Milk industry transformer, ex-Dean CEO Engles leads team winning bid for Borden

‘New Dairy’ announced as winning bidder for all assets June 15. UPDATE: Sale hearing rescheduled a second time, now set for June 23 at 11 a.m. EDT in Delaware Bankruptcy Court. Milk cooperative SMI files post-auction objection, noting several irregularities with the auction process that had gone private in final days. SMI asserts that their bid on the Winterhaven, Florida plant was not appropriately considered, that they were ignored in the “behind the scenes” negotiations between Borden (debtor) and several other bidders, and that potentially other bidders were also left out of the process due to an alleged lack of transparency and lack of contract and other information needed to formulate appropriate bids.

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Borden milk plants throughout the Southeast, mid-South as far north as Ohio are important for dairy producers like these pictured at the London, Kentucky plant chugging the delicious Borden dutch process chocolate milk during a July 2015 Kentucky Young Producers tour sponsored by KDDC. File photo by Sherry Bunting

By Sherry Bunting, Farmshine, June 19, 2020 edition

WILMINGTON, Del. — A team led by Gregg Engles — the transformative ex-CEO of what was modern-day Dean Foods — is poised to gain control of Borden Dairy Company, which includes six of the 11 plants the DOJ required Engles’ Suiza / Dean merger to divest in 2001 to then DFA-led National Dairy.

Pending bankruptcy court approval, the Borden Dairy Company and its iconic mascot Elsie will be purchased by New Dairy OpCo, LLC. The company referred to as “New Dairy” in court documents was formed June 1 by KKR & Co., a major creditor in the Borden bankruptcy joining forces with Capitol Peak Partners, a firm founded by Engles and his partner Ed Fugger, a former executive with Engles in the 2012 Dean spin off WhiteWave.

Borden named New Dairy as the successful bidder in bankruptcy court documents filed Monday afternoon, June 15.

A sale hearing is rescheduled for Thursday, June 19 (now rescheduled to June 23) in the U.S. Bankruptcy Court of Delaware with Judge Christopher Sontchi presiding.

borden-logo-updated (1)The price to acquire Borden was not disclosed, but creditor KKR offered its sizable debt in the purchase of the assets, according to court documents.

The assets include Borden’s 12 plants in nine states from Ohio through the deep South and Southeast, 91 branches and other assets, as well as the Borden mascot Elsie.

Named by Borden as next-high bidder was GH Acquisitions and Prairie Farms Dairy. On May 1, Prairie Farms, the Illinois-based cooperative marketing products in 14 states, had successfully purchased eight former Dean Foods plants as part of the Southern Foods Group bankruptcy in Houston.

Sources indicate that if the Borden sale to New Dairy is approved by the bankruptcy court Friday, Gregg Engles is the likely new chairman.

Engles, a 1980s Dallas-based ice company consolidator has been referred to as “the great consolidator” turned “milkman to the nation.” He has been credited in various writings with the transformation and consolidation of the fluid milk business, a process that began when he and his partners purchased Suiza Dairy in San Juan, Puerto Rico in the early 1990s.

Engles built Suiza up to over 60 plants by methodically buying the leading plant in a region and those around it to streamline at a time when Wal-Mart and other companies were consolidating the retail grocery sector.

In 2001, Dallas-based Suiza was the largest milk company acquiring the number two Chicago-based Dean Foods. The merged companies operated under the Dean Foods name, and when Howard Dean retired in 2002, Engles became chairman and CEO of the new empire, including the Silk plant-based beverages Engles purchased shares of in 2001 and Dean wholly owned and began expanding in 2002.

The 2001 Suiza / Dean merger, incidentally, led the Department of Justice (DOJ) to require divestiture of about 10% of the two companies’ combined 100-plus milk plant holdings. The 11 identified plants were purchased by National Dairy Holdings, an investor group led by Dairy Farmers of America (DFA), which had 50% ownership at the time it acquired the Dean-divested plants.

By 2009, DFA had over 87% ownership of National Dairy LLC, which had grown to 18 plants with Borden, Dairy Fresh, Flav-O-Rich, Meyer Dairy, Dairymens, Velda Farms and Coburg Dairy brands, and that year sold to Mexico’s largest processor Grupo Lala.

In 2016, Lala spun off National Dairy as Borden Dairy in its new U.S. division through acquisition of Laguna Dairy. In 2017, the Borden Dairy Company transferred to its major investor and current owner ACON Investments.

Six of the 11 plants from the 2001 Dean / Suiza divestiture (two in Florida, one in Kentucky, one in Ohio, one in South Carolina and one in Alabama) are a core of present-day Borden’s 12 plants. National Dairy is also listed as one of the associated legal entities that together comprise the Borden Dairy Company Chapter 11 bankruptcy reorganization filed Jan. 5, 2020 in Wilmington, Delaware.

