Fort Wayne bottling startup delayed, How Walmart may shape dairy landscape

By Sherry Bunting, edited from Farmshine and Farmers Exchange May 18, 2018

GreatValueMilk(WalmartPhoto).jpgFORT WAYNE, Ind. — Bottling at Walmart’s first-of-its-kind milk plant in Fort Wayne, Indiana will be delayed.

“We’ll begin bottling later this summer and will kick in to full production later this year,” notes Walmart spokesperson Molly Blakeman in an email response.

Until then, she said, “we have a plan in place to ensure there are no disruptions in the supply chain for customers.”

Described earlier as a 250,000 square-foot plant to bottle Great Value and Member’s Mark milk for 600 Walmart and Sam’s Club stores, Blakeman confirmed: “Once it becomes operational and once fully utilized, it will be one of the largest fluid milk plants in the U.S.”

Processing capacity was not disclosed, but Blakeman did discuss milk sourcing.

“By operating our own plant and working directly with the dairy supply chain in the Midwest, we will further reduce our operating costs and pass these savings on to our customers, so they can save money,” she related.

“We are working with three milk cooperatives and a number of independent farmers. Each farm that is supplying milk to our facility is within 180 miles of the plant,” noted Blakeman, explaining that farms terminated by Dean Foods that are “closer to Fort Wayne have signed contracts with the cooperatives to work with Walmart.”

She indicated the plant will serve stores “throughout most of Indiana, Michigan, Ohio and parts of Illinois and Kentucky.”

Beyond that, she confirmed: “Dean Foods remains a very large fluid milk supplier to many (Walmart) stores.”

When questioned about reports that Walmart is already eyeing sites for future plants, Blakeman said they want to be successful with this plant before seeing if other opportunities exist.

“Walmart’s goal is to produce the highest quality and freshest-tasting fluid white milk and chocolate milk possible — and deliver a great value on that purchase,” Blakeman stated.

Meanwhile, the milk price wars among supermarkets, discounters and big box stores have reached new lows of 67 cents per gallon in states without loss-leader protection — including Indiana, Kentucky, Michigan, Ohio and Illinois, the states to be served by the new Walmart plant.

Does Walmart accept these below-cost retail milk prices as a cost of customer acquisition and loyalty?

Blakeman cited the Federal Milk Marketing Orders (FMMO): “Any loss Walmart takes on milk cannot be passed on to the producer because of how our milk payments are regulated by the FMMO. We, as a non-coop processor, have a minimum milk price that is set by the government that we have to pay our producers and cooperatives.”

Furthermore, noted Blakeman, “Walmart will not do well in this plant if our dairy producers do not do well. We will provide a dedicated market for their milk, so they can focus on milk quality and animal care.”

She notes that Walmart understands the role of quality.

“We have strict policies in place in regard to animal welfare,” Blakeman explained, noting full support for the National Dairy Farmers Assuring Responsible Management (FARM) program initiated by National Milk Producers Federation, a milk cooperative membership organization, and Dairy Management Inc., an organization funded by the mandatory milk promotion checkoff.

At a link provided by Blakeman (https://corporate.walmart.com/policies), Walmart states that it is “committed to continuous improvement and aspires to achieve the globally-recognized Five Freedoms of animal welfare for farm animals in our supply chain.”

When asked how Walmart’s milk-sourcing addresses consumer desires for locally-produced milk, Blakeman put the focus on the plant.

“The farms and coops we are sourcing from are local and family-owned producers,” she said. “Milk being supplied to our plant comes from no further than 180 miles away.”

Walmart also seeks to work with single-source loads instead of commingled farm milk, and their efforts to work more directly with the milk supply chain go beyond the area served by the Fort Wayne plant.

A number of reports have surfaced among industry sources that some of Walmart’s milk-source will make its way to Dean Foods’ plants in Pennsylvania that bottle a mix of in- and out-of-state milk and where Walmart’s Pennsylvania milk dealer license is associated.

“The sourcing strategy in Pennsylvania remains unchanged since the Fort Wayne plant is not supplying any of our stores in Pennsylvania,” said Blakeman when asked about this potential development. She declined to address questions about the milk sourcing strategy further east.

In 2013, Walmart acquired a Pennsylvania milk dealer license from the Pennsylvania Milk Marketing Board listed for six fluid milk bottling plants owned by Dean Foods — one in New Jersey and five in Pennsylvania — including plants that cut half of their dairy farm suppliers, 42 in Pennsylvania, four in Ohio and one in New York.

In Pennsylvania, the 80-year-old milk marketing law authorizes the Pennsylvania Milk Marketing Board (PMMB) to set retail and wholesale milk prices at levels to cover retailer and processor cost-recovery plus a profit margin.

The PMMB also sets a producer-over-order premium that is only followed back to the farm level on milk that meets three criteria — produced and bottled in Pennsylvania and sold to stores or warehouses within Pennsylvania’s borders.

That premium was reduced from $1.60 per hundredweight of milk to 75 cents in January due to pressure from out-of-state milk sourcing that allows retailers and processors to keep the producer premiums.

