Big Govt — the Big Cheese Over Small Business

Thursday, 30 Dec 2010 08:48 AM

By Todd Stump

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If you’re a small business owner, the government is your competition.

People rightly have caught on that there is one set of rules for enormous banks, insurance companies, and automobile manufacturers, and a completely different set for the rest of us. But it didn’t hit home until recently when I realized the United States Department of Agriculture is trying to bury me under thousands of $6 pizzas.

Recently Michael Moss published an article in The New York Times that revealed a partnership between Domino’s Pizza and the United States Department of Agriculture.

Dairy Management Inc. is a not-for-profit company created at the direction of the USDA to promote the consumption of dairy products.

Dairy Management is funded solely by contributions from dairy farmers collected through a mandatory system known as the “check-off” program. The government dictates that dairy farmers must participate in this program and that the revenues must be paid to Dairy Management.

The end consumer, and many times the dairy farmers themselves, are unwilling participants in this price-inflating arrangement.

They now understand their mission to be subsidizing Domino’s marketing efforts to the tune of $12 million dollars. The idea is for Domino’s to make a cheesier pizza and for Dairy Management to help them sell it.

Cheese is the biggest cost-component of a pizza. And at State Street Pizza, my new restaurant in the River North area of Chicago, we use mozzarella produced by American dairy farmers.

The high wholesale cost of cheese has a little to do with its actual cost of production, and a lot to do with federal price supports for dairy products. There are arguments for and against this agricultural policy, but if everyone in the restaurant business has to operate on an even playing field, so be it. Of course, it’s not an even playing field.

It seems the policy of my government is that my small one-location business should pay inflated prices for the key raw material of my product, and that a portion of the windfall is directed to an enormous competitor that aggressively undercuts local competition.

The author of The New York Times article pointed out the predictable government hypocrisy of spending taxpayer money to discourage the consumption of cheese while at the very same time spending even more money to encourage it. But I’m not out to re-invent government, I just want to sell pizza.

Legendary Chicago columnist Mike Royko once suggested a more appropriate motto for our fair city: “Where’s Mine?” So rather than attempt the impossible, the end of a government program, I contacted Dairy Management directly to inquire as to how the little guy can get with the program and sell more cheese.

Why shouldn’t a small one-unit business that makes a delicious pie not do its civic duty and help those dairy farmers?

My initial phone call to Dairy Management was directed to Stacey Stevens, its public relations director. She had apparently expected a reporter digging for the precise mechanics of how the money gets from someone like me to a company like Domino’s, so she immediately went on the defensive.

Instead I complimented her on the program and asked how I can participate. We had a friendly chat and she promised to pass the inquiry along to colleagues who administer the program.

You can guess how that worked out. Despite numerous phone calls to both the Public Relations Department and attempts to reach the administrators of the program, I was rebuffed. After many unreturned phone calls, I finally managed to reach Stevens and was told, borrowing a phrase from the poultry business, they “decided to put all their eggs in one basket.”

Naturally I inquired why this bountiful horn-of-plenty belonged to my competitor.

Stevens countered that as a downtown Chicago pizza shop, Domino’s, Dairy Management’s marketing partner, was “not my competition” at all. You see, people downtown “would be embarrassed to order the cheap stuff."

"And how would Dairy Management ever administer a program to serve America’s nearly 60,000 independent pizza shops?" she wondered, oblivious to the fact that it manages somehow to collect money very efficiently from America’s 60,000 dairy farmers.

According to Domino’s most recent SEC filing, they proudly proclaim that they use one and only one cheese supplier. The Supreme Court has upheld the constitutionality of the dairy check-off program, but with the stipulation that it is used only for “generic” promotion: “Got Milk?” for example.

Instead, in this case, Dairy Management takes money from all cheese consumers by way of their compulsory fee on dairy farmers, and gives it to one pizza retailer that buys its cheese from one supplier.

How does this square with the generic promotion of cheese? And how does it square with the principles of free-market competition?

State Street Pizza has recently begun a direct-mail program at significant cost. This investment should result in increased business and will require more cheese for which I will pay more than the true market value, and the cream that is skimmed from my payments will be transferred to my competitor.

I have sent letters and even a proposal to Tom Gallagher, Dairy  Management’s CEO, but so far, no response.

The pernicious effect of this close relationship between big business and government will erode the entrepreneurial spirit of this country if it continues.

So when people rightly criticize big banks, big finance, big insurance, and big oil for adhering to a completely different set of rules than the rest of us, don’t forget to include big pizza.

Todd Stump is an entrepreneur who has built broadcast television, publishing, and digital media companies in Central and Eastern Europe, a political consultant, real estate investor, and most recently, a pizza restaurateur.

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