Both Dean Foods and Borden Dairy Company (National Dairy) have been headquartered in Dallas, Texas since 2001-02.

According to Capitol Peak’s website, where a colorful and complex graphic depicts 30 years of Engles’ experience in dairy industry acquisitions, mergers, capital structure, category expansions and spin offs, Engles not only consolidated the fluid milk industry, but also was instrumental in expanding organic and plant-based brands. These were combined and spun off as standalone WhiteWave in 2012 with Dean retaining a majority interest.

That’s the point in time when Engles left Dean Foods to be chairman and CEO of WhiteWave, which he later sold to Danone for $12.5 billion in 2017 — the year Engles, who sits on the Danone board today, founded Capitol Peak, the entity that has now teamed up with KKR to buy Borden.

At the time of his departure from Dean Foods in 2012, a New York Times article revealed Engles earned as much as $156 million across the post-merger 2002-12 decade with Dean.

Engles’ tenure with Dean Foods also saw the filing of both the Southeast and Northeast class-action Antitrust Lawsuits that alleged anti-competitive behavior between then Dean CEO Engles and then DFA CEO Gary Hanman. Plaintiff dairy farmers alleged the anti-competitive market behavior caused economic losses and structural change that restricted market access as DFA followed a parallel course, building its national cooperative business in a similar regional merge-acquire-streamline fashion as Dean did with milk plants and companies.

According to biographies about Engles, small family-owned dairy companies were attracted to sell to Dean Foods where some could continue to operate with access to capital and technologies. The same has been said by smaller regional milk cooperative members over the years, where a merger with DFA was attractive due to promises of facility upgrades. Not always did those promises come true, and often those markets were swallowed and absorbed.

Both antitrust cases were eventually settled separately by defendants Dean Foods and DFA / DMS. However, a civil case brought in 2016 by farmers who requested exemption from the Northeast “class” is currently headed to jury trial in Vermont vs. defendant DFA / DMS.

The other half of the Borden buying equation — KKR — has a history with the Borden name.

According to Borden’s website and elsewhere, KKR (Kohlberg Krvais Robers), a global investment firm headquartered in New York, had purchased the original Borden Inc. in 1995 for $2 billion and sold off the varied conglomerate in pieces by the time the landmark Suiza / Dean merger occurred in 2001.

Borden as a brand, and Elsie the cow, no longer autonomous, were still popular but faded from the spotlight. DFA began using the brand for cheese, and in 2009, came out with Borden Essentials, including a “Kid-Builders” cheese line. DFA still uses the Borden brand for cheese today.

As noted, the present-day Borden fluid milk and cream business that is being sold in bankruptcy, traces its current business genesis to the April 2001 formation of National Dairy — the group of investors led by DFA to purchase Crowley and Kemps (Marigold), and later that year (November) the 11 plants divested from the Dean / Suiza merger to satisfy the DOJ.

In 2004, HP Hood acquired Kemps and Crowley from National Dairy (with Hood later trading Kemps back to DFA). Other mergers, acquisitions and spin offs as mentioned above eventually left six of the 11 Dean-divested plants among the core of what is now the Borden Dairy Company.

Borden’s current CEO Tony Sarsam, who took the helm in March 2018, was vocal a year ago in a Food Dive article about the company’s renewed direction to refresh Borden’s branding, bring research and marketing to innovation in the fluid milk sector with a commitment to traditional dairy.

BordenOver the past year, Borden come out with new messaging, reintroduced its mascot Elsie to the public with a modern day twist, and launched new products like the “Kid-Builders” line of 2% fat, no sugar added, flavored milks in attractive individual serving chugs for children as well as new whole milk flavors inspired by the Texas State Fair.

In fact, when Borden filed for Chapter 11 bankruptcy protection in January, the company stated in press releases its intention to come out of the restructure stronger. At one point in the concurrent Dean Foods bankruptcy sale, investors and creditors even looked at ways to have Borden buy Dean. A sale of Borden was not on the radar.

Most in the industry could see the handwriting on the wall for Dean Foods as the large national commodity model had been dealt a stiff blow by Wal-Mart on the one hand, consumers seeking ‘local’ regional brands on the other hand and intrusion by non-dairy alternatives reducing volume to some degree in the background.

But Borden’s bankruptcy filing in January caught many by surprise, as did the sale and auction announcement filed with the court May 5, just four days after the Dean sale was consummated primarily to DFA.

In April, Borden had applied for milk contracts through the USDA Coronavirus Food Assistance Program (CFAP), and on May 12, USDA awarded Borden the lion’s share of the contracts — to the tune of $147 million – to distribute milk through the CFAP Farmers to Families Food Box Program May 15 through June 30.