Tennessee has a loss-leader law for milk. While not as robust or lawyered-up as Pennsylvania’s complex system, the provision keeps retail milk prices from going too low.

In addition, Pennsylvania has a state logo (PA Preferred) plants can apply for, and if qualified, use the logo to signify the milk was produced on farms in Pennsylvania. Efforts are underway in Tennessee to see if something like this can be achieved, and the state already has bottlers doing local marketing.

Producers who received Dean letters in Pennsylvania and Tennessee were largely able to find new milk contracts with bottlers that source and advertise their milk using local marketing strategies, but even in those states, some of the affected farms ultimately had to sell their cows.

While a few farms in each affected state sold cows and exited the dairy business, most who found markets, found them with smaller bottlers or smaller cooperatives. However, 14 in central Kentucky, 7 in southern Indiana , 1 in Tennessee, 2 in Ohio and 1 in western New York, have not. (Update since publication: Dean Foods did give a 30 day extension until July 1 to the Kentucky producers and a select few in southern Indiana whose contract renewal dates differed.)

As reported previously, of the 25 Indiana farms facing Dean contract terminations on May 31, those in northern Indiana have largely been resolved with offers from two cooperatives — Michigan Milk Producers and Great Lakes Milk Producers — while the southern Indiana farms are having more difficulty, according to Doug Leman, executive director of Indiana Dairy Producers.

“We have had contacts with some of the affected Indiana farms and are looking for opportunities for them,” said Doug Brechler for Great Lakes Milk Producers. “Like the affected farms, we are still making decisions. We can only take the milk we have a market for.”

Brechler confirmed that Great Lakes Milk Producers is one of several entities that will be supplying the Fort Wayne Walmart plant. “We’re thankful to be one of the suppliers and look forward to working with Walmart and happy to be a part of providing them with high quality milk and service.”

Brechler and Leman see the new Walmart plant as an opportunity for milk producers in the Mideast milk marketing area even though the current situation in milk markets is difficult at this time.

The farms in Kentucky, southern Indiana, Ohio and western Pennsylvania having trouble finding new milk buyers are on the southern and eastern ends of the area to be served by the new Walmart plant and on the fringes of the Southeast and Northeast regions that are considered milk-deficit. (Update since publication, some of the remaining western Pennsylvania farms were picked up by Schneider’s Dairy, a PA Preferred milk bottler, that has taken on at least 8 of the 16 western Pennsylvania producers dropped by Dean).

These eastern deficit regions were noted recently by University of Wisconsin dairy economist Dr. Mark Stephenson in a “changing dairy landscapes” presentation at the Heartland Dairy Expo in Springfield, Missouri. Stephenson said getting milk from surplus regions to deficit regions is a “tricky challenge.”

Most of the farms still seeking new milk buyers are not large enough to be “single-source-loads,” and they are outside of the 180-mile sourcing distance for the Fort Wayne Walmart plant. Yet the Walmart store brand in their area will be supplied by the new plant instead of the regional Dean plants these farms had long supplied.

According to state officials and Federal Order reports, there are other processors operating in the region, and supplemental milk is regularly brought in from outside the area to serve their needs.

In Kentucky, for example, two cooperatives operating across a wider region are the gatekeepers to these plants, and they have previously indicated they will not accept new members.

Maury Cox, executive director of the Kentucky Dairy Development Council is concerned that losing the 14 Kentucky farms could damage the dairy infrastructure and unravel the state’s significant dairy industry.

“It’s down to the wire and we’re working on a hail-Mary,” says Cox. “We started with 19 affected producers, and we’re down to 14. Some have exited the business and we may lose a couple more.”

He says the KDDC, Kentucky Department of Agriculture and the Governor’s Office of Ag Policy have all gotten involved helping these farms find a solution before their last pickup.

Both Leman and Cox share the concern that if the southern Indiana and central Kentucky farms are lost, other farms in the region — both independent and cooperative – will be more vulnerable in terms of future milk markets and transportation costs.

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Pa. Gov. Wolf names Barley to PMMB, Senate confirmation hearings in June

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By Sherry Bunting from Farmshine, May 25, 2018

HARRISBURG, Pa. — The Pennsylvania State Senate will take up consideration and confirmation of two new appointments from Governor Tom Wolf for the Pennsylvania Milk Marketing Board (PMMB)

The Governor’s appointment of Lancaster County farmer and dairy producer Rob Barley of Conestoga and education technology consultant Carol Hardbarger, Ph.D., require confirmation by the state Senate.

That process is anticipated for June and begins with a Senate hearing via the Senate Ag Committee, which could be scheduled as early as June 6.

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Rob Barley

While the Pennsylvania Milk Marketing Law does not specify two “farmer” representatives and one “consumer” representative, the familiar practice over the years is for the 3-member board to be comprised in this manner. Rob Barley has been nominated by the Governor, pending confirmation by the Senate, to fill the expired “farmer” seat of PMMB chairman Luke Brubaker, also a Lancaster County dairy producer.

According to the Milk Marketing Board website, Brubaker was first appointed by Gov. Tom Ridge in 1997 and re-appointed by Governors Ed Rendell and Tom Corbett. Brubaker’s third term expired in 2016.

