U.S. milk shakeup just the beginning

While many in the United States dairy sector focus on why the nation’s largest milk bottler, Dean Foods, filed for bankruptcy Nov. 12, the smart money — if there is any smart money left after four years of crushingly low milk prices — is focused on what’s next.

What’s next is what’s always next when your business is built on shrinking markets, declining margins and a relentless rise in production: more tough times.

Dean Foods’ crack-up, though, is so big and its market presence is so broad that what happens next will impact dairy farmers, processors, bankers, and co-op members across the U.S. Maybe worse is that this sour mess was predictable, if not avoidable.

In fact, it was predicted by Peter Hardin, the publisher and editor of The Milkweed, a monthly dairy newspaper based in Brooklyn, Wisconsin. On the front page of its January 2019 edition, Hardin asked in blaring red ink, “Dean Foods: Preparing for Bankruptcy???”

As the three question marks attest, Hardin doesn’t do nuance. He does, however, do his homework.

In late 2018, Hardin came across a note in a Dean Foods’ quarterly Securities and Exchange Commission filing that reported the company had created something called the “Dean Foods Receivables Securitization Facility.”

That “facility” allowed Dean to place “$450 million… beyond the reaches of the bankruptcy process.”

Why, Hardin wrote, would Dean Foods “cook up an Ivy League MBA scam to shaft suppliers and lenders by hiding up to $450 million in liquid assets” from “the bankruptcy process?”

The answer: 94-year-old Dean Foods was headed into the tank.

It also pointed to the dairy sector’s overall failing health. After decades of rising competition, increased corporate consolidation, and growing integration between dairy co-operatives and corporate processors, hardly anyone in the fluid milk business is able to make any money nowadays.

In fact, the market is bleeding itself white. From 1979 to 2017, U.S. fluid milk consumption dropped from 247 pounds per person to 149 lb. Worse, sales of non-dairy “milks” like soy, almond, palm, and oats ballooned 61 percent from 2013 to 2017.

Compounding those struggles are major food sellers like Walmart. In 2019, Walmart began to buy, bottle, and sell its own milk and eliminated regional milk bottlers and fluid milk-selling farmers from its supply chain.

That trend will continue. It won’t be long before all American farmers become as commoditized as milk and chicken, since the food they’ll grow will be for giants like Walmart and Costco.

That streamlining already means fewer, free-standing processors like Dean and, in turn, even fewer milk marketing co-operatives and dairy farmers. In a way, Dean Foods is just the first, hulking victim.

Volunteering to be the second might be Dean’s largest fluid milk supplier, Dairy Farmers of America (DFA), which is now in discussions to buy Dean.

On the surface, DFA’s move makes sense. After all, Dean is the biggest milk buyer from DFA’s 14,000 farmer-members and still owes DFA $172.9 million for milk it bottled but never paid for.

But DFA and Dean have a checkered past. In 2007, both (and others) were sued by farmers who alleged antitrust violations between the co-ops and the processors. Both eventually settled without admitting wrongdoing.

But dairy farmers should ask themselves two questions.

First, if Dean and DFA already have a failed past relationship, how will DFA make money bottling and selling milk without lowering the price it pays for members’ milk?

Secondly, who is DFA going to sell its members’ now-cheap milk to? Deans Foods’ biggest customer was Walmart. So, who’s left?

The answers aren’t pretty. Then again, spilled milk never is.

Alan Guebert is an agricultural commentator from Illinois.

About the author

explore

Stories from our other publications