Even so, on May 22, Borden’s auction procedures were announced. The auction closed June 13, with New Dairy announced June 15 as successful bidder, pending bankruptcy approval.

There are no reports at this juncture of any missed payments to Borden direct dairy producers. Several small claims have been filed on the bankruptcy docket by DFA for Borden milk testing at DFA-owned laboratories, and substantial claims have been filed from milk transport companies, including those like NDH Transport that are now part of the overall Borden Dairy Company bankruptcy restructure.

As for federal order pool payments, USDA AMS indicated this week that they will be filing proofs of claim by the July 3 deadline for monies due the Producer Settlement Funds and other FMMO and Dairy Research and Promotion-related accounts, but the amounts were not disclosed. Substantial claims have been filed for these payments in the separate Dean Foods bankruptcy.

Borden’s 12 milk plants are located in Dothan, Alabama; Decatur, Georgia; Miami and Winter Haven, Florida; London, Kentucky; Lafayette, Louisiana; Hattiesburg, Missouri; Cleveland, Ohio; North Charleston, South Carolina; and Austin, Dallas and Conroe, Texas. They are predominantly fluid milk plants, also making cream, condensed and cultured dairy products.

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Dean pays independents for April milk, owes millions to co-ops, USDA FMMOs, MilkPEP

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The Dean Foods product lineup as pictured on its website just prior to the November 2019 bankruptcy filing and May 2020 sale.

By Sherry Bunting, Farmshine, June 12, 2020

HOUSTON, Tex. — Dairy producers who ship milk independently to any of the former Dean Foods’ 57 milk plants began receiving their final payments for April milk on Monday, June 8. These were the payments due from Dean debtor in possession (DIP) in mid-May that became part of the administrative expenses in the post-sale proceedings of the Southern Foods Group (Dean Foods) bankruptcy in the Southern District Court of Texas.

Several dairy producers in several states confirmed to Farmshine Tuesday that they received these  payments. Furthermore, their May advance payments were timely made by the new owners of the former Dean plants — namely DFA and Prairie Farms.

The Pennsylvania Milk Marketing Board (PMMB) staff also confirmed late Tuesday that, “All Pennsylvania independent Dean producers have been paid what was due them for April.”

For its part, the PMMB staff had initially begun the process of auditing non-payments in preparation of filing bond claims. Seven of Dean’s plants are licensed and bonded in Pennsylvania – a requirement to buy milk from farms in the state. This includes four plants in Pennsylvania, one in New Jersey, one in New York and one in Ohio.

The PMMB quickly shifted gears early this week from auditing non-payments to auditing the payments to independent producers, and as conveyed, found that producers received what was due.

The PMMB staff also indicated they are completing their auditing of what is still owed to milk cooperatives. If payments to cooperatives are not received, PMMB will file the necessary bond claims for any Pennsylvania cooperative milk that remains unpaid by the Dean bankruptcy estate.

Nationwide, independent producers have been paid, but cooperatives are still owed for April milk as of June 10.

In addition, USDA AMS Dairy Programs in Washington replied Tuesday, June 9 that, “USDA has not received payment from Dean (DIP) for April producer settlement funds owed.”

USDA had previously indicated that not only were the pool funds outstanding, Dean had also not paid the FMMOs for producer marketing services, transportation credits and administrative service in nine Federal Orders. Dean Foods is fully regulated in all Federal Orders except for the Pacific Northwest and Arizona.

In mid-May, USDA reported that, “handlers were notified via memorandum of the non-payment and the pro-ration of the available producer settlement monies.”

The loss of Dean’s Class I contributions to Federal Order settlement funds from 57 plants regulated in nine Federal Orders would decrease the blend price paid to all producers in those areas — under normal conditions — by reducing the pool funds drawn by handlers for other class uses. Several cooperatives are handling the loss of pool funds from back in Oct./Nov., and potentially April, by way of milk check deductions that will continue until the pool shortfalls are covered.

In an email response this week to Farmshine, USDA AMS Dairy Programs confirmed that, “No claims for these April producer settlement funds have been filed with the bankruptcy court because the April Federal Milk Marketing Order (FMMO) obligations are post-bankruptcy debts and are recouped through the post-bankruptcy process.”

The post-bankruptcy process involves the Dean estate’s plan being filed with the court outlining how it will pay its vendors (including USDA producer settlement funds) as it winds down operations of the estate. According to USDA, Dean has notified the court that it will file the payment plan by August 3.

How much is owed for April milk to the USDA FMMO producer settlement funds across the U.S. is deemed proprietary information, according to USDA, and “it has not yet been aggregated with appropriate redactions and cannot be released at this time.”

However, some milk cooperative sources handling only manufacturing class milk in the Northeast and Mideast are pegging their losses from these unpaid April settlement funds to be upwards of 30% of the blend price.