“I am supporting Rob Barley’s nomination and think he will do a great job in this position, given the current challenges for dairy today,” said Senator Scott Martin of Lancaster in a phone interview Monday. “Even thought Rob comes from a larger dairy farm, I have already heard from many smaller farms who support his nomination because they see that Rob understands their plight.”

The PMMB completed the second of two listening sessions last week on ideas presented by the Pennsylvania Department of Agriculture through a petition by Ag Secretary Russell Redding as well as ideas presented by the public.

The dairy farming community has brought concerns over the past 10 to 15 years about the transparency of the PMMB over-order premium and other regulatory and statutory aspects of the Milk Marketing Law, as well as questions about the modern-day impact of this unique system not found in other states at a time when milk moves coast to coast and around the world.

“This (appointment) is just one step in us looking at the dairy issue and how it impacts our communities and our local farmers,” said Sen. Martin. “We can’t continue to allow expired positions to go as long as it has in this case. We need to show that we care about these issues, and get this confirmation done.”

Martin notes he is “glad the Governor nominated these individuals for the farmer and consumer representation. We need to get them confirmed and move forward to address the dairy issues.”

Barley operates Star Rock Farms, a diversified dairy, livestock and cropping enterprise, with his brother Tom and cousin Abe. They were recognized as 2017 Mid-Atlantic Master Farmers. Among other involvements, Barley has served on the board of the Lancaster County Ag Council and the township planning commission. He has also served as president of the Dairy Policy Action Coalition and has testified in past years before both the Senate and House Ag Committees when various bills were considered to address transparency in the PMMB pricing system.

If confirmed by the Senate, Barley would fill the expired seat of Luke Brubaker, who has served on the Milk Marketing Board for 21 years, including the past nine as chairman.

Dr. Hardbarger, an education technology consultant, earned her degrees in agriculture and education at Penn State University. She is a former assistant professor at Cornell and has applied her specialized skills to various positions in public and private education with interest in technology and resource utilization, professional development, and grant and proposal writing.

If confirmed by the Senate, Hardbarger would fill the expired board seat of Lynda Bowman, a Lancaster resident who was appointed by Governor Tom Corbett in 2011. She previously served as secretary of the PMMB and is a past president and lifetime member of the International Association of Milk Control Agencies.

The third member of the board unaffected by these appointments is Jim Van Blarcom, a farmer and dairy producer from Columbia Cross Roads, Bradford County. He was appointed by Gov. Tom Corbett in June of 2014.

To support the Governor’s appointments to the PMMB, contact your state Senator. Also contact the Senate Ag Committee chairman Elder Vogel at 717.787.3076 and Senate President Joe Scarnati at 717.787.7084 by June 6. To locate your state Senator, use this guide

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Gratitude

Ag Moos "Growing the Land"

“For our country, for us all,” read the Marines billboard as I drove through the nation’s heartland this week. I turned the phrase over in my mind, thinking just what kind of courage, heart, and love of country it takes to serve iImagen our nation’s military.

A rush of thankfulness flooded over me as the tires of my Jeep Patriot ate the miles to the next destination, and farmland stretched endlessly on either side of the highway.

I whispered ‘thank you.’

Today, our nation commemorates Memorial Day, which began as Decoration Day, when the grave decorating custom became more prevalent during and after the Civil War, honoring soldiers who died — both Union and Confederate.

Since then, the final Monday in May has become a special time to honor all of the men and women who have died in military service, paying the ultimate price for our freedom and…

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Start your engines… the milk’s a’chillin’

By Sherry Bunting, May 25, 2018

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Photo credit ADAI

INDIANAPOLIS, Ind. — Just as those Indy Cars are fueled to perfection for 500 miles at blistering speeds of 215 to 225 mph, that famed Bottle of Milk fuels the checkered-flag dreams of winners at the finish line of the Indy 500.

It’s the honor of the Milk People (aka dairy farmers) to get it there.

While I didn’t meet this year’s Indy 500 Milk Woman — I did meet her husband and children during a visit to the farm last March while passing through Northern Indiana.

Kim Minich, Triple M Dairy, LaPorte, was the rookie last year when Milk Man Joe Kelsay, Kelsay Farms, Whiteland, had the honor of delivering the “coolest trophy in sports.” This year, Kim is the veteran, and her rookie understudy is Andrew Kuehnert, Fort Wayne. They all hail from six and seven generation Indiana dairy farms.

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Photo credit ADAI

Last year, as the ‘rookie,’ Kim learned the ropes for this year’s 102nd big race at the Indianapolis Motor Speedway, where legends are born, speed and tradition rule, and milk always wins!

During my brief March visit to Triple M Dairy where Kim and her husband Luke are part of the dairy farm that has been in his family since 1909, their children Anna, Kate, Mary, Will and Calvin were looking forward to May. They talked of how exciting it was to see Mom’s rookie year as Milk Woman in 2017 … How it felt like the dairy farmers were celebrities like the Indy car drivers — two long and storied traditions brought together when three-time Indy 500 winner Louis Meyer requested buttermilk to quench his thirst after his second win in 1933.

