Hein Hettinga gets acquainted with one of his Holstein milk cows at one of his five dairy farms outside Yuma.

Knight Ridder

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YUMA — Hein Hettinga is a dairy farmer, but he doesn't spend his days milking cows.

Rather, Hettinga keeps a cell phone pressed to his ear to keep tabs on his empire of 15 dairy farms stretching from California to west Texas, including five massive farms in the desert east of Yuma.

But what distinguishes Hettinga from other large-scale dairy farmers is that he also bottles the milk from his Arizona farms and trucks it to stores in Arizona and Southern California. At one of them, Sam's Club in Yuma, two gallons of Hettinga's whole milk sell for $3.99.

That's the same price as a single gallon of whole milk in Chicago, which is second only to New Orleans in the cost of milk.

By controlling all stages of production, Hettinga, 64, says he can produce milk so efficiently that he and his customers can make a hefty profit at dirt-cheap prices. Such vertical integration, as it is known, is increasingly popular in agriculture as farmers and processors try to find ways to eliminate costs and increase revenues.

But in the highly politicized world of dairy, efficiency could carry a price. Major dairy cooperatives and milk processors successfully persuaded federal regulators to write new rules that would prohibit the business practices that Hettinga has so successfully put in place.

Under the proposed regulations, Hettinga could continue to process his own milk only if he agrees to participate in a federally regulated pool of milk revenues, which would essentially require him to pay his competitors to stay in business. A bill that would have a similar effect is working its way through Congress.

Hettinga, who emigrated from Holland to California at age 7, said the pending regulations were an effort by dairy heavyweights such as Dean Foods and the Dairy Farmers of America, the nation's largest dairy cooperative, to monopolize the milk business.

"Basically, I'm a pebble in the shoe of DFA and Dean Foods," he said. "The only reason I'm a success is they are a milk monopoly and they have raised the price too high. The consumer is getting ripped off."

Dean and the Dairy Farmers of America, or DFA, declined to comment for this article.

In legal briefs filed with the U.S. Department of Agriculture in 2004, lawyers for Dean Foods and DFA argued that Hettinga's operation flouted the original intent of the federal milk market order, a regulatory system created during the Great Depression to ensure a reliable milk supply and a reliable price for farmers. The regulations include an exemption for farmers who bottle their own milk, known as producer handlers.

Marvin Beshore, a lawyer for DFA, has said Hettinga's dairy takes the idea of producer handler far beyond what regulators originally envisioned, "mom and pop dairies that bottled the little milk they produced and sold to their neighbors."He has said that if Hettinga were allowed to continue, it "will lead to the disintegration of the entire federal order system and consequently, to chaotic milk markets across the United States."

Charles English, an attorney representing Dean Foods and Shamrock Farms, a competitor of Hettinga's in Arizona, said in a 2004 brief to the USDA that Hettinga's operations had grown so large so quickly that they were depressing prices for other dairy farmers in Arizona by a penny or two per gallon.

English also argued that Hettinga had an unfair advantage over regulated milk bottlers because he didn't have to pay the federally mandated price for raw milk, allowing him to undercut competitors.The result is that Hettinga is stealing customers by offering prices that regulated processors can't match, English said.

The intense lobbying effort to curb Hettinga showcases what many, including lawyers in the Justice Department, say is an antiquated, unfair system for regulating milk. These critics question why the federal regulations are still needed, given an oversupply of milk and a burgeoning international dairy marketplace that bears little resemblance to the 1930s.

Furthermore, they argue that the rules of the federal order have allowed the giants of the dairy industry to tighten their grip on the marketplace by forcing competitors to comply with rules that favor larger outfits. Allegations that DFA was trying to monopolize the raw-milk market have prompted an ongoing antitrust investigation by the Justice Department.

Dairy processors pay at least a USDA-set minimum price for raw milk. Milk revenues are combined in a regional pool, and farmers receive an average price. So a farmer whose milk is shipped to a cheese plant receives the same price as a farmer whose milk is bottled into gallons.

But because of the exemption for producer handlers, Hettinga has bypassed the federal milk order. If the changes to the milk order are approved, there would still be an exemption for producer handlers, but only those that produce less than 3 million pounds of milk a month — about a sixth of Hettinga's Arizona production.

"These laws have been in effect 60 years, 70 years, and they are changing the law just to do me in," said Hettinga, who has spent nearly $1.5 million on legal fees during the past four years, about $1,000 a day. "If I've got such a better system, why don't they deregulate everyone?"