In addition to the missed payments to FMMO settlement funds for April, USDA confirmed in an email that it filed proofs of claim in the bankruptcy proceeding for monies owed prior to the bankruptcy filing for October and mid-November 2019 milk marketings.

“Those proofs of claim (for Oct./Nov. 2019) totaled $13.8 million for monies owed to producer settlement fund, marketing service, administrative, and transportation credit funds, as well as the Fluid Milk Processor Promotion Program. The proof of claim documents were filed on April 21, 2020 and can be viewed on the Dean Foods Restructuring website,” USDA stated in an email response this week.

With more than 3000 documents on the Southern Foods Group bankruptcy docket, a search of claims did yield more than two dozen separate proof of claim filings by USDA on April 21, including information showing that Dean owes $3.1 million for Oct./Nov. 2019 to the Fluid Milk Processor Education and Promotion Program (MilkPEP). Fluid milk processors are obligated by USDA to pay 20 cents per hundredweight into this fluid milk promotion fund.

It is unclear how much of what was due the cooperatives back in Oct./Nov. 2019 is also upaid, but proofs of claim filed in March 2020 by milk cooperatives peg the largest amounts owed from last fall at $103.4 million to Dairy Farmers of America (DFA); around $14 million to Southeast Milk (SMI); and over $7 million to Land O’Lakes. The link to claims documents on the Southern Foods Group bankruptcy docket can be found at https://dm.epiq11.com/case/dnf/claims

As for what is owed to USDA for April 2020, it is difficult to estimate an amount based on the proof of claims filed for Oct./Nov. 2019 because COVID-19 disruptions completely altered the milk marketing landscape in April.

While Class I sales were much higher in April 2020 compared with October and November 2019, the Class I base price was $5.00 per hundredweight lower in April vs. Oct./Nov. Also, the amount of milk diverted to the lowest class “dumpage and other use” category for April was enormous – at 350 million pounds across all Federal Orders, this was up 960% from a year ago and represented almost 2% of the entire U.S. milk supply in April (see related story in next week’s edition of Farmshine).

These factors would most assuredly reduce the Dean settlement fund obligations to the FMMOs for April 2020 as compared with “normal conditions”. However, the marketing, transportation credits and MilkPEP checkoff obligations were likely higher in April than last fall.

Producers and state and federal sources indicate that the remaining skeleton staff for Dean Foods, post-sale, has been helpful in keeping lines of communication open. Each step of the way, independent producers, producer groups, state boards and others received information about the process and its potential timelines.

In the case of the independent shippers, at least, the Dean estate paid them the first week of June after letters were sent the week prior, indicating potential payment by mid-June.

State and regional organizations, such as Farm Bureaus, milk marketing boards, state departments of agriculture, and others had written letters to the bankruptcy court and the Dean estate, and articles about the unfolding situation had also been provided, leading up to Dean’s communication with producers and ultimately these payments to independent shippers being made.

As well, the bankruptcy court docket, hearing process, and bidding process seem to have been transparent, for the most part, albeit extremely complex.

In spite of this transparency, bidders other than Dairy Farmers of America (DFA) were not privy to details needed about payables for some of the Dean plants – information that was critical to putting together financing for potential bids. Furthermore, the 44-plant lump-bid by DFA provided an edge to win plants that had multiple contending bidders by lumping them together with plants that had no contending bidders.

What remains unclear is how the more than $100 million dollars, Dean owes to DFA will be handled in relation to DFA’s purchase of substantially most of Dean’s plants and assets at a price of $433 million. The U.S. Department of Justice (DOJ) approved the sale, with the stipulation that three plants located in Wisconsin, Illinois and Massachusetts be divested.

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The map of Dean Foods plants as provided by Dean Foods after its bankruptcy filing last November juxtaposed with the map of DFA plants — both wholly owned and affiliated — according to locations listed as such or otherwise publicly available.

Through the Chapter 11 bankruptcy sale process, which was consummated the first week of May 2020, 44 of Dean Foods’ 57 milk plants (including all seven licensed to buy milk from Pennsylvania farms) were acquired by DFA, the nation’s largest milk cooperative, headquartered in Kansas City, Kansas accounting for one-third of the U.S. raw milk supply with members nationwide and sales nationally and internationally. DFA was Dean’s largest milk supplier and the Dean accounts represented DFA’s largest milk buyer, according to court documents.

Eight Dean plants and other assets were acquired by Prairie Farms, a milk cooperative headquartered in Edwardsville, Illinois with members as far south and east as Kentucky to as far north and west as Minnesota, marketing products in at least 14 states. Several years ago, DFA and Prairie Farms jointly purchased and incorporated the previously family-owned Hiland Dairy Foods, headquartered in Kansas City, Missouri, with its 17 fluid milk and dairy plants and 51 distribution centers that together stretch through the Heartland from Texas to South Dakota.