Indy500-4137According to American Dairy Association Indiana (ADAI), Meyer was then photographed in Victory Lane drinking milk after his third win in 1936. Milk was presented off and on during the next several years until, in 1956, the Bottle of Milk was made a permanent part of the post-race celebration by Indianapolis Motor Speedway owner Anton “Tony” Hulman.

Today, the milk choices of the drivers are kept cold in a secure “Winners Drink Milk” cooler.

The drivers are polled ahead of time on their milk preferences — whole milk (3.5%), 2%, 1% or fat-free, and the cooler is stocked with these choices, so the ‘milk people’ are ready.

For this year’s race, 17 drivers chose the whole milk option, 10 chose 2%, 4 chose fat-free and 2 said any milk was fine with them!

Hoosier driver Ed Carpenter chose to up the ante with a request for the throw-back choice of Louis Meyers: Buttermilk. That could be a lucky move as he is considered a strong contender going into the race scoring a pole position.

Tomorrow, as always, the milk will be kept under lock and key in a secret location with one of the Milk People keeping a watchful eye at all times. This year, in fact, the Milk People will be the first to enter the Indianapolis Motor Speedway grounds at 5 a.m., Winners Drink Milk cooler in tow.

Minich5414wRecalling her mom’s rookie year in 2017, Anna says “they looked like the secret service in sunglasses guarding the milk cooler!”

In 2016, the 100th running ended with a milk toast by spectators. The children wonder what milk drama will unfold this year.

“The bottle of milk is the star,” says Kim’s husband Luke. “When they start making their way toward the winner’s circle with that cooler, and you hear the crowd chanting ‘It’s the milk,’ as a dairy farmer, that’s pretty cool.”

Each year the ADAI selects a dairy producer to represent Indiana’s 1100 dairy farms as the Milk Man or Milk Woman.

People flocking through the gates want to talk to the Milk People (aka dairy farmers), and for weeks ahead of the big day, they have opportunities to tell the story of milk and dairy farming. They even co-host the Fastest Rookie Luncheon earlier in the week.

Kim married into dairy farming, and in one pre-race-day interview, she explained how she grew up in the Indianapolis suburbs and would watch the Indy time trials with her father.

Minich5418wToday in her career as a nurse-practitioner, Kim says she has a big appreciation for the milk-side of the big race and appreciates the opportunity to tell others about the nutritional goodness of milk and dairy products as well as the life their family lives — like other dairy farm families across the country — caring for the animals and the land.

The children are passionate about the farm too. They have a growing array of 4-H projects that make your head spin: Cattle, chickens, rabbits, goats, horses. In fact, while the dairy farm is home to 1000 mainly Holstein milk cows, Luke and Kim’s older children each have a few of their own breed — Anna with Jerseys, Kate with Brown Swiss, Mary with Shorthorns, and Will with Ayrshires. They love their chores and are happy to show visitors, like me, around.

“This is a great way to raise a family and produce a quality product for other families to enjoy,” says Luke on a brisk March day at the farm.

His wife Kim could not agree more, saying in pre-race interviews that being part of the dairy farm “has been absolutely wonderful, and as a nurse practitioner, I’m able to talk to my patients about the importance of dairy.”

As for her job tomorrow as the provider of the Indy 500 Bottle of Milk, “It’s a great honor to do this,” says Kim. “It’s exciting to meet the drivers and to represent our dairy farmers and what we do.”

web2016WinnersDrinkMilk-46As the sun rises tomorrow, drivers and crews will be getting ready, spectators will be pumped, our nation’s service men and and women will be honored, anthems will be sung and tributes given… and after 500 miles of exhilarating speed, the winner drinks milk!

So chill your milk, and get ready. The thrill of the 102nd Indy 500 is hours away.

Here’s a video teaser from the 100th Indy 500! Wait for it… The powerful and patriotic blend of freedom and speed that ensues after the recognition of our military, the moment of silence for fallen heroes, the singing of America the Beautiful, the National Anthem followed by the Blue Angels flyover, the singing of Back Home in Indiana, the anticipated “Gentlemen Start Your Engines”, the breaking free of the pace cars as the field of Indy cars passes the paddock with Old Glory in tow!

 

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Global dairy thoughts Part II: Who’s being creative?

Part Two of Five-part “Global Dairy Thoughts” Series in Farmshine

wGDC18-Day1-56By Sherry Bunting, from Farmshine May 4, 2018

BROWNSTOWN, Pa. — Everywhere we turn, we receive the message that fresh fluid milk is a market of the past and exports of less perishable dairy products are the wave of the future. As discussed in Part One of this ‘global dairy thoughts’ series, that seems to be the trend if you look at the markets.

Yet, could a portion of the reason we are in this fluid milk decline, be the effect of USDA-regulated pricing, USDA-imposed restraints on the ability to promote competitively in the beverage space, and the resulting industry neglect of this regulated commodity category — fresh fluid milk?

The government — USDA — and the checkoff and cooperative leadership have no appetite for significant change to any of these factors. USDA gets to pay less than it otherwise might for milk in its nutrition assistance programs, while both the proprietary and cooperative processors get to pay less than they might otherwise for components in a range of products.

Meanwhile, dairy farms see the first product to come from their herds — milk — declining, and their futures along with it.

