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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One thought on “Fort Wayne bottling startup delayed, How Walmart may shape dairy landscape

  1. Pingback: As producers struggle, cooperatives fumble: How is ‘excess milk’ determined to be a problem in deficit areas? | Ag Moos

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