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USDA communicates with DOJ as Dean ‘Estate’ misses final payments on April milk; lawsuit filed to block sale to DFA

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By Sherry Bunting, Farmshine, May 22, 2020

HOUSTON, Tex. — Dean is a dead duck, with an estate. The ‘pools’ (no pun intended), in which it reigned as top duck — and most of the pool toys it gathered over the past 20 years — have been sold to its largest supplier, Dairy Farmers of America (DFA), leaving just the Dean Foods (Southern Foods Group) Estate to settle its affairs, including paying farmers for April milk sold in good faith.

But the funds to do that are locked into the Chapter 11 plan handling all manner of administrative expense claims that could take days, weeks or months to sort out. Part of the issue is that the super-priority credit facility of $850 million was extended to Dean to keep operating before sale. Now the sale is consummated, and that credit facility is not being used for critical vendors. In fact, what was used of the $850 million becomes the first post-petition debt to settle.

Meanwhile, dairy farmers are looking at their contracts and the regulated pricing structures and even those states with bonding and wondering what recourse they have for payment. Most have no recourse. In states like Pennsylvania, there is bonding of licensed milk buyers through the Pennsylvania Milk Marketing Board, and it is a complex process.

On a recent DMI ‘open mic’ call for producers, Jim Mulhern of National Milk Producers Federation was a guest. He said they have looked into whether the Packers and Stockyards Act guaranteeing prompt payment for livestock could be use. It can’t, he said. There is no national insurance-bonding of milk buyers like there is for meat and poultry.

Not only did Dean milk suppliers not receive payment, cooperative handlers also went without payment, and the Federal Order pools in which Dean Foods is regulated did not receive their settlement payments. This then affects payments to handlers from the pool for April milk, which in turn affects other dairy producers paid by those other handlers.

Dean Foods did pay the April advance – the first of two monthly checks paid to dairy farmers. But the settlement funds for April milk due mid-May have not been paid, and Federal Milk Marketing Orders have established dates in each milk marketing area of the country stating when the settlement payments are made to the pool, when the handlers are paid from the pool and when the producers are paid by the handlers.

All of those dates for all Federal Milk Marketing Orders have now passed as of May 19, and Dean Foods’ Estate has not honored any of these April milk settlement obligations.

According to USDA Dairy Programs, “Dean Foods, DIP, (Dean) is fully regulated in all Federal milk marketing orders except the Pacific Northwest and Arizona. Dean did not make payment into the Producer Settlement Fund (PSF) for April pooled milk to any FMMO where it is fully regulated.”

USDA also confirms that, “Dean is responsible for paying the blend price to the independent producers who supply its plants. That payment is not contingent on whether or not Dean pays into the Producer Settlement Fund.”

Dairy farmers that ship to Dean Foods confirm no payment has been received, and the Pa. Milk Marketing Board confirms being notified of the same as it regulates these payments in Pennsylvania as well.

USDA indicates that it is “closely monitoring the situation and is keenly aware of the impact this failure to pay has on the dairy industry.”

Furthermore, USDA is continuing to consult with the Department of Justice in an effort to work within the confines of the bankruptcy laws to recoup monies owed to the Pool Settlement Funds.

UNITED STATES DEPARTMENT OF AGRICULTUREHandlers were notified by USDA via memorandum (see Order 5 example of what went out to all FMMO handlers above). They were notified of the non-payment and the pro-ration of available producer settlement monies.

Some handlers have indicated this affects their funds to pay their producers by 20 to 30% for April milk.

In Pennsylvania, where there is bonding through the Pa. Milk Marketing Board, every bond claim is unique and fact-dependent, so there’s no set time that has to pass before a claim is made.

Activity reports are not due to the Pa. Milk Marketing Board until May 25, so a bond claim cannot be made for Pennsylvania milk until the PMMB knows how much is owed.

On the national side, USDA confirms that Dean did timely file its milk receipts and utilization report for April, but these figures are confidential and proprietary, so the amounts owed to farmers and the Producer Settlement Fund are not known.

While USDA is communicating with the U.S. Department of Justice on this, the PMMB is reportedly doing their best to communicate and work with Dean to determine if there’s anything it can do — short of the agency filing a bond claim to have Pennsylvania producers paid. There are four Dean plants in Pennsylvania and at least two out-of-state plants, including one in New Jersey, receiving milk from Pennsylvania and surrounding states.

For Dean’s part, Gary Rahlfs is the chief financial officer overseeing the “winding down” of the Dean Foods Estate. In an email reply early this week, he referred to the May 6 public announcement at the Dean restructuring website after the sale of plants and other assets was completed that week, stating: “Dean Foods anticipates that the plan will provide for the full payment of all administrative expense claims in several months (following the repayment of its senior secured super-priority post-petition financing facility) as proceeds continue to come into the Dean Foods Estate.”