Yes. We all know it. Fresh fluid milk — the most nutritious and natural option — is in the fight of its life. In meeting after meeting, presentation after presentation, we hear the messages from the industry and university economists — both subtly and outright.

Like this: “The fluid milk market is the dead horse we need to stop beating.”

Or this: “Do we want to hitch our wagon to a falling rock?”

And so forth, and so on.

It is difficult to question the industry and its economists on anything to do with the Eastern U.S. or the fluid milk market. Some have gone so far as to say that if the East is relying on fluid milk, they are out of luck.

Meanwhile, dairy farmers in eastern regions suggest that if fluid milk does not stabilize its losses or restore its market share — at least partially — they see their value as producers vanishing.

And in fact, this has an impact on our global advantage — that being the U.S. having a large consumer base at home to anchor the base production while growth is said to be the reason why we need exports.

As mentioned briefly in Part One, the Federal Orders are designed to move the milk from surplus regions to deficit regions, and that is what the proposed USDA change in Orders 5 and 7 will do further, the experts say.

Meanwhile, who is being creative to figure out how the deficit regions of the East can use or regain their primary competitive advantage — having a base of consumers within a day’s drive. This line of thinking is analogous to how the U.S. fits as an exporting nation with quite a large consumer base at home.

What really requires our creativity is the U.S. product mix and how milk resources are priced and sourced.

Here are some numbers. U.S. dairy protein disappearance has had average annual growth of 6.3% over the past five years, though it has been a bumpy ride, with U.S. production of milk protein concentrate (less exports) at its lowest levels over that five-year period in 2014.

Meanwhile, demand for fat is increasing as consumers heed the dietary revelations and switch from lowfat and fat-free milk to whole milk and have their butter without guilt.

Mentioned last week in part one is that global milk production increases are beyond the stable rate of 1.5% per year. According to the U.S. Dairy Export Council (USDEC), the combined growth rate from the EU-28, U.S., New Zealand, Australia and Argentina was double that collective 1.5% threshold. Looking at 2018, however, reports are surfacing to show spring flush is delayed in Europe just as it appears to be in the U.S.

Or is global production reining in? The markets are trying to figure that out with quite a rally going in powder right now.

One thing rarely mentioned in these reports is that Canada’s production has also grown with increased quota to account for the greater demand they see in their domestic market for dairy fat.

In fact, despite its supply management system, government figures show Canada’s milk production had year-over-year growth between 3 and 6% for each of the past three years, and 2018 production is off to a 5% start.

In Canada, as in the U.S., fat fortunes have changed over the past four years, so the belt has been loosened to serve that market, leaving more skim swimming around.

Canada’s new export class (Class 7) mainly pertains to this excess skim, which has reduced the amount of ultrafiltered milk they now buy from U.S. processors.

In addition, as pointed out by Calvin Covington in his presentation at the Georgia Dairy Conference in January, milk can be purchased at lower prices for this Canadian export Class 7 because the excess skim is used in products that are then exported.

This means the resulting products in the Canadian export class can be sold at globally competitive prices. While not in huge volumes, some of this product is going to Mexico.

This brings us to Mexico — currently the largest buyer of U.S.-produced nonfat dry milk, making the outcome of NAFTA negotiations a sticky issue for industry leaders, especially as Mexico recently signed a trade deal with the EU to include dairy.

The two forks come together in regions like the Northeast, where Class IV utilization has become an increasing part of the blend price and a more important balancer of the shrinking Class I.

While March showed a surprising jump in Class III utilization to a 15-year high in the Northeast, the overall trend over the past four years has been a blend price with increasing Class IV utilization and decreases in Classes I, II and III.

Dairy economists indicate the U.S. is making more world-standard skim milk powder for export, but in reality, the U.S. still makes a high percentage of nonfat dry milk (NFDM), which is still the largest domestically-produced milk powder category and it is the only milk powder that is used in the Federal Order pricing formulas.

NFDM is primarily made in conjunction with butter. As butter demand has grown and prompted greater butter production in the U.S. over the past four years, more NFDM has been made and stored (or the skim is dumped) as a result.

The market issue in the U.S. has been compounded by the EU having a mountain of intervention powder stocks in storage, some of it aging.

After the European Commission sold over 24 metric tons two weeks ago, global and domestic powder markets moved higher. It was the largest chunk to come out of that mountain to-date and was offered at reduced prices to attract buyers. But by the time the bidding was done, it sold at or above the GDT price for SMP powder.

It’s really true. Inventory depresses prices. Having a big chunk of a huge inventory gone, is, well, big.

The flip side of the coin is that European processors have shifted from powder production with their excess to making more cheese and butter.

Next in Part Three, we will look specifically at some differences between the products made in the U.S. vs. what is traded globally, and at the differences between the U.S. and global trading platforms.

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PHOTO CAPTION

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While attending the 2018 Georgia Dairy Conference in January, a large global cargo ship on the Savannah River, passed by the glass windows at lunchtime on its way out to sea. Several dairy producers walked outside for a closer look, we all hoped there was plenty of powder on board. Photo by Sherry Bunting

Global dairy thoughts Part I: Whirlpool of change. Who’s minding the store?

