including Texas and Nebraska as well.

Dairy producers in the West -- Utah, Washington and Oregon -- hope to also create a compact, but are not included in the present legislation. A Northwest dairy producers representative said that will urge their House members to add their states to the bill since Pacific Northwest dairy farmers want a compact because it would help them to raise prices since they have had high costs in dealing with environmental cleanup.

A States Ratification Committee, a coalition made up of state departments of agriculture and farmer organizations, are also currently seeking to come up with a "compromise" with Midwesterners who are opposed to the compact idea. Proponents of the compact concept point out that the current legislation would hold the Women, Infants and Childrens (WIC) feeding program harmless from price increases and that compact boards would include consumer representation.

Meanwhile, some 100 members of Congress have circulated a letter emphasizing a large congressional coalition in opposition to the dairy compacts. The letter was sent to Speaker Dennis Hastert (R-Ill.) and voiced the member's concerns and unified opposition towards any legislation authorizing the extension and expansion of regional dairy compacts.

Concerning the letter, Rep. Pete Sessions (R-Texas) said, "This letter sends an early signal to compact proponents that there is a large and committed number of Congressional members focused on opposing dairy compacts. As we work to tear down foreign trade barriers, we should not put up trade zones within our own borders. It's time to eliminate compacts -- they are the antithesis of a free market."

In their letter the representatives state: "Since July of 1997, the Northeast Interstate Dairy Compact has held milk prices artificially high by blocking the entry of lower priced, competitive milk into that region. This subversion of the basics of interstate commerce has resulted in higher consumer costs within the region and increased milk production, yet dairy farm numbers have continued to decline. In summary, this unprecedented use of interstate compacts to wall off competition not only flies in the face of the precepts of our constitution but also fails to stem the decline in the number of dairy farms."

Supermarkets and dairy processors are also seeking to kill the Northeast Dairy Compact, a four-year-old program that sets a price floor for milk sold by farmers and passes the charge, about 4.5 cents per gallon, on to consumers. Some supermarkets have put signs in milk cases blaming prices of close to $3 a gallon on the subsidy program.

''Without the dairy compact, a lot of local dairy farmers will close up shop,'' said Rep. James P. McGovern, D-Mass., a cosponsor of the bill, which would reauthorize the compact and include five other states from New York to Maryland. ''It also means fresher milk for New England consumers,'' McGovern said. ''You shut down one of these dairy farmers, you could see a strip mall the next day. No one wants that.''

A recently released independent University of Connecticut study, however, says milk prices went up, in large part, to increase leading supermarket and milk processors' profits, giving them an extra 11 cents a gallon. The study, by Ronald W. Cotterill and Andrew W. Franklin of the Food Marketing Policy Center, found that of the $130 million more that consumers across New England paid for milk, about $50 million has gone to supermarkets and dairy processors during the first three years since Congress passed the Northeast Dairy Compact. The price of milk went up about 29 cents a gallon from July 1997 to July 2000, according to the researchers.

''If people are concerned about consumer price levels of milk, the price-taking by these large retail [businesses] makes the price-taking by the dairy farmers pale in comparison,'' said Jay Healy, commissioner of the Massachusetts Department of Food and Agriculture. ''I find it to be the height of hypocrisy.''

'This is as Big As It Gets':

Suiza and Dean Foods Merger

Creating what will become the nation's first national dairy company, Suiza Foods Corp. has announced its intention to purchase its chief competitor, enabling it control approximately one-third of the nation's $25 billion dairy market.

"This is as big as it gets," Prudential Securities Inc. noted food stock analyst John McMillin told Dow Jones Newswires' Cathleen Egan. "This builds a powerhouse dairy company."

With combined annual sales of $10 billion and earnings before interest, taxes, depreciation and amortization of about $900 million, the combined company, will be called Dean Foods. It would have 37 plants and roughly 30,000 employees. Suiza holders will own 65% of the new company, with Dean holders taking the remaining 35%.

Upon approval by anti-trust regulators, Dean Foods would create a dairy giant with annual sales of $9.5 billion, operations in 39 states and 30% of the US beverage milk market. Anticipating antitrust concerns, Suiza and Dean already have agreed to sell six dairies to Dairy Farmers of America Inc. in states where they have overlapping operations.

During the late 1990s the current Dean Foods went on an acquisition binge swallowing more than 20 companies. Since it was founded eight years ago, Suiza has engineered 43 acquisitions to grow to nearly $6 billion in annual sales. It has a 20% share of the beverage milk market, with Dean Foods holding a 14% share. Sale of the six dairies would reduce their combined share.

A large dairy processor like Dean Foods, according to Suiza Chairman and Chief Executive Gregg Engles, would make distribution, managing accounts and stocking shelves more efficient since currently there are some 200 fluid milk processors in the US and any retailer can themselves dealing with dozens of processors at a time.

The dairy industry, Engles told Egan, is "extraordinarily complicated." Pricing alone changes monthly. Engles said he doesn't see the development of a national milk product. Doing so would be expensive, he adds, since consumers already identify with their current milk brands, which are sold and marketed on a regional basis. That means advertising will remain regional.

The proposed merger has alarmed many of the nation's dairy farmers since the new company will have the clout to dictate dairy prices to farmers -- prices that had just started to rebound after hitting historical lows last year and driving some farmers out of business.

In Wisconsin alone, the nation's second largest dairy state, 1,000 dairy farms went out of business or were sold last year, according to the Wisconsin Agricultural Statistics Service. "Current prices haven't covered the cost of production," said Bill Brey, a Wisconsin dairy farmer for 27 years. "The prices that we are receiving will continue to drive farmers out of business."

National Farmers Union (NFU) President Leland Swenson in a letter to US Attorney General John Ashcroft has urged the Justice Department to conduct a comprehensive investigation concerning the antitrust and market implications of the merger.

"NFU is extremely concerned about the prospect that such a transaction would lead to further horizontal and vertical integration within dairy production and processing sectors, enhancing the market power of the purchasing company to the disadvantage of independent producers and consumers alike," Swenson points out.

He also urges the Justice Department to review the holdings of Suiza and Dean Foods and investigate the relationship between Suiza, Dean Foods and their joint ventures and strategic alliances. Noting that Suiza already controls 30% of US fluid milk Swenson questions "whether this 30% statistic, albeit alarming per se, reflects the accurate level of market concentration that would occur. We need to have a clear understanding of the relationships of these joint ventures and alliances and how they influence the level of concentration in the proposed merger between Suiza and Dean Foods.

A.V. Krebs operates the Corporate Agribusiness Research Project, P.O. Box 2201, Everett, Washington 98203-0201

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