In addition to the public announcement, Rahlfs confirmed that administrative expense claims do include the payments Dean owes for April milk and many other payables.

“We are working diligently to ensure this process and the payments are made as quickly as possible,” Rahlfs wrote in an email response to Farmshine.

Unfortunately, it appears from the wording of the announcement that this could take several months, and the super-priority credit facility Dean used to continue operations during the bankruptcy sale process is being prioritized for repayment as income comes in from sale of assets and prior sales of product during this “winding down” plan for the bankruptcy.

All through the bankruptcy and sale proceedings in the Southern District of Texas, Judge David Jones referred often to how it was a priority of his to ensure a sale process that would not leave schoolchildren without milk and would not leave farmers without markets or employees without jobs. He talked often of fond memories as a child of milk delivered by the milkman.

In fact, this is one reason, Judge Jones approved retainment bonuses for professional staff to be sure that the people who understand the milk business would continue in their positions so the company and its 57 plants would remain in operation and viable during the bankruptcy sale to avoid the chaos that would result if the company fell into Chapter 7 status.

However, a detail left hanging is the final payment to farmers and cooperatives supplying milk to Dean Foods.

Back in November, when Dean Foods filed under Chapter 11, farmers had many questions about whether or not they would continue to be paid for milk. Credit facility of $850 million was secured, and the court gave permission to use income and credit facility for day to day operations to pay employees and critical vendors, including farmers.

Dean Foods Raw Milk Supplier FAQ — First Day

In fact, a Raw Milk Supplier FAQ dated November 2019 still searchable in a cache file of the Dean restructuring website stated (as shown above) states: “We intend to pay suppliers in full under normal terms for goods and services provided after the filing date (Nov. 12).”

That language is no longer readily shown on the website. It was replaced when DFA became heir-apparent by a completely new and different Raw Milk Supplier FAQ dated February 2020.

While DFA, the buyer of 44 of the 57 Dean plants at a price of $433 million, has been Dean Foods’ largest milk supplier, the company also has many independent family farm shippers throughout the Northeast, Southeast and across the country. All are left waiting for payment at a time when they’ve already come through five years of low income and below-break-even prices and at a time when they are taking further losses in milk pricing and additional marketing costs due to the COVID-19 pandemic.

In a separate action this week, a lawsuit was filed for an injunction against the sale of 44 of Dean’s 57 plants to DFA. The lawsuit was filed by Food Lion and Maryland Virginia Milk Producers Cooperative in Federal District Court for Middle North Carolina in Greensboro Tuesday, May 19.

The lawsuit states that DFA’s ownership of Dean’s milk plants is the “coup de grâce (final blow) for competition” in fluid milk markets, arguing the merger gives DFA monopoly over the dairy supply chain, the death of the independent, family-owned dairy farms, and higher prices ultimately for consumers.

Plaintiffs are specifically asking the Court to grant a preliminary injunction to block the sale and want DFA to divest at least one of the Dean facilities in the Carolinas to an unaffiliated independent purchaser.

“This action arises out of Defendant Dairy Farmers of America, Inc.’s (“DFA”) longstanding effort to seize control of the milk supply chain. Indeed, for the past two decades, DFA has rapidly consolidated and dominated the market for the supply of raw milk not by competing on the merits, but through unlawful conduct and anti-competitive agreements through which it has gained near-complete control over the purchasing of key nationwide milk processors,” the plaintiffs state in their filing.

“This anti-competitive campaign has allowed DFA to transform itself from a modest regional dairy cooperative into the Standard Oil of the modern dairy industry.”

The U.S. Department of Justice (DOJ) already approved the deal three weeks ago with the stipulation that three plants in Wisconsin, Illinois and Massachusetts be divested from the 44-plant DFA purchase.

Prior to the bankruptcy and sale, Dean Foods was DFA’s largest customer and DFA was Dean Food’s largest milk-supplier.

“Their partnership was forged through a corrupt bargain entered into at the time of a prior merger between Dean and another dairy processing giant, in order to avoid U.S. Department of Justice (“DOJ”) scrutiny through subterfuge and deception,” the plaintiffs state.

“On May 1, 2020, DFA and Dean closed on the Asset Sale, transforming DFA overnight into both the largest milk producer and the largest milk processor in the United States,” plaintiffs continue. “With capability to wield market power at two levels of the supply chain, DFA now has both the ability and the incentive to wipe out any remaining pockets of competition.”

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More open bidding process, accelerated timetable underway for sale of Dean Foods plants

By Sherry Bunting, Farmshine, Friday, March 27, 2020

HOUSTON, Texas – Changes have officially been made to the bidding procedures originally sought by Dean Foods in the conglomerate’s Southern Foods Group Chapter 11 bankruptcy and sale in the Southern District of Texas.

