By Stan Maddux
KANSAS CITY, Kan. — Dairy Farmers of America is offering $425 million in U.S. bankruptcy court for much of the Dean Foods operation.
The transaction pending final approval would seem like a good fit considering the high standing of each group in the industry and their working relationship before and during bankruptcy proceedings. Many DFA members are suppliers to Dean Foods. DFA headquartered in Kansas City Kansas is the largest dairy cooperative in the U.S. with 14,500 member owners in 48 states.
“As Dean is the largest dairy processor in the country and a significant customer of DFA, it is important to ensure continued secure markets for our members’ milk and minimal disruption to the U.S. dairy industry,” said Rick Smith, DFA’s chief executive.
According to DFA, the deal would include the purchase of 44 facilities owned by Dean Foods and their associated direct store delivery system along with certain corporate and other assets and functions.
The offer comes as no surprise with a buyout from DFA speculated in early reports about the financial struggles of Dean Foods, which filed for Chapter 11 bankruptcy in November.
One hope of the proposed takeover is to better compete with changes in the supply chain from Walmart in 2018 opening its own milk-processing plant near Fort Wayne, Ind.
Walmart eliminating the middle man to provide milk to its grocery customers was cited as a major reason for the downfall of Dean Foods along with the rising cost of raw milk, reduced milk consumption and competition from non-dairy beverages.
“We have had a relationship with DFA over the past 20-years, and we are confident in their ability to succeed in the current market and serve our customers with the same commitment to quality and service our customers with the same commitment to quality and service they have come to expect,” said Eric Beringause, the Dean Foods chief executive. The impact on small and mid-sized suppliers of Dean Foods remains to be seen.
Some producers are concerned they could be eliminated from the supply chain if DFA emerges from the bankruptcy proceedings closing plants now owned by Dean Foods to scale back operating costs. They’re also worried about finding other supply chains given the move by Wal-Mart and other major retailers in recent years to get milk from strictly larger producers.
Monica Massey, executive vice-president and chief of staff at DFA, told Bloomberg news DFA has been closely watching Dean Foods since the company began revealing signs of financial distress to try and minimize the impact to DFA and its members.
Doug Leman, executive director of Indiana Dairy Producers, said he understands change in any industry isn’t easy and only time will tell the outcome if the proposed DFA takeover goes through. His outlook, though, is more hopeful. “Any time you have a viable company purchasing a non-viable company it’s probably a positive for the industry.”
“The most positive thing I’ve heard is they’re looking to preserve some local markets for producers. I’m glad somebody is taking over the plants,” Leman said. He also believes any small or mid-size producers negatively impacted will find other supply chains.
He said processors like Dean Foods left behind from giant retailers going directly to major producers have to get their milk from other sources and milk offered in larger venues like Walmart can help drive up demand. “The companies supplying Walmart left other suppliers and those suppliers need to get their milk from some place. It’s going to open another plant for the others.”