Part One of Six-part “Global Dairy Thoughts” Series in Farmshine

By Sherry Bunting, from Farmshine, April 27, 2018

BROWNSTOWN, Pa. — Even though U.S. per-capita milk consumption is in decline, consumption of other dairy products is strong. As the industry devotes resources to new milk markets abroad and puts the fluid milk market here at home on commodity autopilot: Who’s minding the store?

While it is true that the U.S. dairy market is ‘mature’ — not offering the growth-curve found in emerging export markets — the U.S. consumer market is still considered the largest, most well-established and coveted destination for dairy products and ingredients in the world.

As U.S. milk production continues to increase despite entering a fourth straight year of low prices and market losses, industry leaders look to exports for new demand that can match the trajectory of new milk.

The U.S. has already joined the ranks of major dairy exporting nations, and the U.S. Dairy Export Council (USDEC) has set a goal to increase exports from the current 15% (milk equiv) to 20%. Keep in mind that as our percentage of exports increases while our milk production also increases, the volume of export markets required to meet this goal is compounded.

On one path at this fork in the road is the mature domestic market with its sagging fluid milk sector that is increasingly filled in deficit regions by transportation of milk from rapidly growing surplus regions.

This dilemma of getting milk that is increasingly produced away from consumers packaged and moved toward consumers was cited as a “tricky challenge” by Dr. Mark Stephenson, Director of Dairy Markets and Policy at the University of Wisconsin-Madison, in his presentation on Changing Dairy Landscapes: Regional Perspectives at the Heartland Dairy Expo in Springfield, Missouri earlier this year. In this presentation, Stephenson pegged the Northeast milk deficit at 8 bil lbs and the Southeast deficit at 41 bil lbs. (More on this in a future part of this series).

On the other path at this fork in the road is the industry’s desire to expand exports within a global market that needs a 1.5% year-over-year global production increase. But, as the USDEC reported in its February global dairy outlook, global milk output is growing by twice that rate, mainly from gains in Europe.

Meanwhile, U.S. regulatory pricing structures are based on milk utilization. As the total dairy processing pie grows larger, the neglected fluid milk sector becomes a shrinking piece of the expanding pie, and income is further diminished for dairy farms.

The emerging export markets are rooted in the demographic of rising middle-class populations improving diets with dairy. And yet, just because these new markets offer new growth curves for new milk production, the anchor for this ship is still the U.S. market, still No. 1 as the largest dairy consumer sector globally, and still moving milk via Federal Order pricing that hinges on that shrinking piece of the expanding pie: Class I.

What are the obstacles to improving this sagging fluid milk sector? How are regulated promotion and pricing constraining restoration of declining fluid milk sales?

Over the past three years, two prominent and longstanding milk bottlers in the New York / New Jersey metropolis have either closed their plants (Elmhurst in New York City), or sold their dairy assets (Cumberland Dairy in New Jersey sold to DFA). Amazingly, the former owners of both plants are expanding into the alternative beverage space — adding new plant-based beverages to the proliferation of fraudulent ‘milks’ that already litter the supermarket dairy case.

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While dairy milk sales decline, plant-based beverages are a growth market, though the pace of growth has slowed.

At the Georgia Dairy Conference in January, Rob Fox, Dairy Sector Manager of Wells Fargo’s Food and Agribusiness Industry Advisors, talked about big picturedairy trends, and he showed graphically the way these alternatives are eating into the U.S. dairy milk market. While dairy milk sales decline, the plant-based beverages are a growth market, though the pace of growth has slowed. (See Chart 1)

Fox also showed a pie chart of combined supermarket sales of dairy and plant beverages at $17 bil., with dairy accounting for $15.6 bil. and plant-based at $1.4 bil. (Chart 2).

GlobalThoughts(Chart2)

Rob Fox showed a pie chart of combined supermarket sales of dairy and plant beverages at $17 bil with dairy accounting for $15.6 bil. and plant-based at $1.4 bil.

Doing the math, Fox remarked that the plant-based alternatives now represent 8.9% of the combined dairy and plant-based ‘milk’ market. He said that in other countries with mature dairy markets, these alternative beverages tended to level off in growth when reaching 10% of total dairy market share. But at the same time, the combined dairy and plant beverage sector has also declined from 6.4 billion units in 2013 to 6.1 in 2017, according to Fox.

He noted the alternatives are also infiltrating other dairy product categories and that these ‘next generation’ products are offering much better nutrition than earlier versions. “But they will never compete with dairy milk, nutritionally,” Fox said.

What these alternative beverages have going for them, said Fox, is very high margins for processors and investors.

He explained that plant-based dairy products have low ingredient costs, are easier to manufacture, package, market and distribute and are seen as ‘greener’ and animal friendly. They are better positioned for e-commerce and kiosk-type retail outlets and are made by innovative marketing companies and startups with a market and margin profile that attracts investors.

Meanwhile, dairy milk is a highly regulated market with a prevailing commodity mindset worn down even more-so by supermarket price wars at the retail level, making it difficult for the dairy milk sector to adapt to U.S. consumer market trends.

