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Dean Foods bankruptcy could have consequences for small dairy farms




Indiana Correspondent

                 Dean Foods, the nation’s largest producer of milk, filed for Chapter 11 bankruptcy. There’s talk Dean Foods could sell to the Dairy Farmers of America, a national milk marketing cooperative based in Kansas City, MO. DFA is owned by and serves more than 14,500 dairy farmer-members in 48 states.

The bankruptcy could signal bad times for many small and mid-size dairy farms because of the shift toward larger producers such as Walmart and other store chains now processing their own milk. That’s according to Jim Mintert, an agricultural economist at Purdue University.

If Dean Foods doesn’t sell, Mintert said he expects the firm to close a number of milk processing plants as part of a restructuring while under federal bankruptcy protection.

                He said Dean Foods was already struggling when it lost the contract to supply milk to Walmart after the retail giant last year opened its own milk processing plant in Indiana near Ft. Wayne. The milk going into the Walmart plant is strictly from large producers, he said.

                Mintert said the business model is similar to one also followed by Kroger, Safeway and other major chain stores now processing their own milk offered at lower prices by eliminating steps and bulk to their supplies.

‘’The dairy industry, historically, has been a truck visiting farms loading up milk then going to another farm and loading up milk and then going to a processing plant.  Walmart has eliminated that step,” Mintert said.

                Compounding the problem for small and mid-sized producers looking to the future is the still declining consumption of milk. According to USDA, consumers nationwide in 2017 drank 37-percent less milk than they did in 1970. ‘’The future is not bright for that kind of producer,’’ he said.

In its supply chain, Dean Foods included dairy producers like Ernie Jones, who has about 300 milking cows in Lawrenceburg, Tenn.  Jones, a fifth generation dairy farmer, said he might be forced out of business if Dean Foods eliminates some of its processing plants like the one in Birmingham, Ala., where his milk now goes.

                He said finding another buyer for his milk is nearly impossible because processors as they’ve become larger and fewer in number rely more on major bulk suppliers. “We’re not big enough to where we can shake that big of a stick,” Jones said.

If DFA acquired Dean Foods and kept him on as a supplier, Jones said he could receive $1.50 less for every 100 pounds of milk because coops are not under a federal pricing mandate. Jones said he would probably quit dairy farming if such a price drop occurred because of his already razor thin profit margin from already slumping prices.

He would focus more on his existing row crop, hay and beef cattle operation on his 600 acres south of Nashville.

“Anxiety is very high.  We’re all just sitting in limbo,” Jones said.

Mintert said the way milk gets to store shelves has been evolving gradually for quite some time like it has with other consumer goods and Dean Foods waited too long to adjust.

“This is not a new phenomenon.  We’ve been transitioning to a dairy industry that’s more easily characterized by larger operations for a number of years,” Mintert said.  As a result, he said small and mid-sized producers are going to have to expand or look for alternative markets to survive.

He said one option for them is using some of their raw milk to make specialty items like butter and cheese to take advantage of the locally grown foods movement.

 ‘’Something that consumers would differentiate and be willing to pay a premium for it,” Mintert said.