In a very brief continuation of bidding procedures hearing on March 19, U.S. Judge David R. Jones said he would sign an order that outlined the new procedures and accelerated timetable for bankruptcy and sale proceedings. A cover story in last week’s Farmshine described the concerns and changes that led to the new order.

On the evening before the hearing, Dean withdrew its original proposal for Dairy Farmers of America (DFA) to be designated as stalking horse bidder, essentially dissolving key elements of the Feb. 17 Asset Purchase Agreement with DFA on 44 of Dean’s 57 plants.

This move to a “value maximizing” sale process opens the bidding to more opportunities for additional single- and multi-plant bids as well as a potential restructuring bid.

Bids are due by Noon CDT on March 30, 2020, with Dean declaring winners shortly thereafter.

Objections to a sale order or transaction are to be filed in writing by April 1, 2020 at Noon CDT.

A hearing to consider the proposed sale transaction will be held before Judge Jones on April 3, 2020 at 9:00 a.m. CDT.

Attorneys and consultants for interested parties worked together at the suggestion of Judge Jones to modify the original proposal after objections were raised by the creditors committee, potential buyers of Dean assets, and more than a half dozen dairy cooperatives. Their concerns focused on the lack of fairness and transparency in the previously proposed bidding process that sought to designate DFA as lead bidder with protections for its 44-plant bid.

The order at the case docket does not remove DFA as a potential bidder but opens the process by not designating DFA as the stalking horse bidder.

More information can be found at the website for the Southern Foods Group case at https://dm.epiq11.com/case/southernfoods/dockets and at https://deanfoodsrestructuring.com/

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Co-ops seek bid process modifications, object to ‘stalking horse’ status in DFA bid for 44 Dean plants

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6 co-ops covering 3000 farms and 10% of milk cite bid barriers, antitrust concerns, detrimental impacts

By Sherry Bunting, Farmshine, Friday, March 13, 2020

HOUSTON, Texas – New ripples emerged this week in the Dean Foods Company (Southern Foods Group LLC) Chapter 11 sale proceedings in the bankruptcy court of the southern district of Texas.

Just three days before the March 12 hearing on Dean’s motion to approve DFA as “stalking horse bidder,” an ad hoc committee for dairy cooperatives filed a limited objection on Monday, March 9 regarding the Feb. 17th DFA-Dean asset purchase agreement that covers a majority of Dean’s assets.

If Judge David Jones grants stalking horse status to DFA’s $425 million bid for 44 of the 57 plants and other itemized assets and liabilities, this would become part of the bidding procedures, which the March 12 hearing is expected to further outline, and it would provide certain protections to DFA’s initial bid.

“A potential sale of assets to Dairy Farmers of America Inc. (DFA), if approved, would effectively consolidate DFA’s grip on the national milk market. The ripple effects of the sale will detrimentally impact all of DFA’s competitors, from the largest dairy cooperatives and milk producers, to the smallest farmers,” the objection stated.

“For exactly this reason, the ad hoc committee, which includes certain creditors of (Dean) and competitors of DFA, was formed to… monitor the Chapter 11 cases, examine the impact that a sale to DFA would have on their businesses, and to the greatest extent possible, ensure that some semblance of fairness remains in the competitive process for the benefit of all dairy cooperatives,” the objection stated.

The ad hoc committee represents what is described as a broad cross-section of U.S. farm milk, covering over 3000-member dairy farms producing nearly 10% of the nation’s milk.
Six cooperatives are listed in the objection, and they have a mix of circumstances — one is a creditor of the debtor (Dean Foods) some are non-creditors except for non-pool payments that are owed, some are current suppliers of Dean Foods, and some are competitors in retail milk distribution.

According to the objection on the case docket, the six co-ops are:

• Lone Star Milk Producers, Inc., based in Wichita Falls, Texas with 120 member farms in eight states, marketing 1.9 billion pounds of milk annually;

• Agri-Mark Inc.,with 850 member farms in New England and New York marketing 3.3 billion pounds of milk annually;

• Cayuga Marketing, LLC, based in Auburn, New York with 30 member farms producing 1.3 billion pounds of milk annually;

• Cobblestone Milk Cooperative, Inc., Chatham, Virginia with 19 member farms from Virginia to Georgia marketing 0.6 billion pounds of milk annually;

• Maryland and Virginia Milk Producers Cooperative Association Inc., with 930 member farms in multiple states of the Midatlantic and Southeast producing 2.5 billion pounds of milk annually; and

• Michigan Milk Producers Association with 1300 member farms in Michigan, Ohio, Indiana and Wisconsin producing over 5 billion pounds of milk annually.
The limited objection seeks to address “certain fundamental flaws in the bidding procedures,” which “exacerbate the antitrust issues that plague the debtors’ proposed sale to DFA.”