U.S. consumer trends gravitate toward innovation and specialization so everyone can be a ‘snowflake,’” Fox explained, adding that areas of growth for the dairy milk sector will be full-fat in smaller containers, dairy protein in sports nutrition, and non-GMO branding. (No joke: Look for more later on genetically-modified, aka GMO, lab-manufactured products like Perfect Day that are actively defending what they see as their right to use the term ‘animal-free dairy’ because their product is said to be compositionally the same as milk, derived from genetically modified laboratory yeast exuding a white substance they say IS milk.)

That said, where is the true and simply original dairy in its re-branding process? What efforts are being made to compete to reverse this fluid milk market decline? Wouldn’t revitalization of the fluid milk sector also provide a demand pull for U.S. production growth?

Fresh fluid milk is not interchangeable on the global stage as are milk powders, fat powders, protein powders, cheeses, butter and aseptically packaged shelf-stable fluid products.

Meanwhile, the fastest growing surplus regions of the U.S. are busy aligning with retailer/processors and utilizing the Federal Order pricing schemes to pull their production growth into milk-deficit regions, leaving the milk-deficit region’s producers sending their milk to manufacturing homes in other Orders, or even looking for ways to export from eastern ports.

The U.S. has the water, the feed, the space, the transportation, logistics and support infrastructure, as well as a large existing domestic market to anchor the base production level of our nation’s farmers. The U.S. also has a legacy of dairy producers that are respected for their progress, animal care and food safety.

The ingredients for global success are here, but other factors need evaluation because the success is eluding dairy farm families as they face their fourth year of low prices and lost markets forcing increased numbers to exit the business.

In future installments of this multi-part series “Global Thoughts,” we’ll look more closely at the export side of this fork in the road, including the product trends, product and trading platform differences, imports, transportation and logistics, the role of regulatory pricing and cooperative base programs at a time when the dairy landscape is being forever changed.

As this series proceeds, thoughts and questions are welcome: agrite2011@gmail.com

 

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Rep. Marino introduces Whole Milk Act

Seeks to make school milk great again by making it whole again

By Sherry Bunting, reprinted from Farmshine May 4, 2018

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Peggy Greb, USDA ARS

WASHINGTON, D.C. — It has been talked about for years, and the evidence has been put before USDA and the Dietary Guidelines Advisory Committee even before the 2015 cycle began, but while the caps on cholesterol were removed, freeing the egg industry to promote the healthiness of eggs, the caps on saturated fat were left where they are, despite the same body of research and investigation showing just how flawed the 30-plus years of deteriorating dietary advice were from the beginning.

Meanwhile, schoolchildren continue to be served only fat-free and lowfat milk, and this means a huge lost opportunity to serve children the best tasting best nutrition available while improving the loss of milk markets and value affecting dairy farmers across the nation.

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Congressman Tom Marino (PA-10th)

In fact, by at least one estimate, the move by the Obama administration to reduce flavored milk from lowfat (1%) to fat-free, alone, resulted in lost sales of 288 million cartons of milk since 2014 — not to mention milk on the school lunch tray ending up in the trash.

Congressman Tom Marino, representing Pennsylvania’s 10th legislative district seeks to put an end to this loss of dairy nutrition and markets. Last Thursday, April 26, he introduced The Whole Milk Act, H.R. 5640, which was referred to the Committee on Education and Workforce. Rep. Virginia Foxx of North Carolina chairs this committee, and G.T. Thompson of Pennsylvania, who serves as vice chair of the Ag Committee, also is a member of the Education and Workforce Committee.

In fact, Rep. Thompson later signed on to become an original cosponsor of Marino’s Whole Milk Act.

Rep. Thompson has a separate bill as well, which was introduced last year to codify the small administrative step taken by Secretary Sonny Perdue last fall, allowing 1% lowfat flavored milk to be served in schools instead of the previous rule of fat-free-only. Choices for white milk were already at 1%. Not much forward movement has been seen in the School Milk bill introduced by Thompson.

Marino’s H.R. 5640 affects the unflavored milk offered by schools. It seeks to amend the Richard B. Russell National School Lunch Act to allow schools that participate in the National School Lunch Program to serve unflavored whole milk.

Rep. Marino also sent a letter to Secretary Perdue last week, asking USDA to update guidelines to the National School Lunch Program to allow schools to sell unflavored whole milk during lunch.

“Under the Obama Administration, schools participating in the National School Lunch Program were barred from selling unflavored whole milk and could only sell 1% unflavored milk,” said Rep. Marino in a statement.

“When the Obama Administration changed the National School Lunch Program to allow only 1% unflavored milk to be sold during school lunches, they claimed to be doing a service for our school children,” Marino’s statement indicated. “We saw the complete opposite, children stopped drinking milk in school, and food waste went up.”

Marino referenced the “Numerous studies that have shown consuming unflavored whole milk to be a good way to prevent childhood obesity and help your body absorb more vitamins. This bill will not only help our children get the proper nutrition they need to lead a healthy lifestyle, but will also help America’s dairy farmers who have been struggling with stagnant milk prices.  I strongly urge my colleagues in the House to support this bill.”

