Dairy Farmers of America (DFA) is facing a legal challenge from a rival milk processor and a grocery chain over its agreed deal to buy a significant portion of the assets of bankrupt dairy peer Dean Foods.

Maryland and Virgina Milk Producers Cooperative Association (MDVA) and grocery chain Food Lion – owned by European grocery giant Ahold Delhaize – have lodged a legal suit alleging “anti-competitive practices” and asking the sale be invalidated on the grounds it will create a monopoly. More specifically, it argues DFA be prohibited from acquiring at least one of three facilities in North and South Carolina.

DFA dismissed the legal claim as “meritless and perplexing” and said it would be “aggressively” defended.

In its legal submission to a North Carolina district court filed on Tuesday (19 May), the plaintiffs said their action arises from DFA’s “long-standing effort to seize control of the milk supply chain”.

The submission, seen by just-food, alleges that DFA “has rapidly consolidated and dominated the market for the supply of raw milk not by competing on the merits, but through unlawful conduct and anti-competitive agreements through which it has gained near-complete control over the purchasing of key nationwide milk processors”.

It goes on to further allege: “This anti-competitive campaign has allowed DFA to transform itself from a modest regional dairy cooperative into the Standard Oil of the modern dairy industry.”

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The plaintiffs allege that DFA’s plan to buy 44 Dean Foods processing plants out of its bankruptcy estate has been actioned to “avoid the prospect of competition and [to] protect its market power”.

The court submission said this will lead to a “DFA monopoly over the dairy supply chain, the death of the independent, family-owned dairy farm, and higher prices for consumers”.

It said: “While Food Lion and MDVA believe that the asset sale will substantially lessen competition across the country, this action is narrowly focused on the area in which dairy farmers supply raw milk to, and customers purchase processed milk from, milk processing plants located in North and South Carolina.”

DFA has yet to respond to the legal suit.

just-food asked DFA and MDVA for comment on the legal action.

DFA executive vice president and chief of staff Monica Massey said: “We are aware of the lawsuit that has been filed regarding our acquisition of three Dean Foods facilities in North and South Carolina. This transaction has been approved by the Bankruptcy Court and, after a rigorous review, by the US Department of Justice.

“We believe these claims are meritless and perplexing, and we will aggressively defend ourselves. Our primary focus in acquiring these facilities has been, and continues to be, to maintain milk markets and minimise disruption to the dairy industry.”

MDVA said: “Maryland & Virginia Milk Producers has not issued a statement on the proceedings at this time.”