While this bill will not, by itself, correct the issues with milk and dairy in the National School Lunch Program, with its questionable rules on the percentage of lunch calories that are allowed to come from fat, the truth is that if this bill is taken up by the committee and is voted on, passed and signed by the President, it does send a strong message that the needle must move on this issue sooner, rather than later.

Early this week, Nina Teicholz, author of The Big Fat Surprise and founder of the Nutrition Coalition, tweeted her support for H.R. 5640.

“This bill is supported by the science!” writes Teicholz. “Never was there any science (to begin with) to show that kids should restrict their consumption of saturated fats; fats, nutrients are needed for growth.”

The Nutrition Coalition echoed, stating that H.R. 5640, The Whole Milk Act, “is supported by peer-reviewed science showing whole-fat milk is equal to or better for kids than skim.”

In fact, at issue is that while both skim and whole milk contain the 9 essential vitamins found in milk, those 9 essential vitamins do no child any good in their school lunch or breakfast if they don’t make their way from the carton to the belly and end up instead in the trash.

One thing is for sure. Whole milk tastes better. Giving schools this choice allows whole milk, at just 3.25 to 3.5% fat, or even 2% to be the more nourishing choice because it is more likely to be consumed. With better tasting milk at school and the satiety of these healthy fats, children can think better, and this would be a positive step toward turning around the epidemic of childhood obesity and diabetes.

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With this graph showing the rise in obesity as the Dietary Guidelines worsened from the McGovern food pyramid through today, Big Fat Surprise author Nina Teicholz told PA Dairy Summit attendees in February that this graph, itself, does not show causation, but she revealed the growing number of studies that have proved it as well.

A growing number of cardiologists are already making this recommendation to patients as the veil has been lifted to reveal that consuming fats is not what is making us fat. (See Chart 1).

Chart 2Meanwhile, Teicholz shows that, “The introduction of skim milk is arguably what turned kids away from milk altogether (because it tastes bad); then kids turn to sugar-filled options instead,” she writes on Twitter. “The drop in milk consumption is driven by the decline in whole milk.” (See Chart 2).

In a separate letter to Agriculture Secretary Sonny Perdue, Rep. Marino notes that “The Healthy, Hunger-Free Kids Act of 2010 required USDA to update federal nutrition standards for school meals. This update included schools only being able to offer one cup of fat-free or I% milk. These changes have led to a decrease in milk consumption and a significant increase in food waste in schools. Additionally, these guidelines have negatively impacted America’s dairy farmers who have been suffering from low milk prices and a significant decrease in the purchase of fluid milk.”

He notes that not only is milk the number one source of 9 essential nutrients, “it also provides  significant health benefits. For instance, Conjugated Linoleic Acid (CLA), a fatty acid found in milk, has been shown to reduce the risk of cancer and is a great source of protein,” writes Marino. “Furthemore, if children do not drink milk, it is very difficult for them to get sufficient amounts of three of the four major nutrients lacking in most children’s diets: calcium, potassium, and Vitamin D.”

Marino notes that the bonus is that “increased milk sales would help America’s dairy farmers who have been impacted by stagnant milk prices.

There are several ways we can all help support Rep. Marino’s Whole Milk Act.

First, contact your cooperative board members and ask them to let National Milk Producers Federation know that the dairy producers they represent want this bill supported. Contact organizations you are a member of, including your state Farm Bureau and the American Farm Bureau Federation and state and national breed associations, for example.

Most importantly, contact your representative in the U.S. House and ask them to cosponsor and support H.R. 5640 The Whole Milk Act. If you don’t know who to call, enter your zipcode here to find out who represents you

Also, call the U.S. House of Representatives at 202-225-3121 and let them know that H.R. 5640 is important for the health and well-being of our schoolchildren.

In addition, check this link to the Education and Workforce Committee and look for members who may be from your state, contact them, and the Committee chairwoman as well. Ask them to put this bill on the committee’s agenda. Its passage must begin in this committee.

Also, write to Agriculture Secretary Sonny Perdue or contact the USDA with your support for the letter Rep. Marino has sent in conjunction with introducing H.R. 5640 The Whole Milk Act. USDA is key to making school milk great again by making it whole again.

Finally, contact Rep. Marino’s office and thank him 202-225-3731.

Follow H.R. 5640, The Whole Milk Act, at this link.

 

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At the Farm Bill hearing during the Pa. Farm Show in Harrisburg in January, Rep. Tom Marino was part of the panel. While he does not serve on the Ag Committee, he has attended this hearing the past two years it was held. He spoke from the heart and admitted he is not the most well-versed in agriculture and since he does not sit on the ag committee, has less influence on these things, but he said he comes home late at night from Washington and sees the lights on at the dairy farms in his district, sees the activity going on on the farms, sees what people put into producing a quality product and hears from constituents on these issues of school milk — brought up at Farm Show hearings also. He said at the 2018 hearing that he is tired of seeing things that don’t make sense and he said if the government is involved in these things, they better be getting it right or they should not be involved. Last week, Rep. Marino introduced The Whole Milk Act, H.R. 5640, to bring whole milk back to the National School Lunch Program. Photo by Sherry Bunting