• In a separate action, Southeast Milk, a Florida-based dairy cooperative also filed a similar objection this week.

At the start of the Chapter 11 cases that were all lumped together under Southern Foods Group LLC, the debtors, Dean Foods, proclaimed intentions of expanding the sale and marketing process and of exploring restructuring alternatives. Instead, the objection asserts that Dean Foods “spent months negotiating and finalizing proposed bidding procedures with DFA that only serve to create unnecessary competitive issues.”

Cited barriers to competing bids included the multi-step qualification process and compressed time frame that make it difficult for others to bid, including the use of terms that are not defined.

“Perhaps by design, these procedures make it a foregone conclusion that DFA will be the successful bidder for all stalking horse assets, even assuming that an auction were to occur,” the objection states.

On these and other grounds, the ad hoc committee for dairy cooperatives filed the limited objection and submitted that, “The proposed bidding procedures are not reasonably designed to secure the highest and best bid for the sale of the bid assets.”

While the debtors assert their proposed bidding procedures were designed to facilitate a flexible, robust and competitive bidding process, the objection asserts that, “The debtors have closely held all sale-related information and other information that they consider to be potentially confidential.”

In addition, objections are raised about the bidding procedures being “strategically crafted to prevent any of the stalking horse assets (44 plants) from being siphoned off by DFA’s competitors and broken down into auction lots that could yield a greater aggregate sale price for the debtors’ estates.”

The breadth of the DFA-Dean asset purchase agreement is a barrier if approved as ‘stalking horse’ assets because few, if any, bidders could compete on those assets collectively — keeping potential regional buyers that could be affected by the outcome from actually bidding.

Several modifications are requested, including how qualifications are set, how much discretion is given to Dean on separating auction lots, extension of the time frame, and a dual track auction process that would provide for back-up successful bidders and back-up alternate bidders for auction lots as separate sale transactions in the event that the DOJ does not provide the necessary regulatory approval for the sale to DFA.

Stay tuned.

 

DFA-Dean reach initial $425 mil. bid agreement, starting point in court-supervised sale

deanfoodsBy Sherry Bunting, Farmshine, Friday, February 21, 2020

HOUSTON, Tex. — Dean Foods Company announced Monday, Feb. 17 that it has reached an initial agreement with Dairy Farmers of America (DFA) regarding sale of a substantial portion of Dean’s assets. The two parties have entered into an asset purchase agreement that was filed in the Southern Food Group bankruptcy case with the Court for the Southern District of Texas in Houston this week, along with other motions.

This is just a first-step in a legal process that will unfold over the next several months and begins with Dean’s motion seeking court approval of DFA as the “stalking horse bidder” with an initial bid of $425 million at a hearing set for March 12.

A “stalking horse bidder” is the low-bid that can be accepted by the debtor in a court-supervised sale, and with certain bid protections for that bidder if other bids are offered.

The agreement includes 44 of Dean’s 57 currently operating plants and other of Dean’s assets as well as certain liabilities related to these assets. But, as learned in an email interview with a Dean Foods spokesperson and a review of court documents, this is not an all-inclusive price for the 44 locations as certain real property connected to these assets is named as for additional purchase.

Furthermore, 14 of Dean’s operating plants and 13 closed plants and/or distribution depots are listed as excluded from the DFA-Dean agreement.

This agreement still requires the approval of the U.S. Department of Justice (DOJ) and the United States Bankruptcy Court for the Southern District of Texas.

Anne Divjak, Dean Foods vice president for government relations and external communications, indicates that the company is cooperating with DOJ’s probe of antitrust concerns by providing requested information and answering questions.

Timeline and competing bids

A timeline for court hearings has been set beginning with the March 12 hearing to approve DFA as “stalking horse bidder.”

Interested parties with competing bids for the assets included in the DFA-Dean agreement as well as bidders for assets excluded from that agreement have until March 31 to provide the court with information in order to be considered as qualified potential bidders.

Those qualified bidders will then have until April 13 to submit bids.

A court-supervised auction would then be conducted sometime in April with an approval hearing set for April 27.

Negotiations continue

Divjak confirmed that Dean is speaking with other parties interested in acquiring assets – including some that are interested in assets excluded from the DFA-Dean agreement. Court documents also confirm that Dean is speaking with advisors and creditor committees about other restructuring options, though no details are provided.

Court documents reveal further that Dean Foods and investment banker Evercore Group, hired in February 2019 to evaluate potential strategies for the future, began negotiations with DFA in October 2019 — believing DFA to be the entity “likely to contribute significant value to the debtor’s businesses,” but they failed to reach agreement prior to the bankruptcy petition date of November 12.

After November 12, Evercore began communicating with additional potential strategic and financial buyers while continuing to engage with DFA, according to court documents.

These documents described the past three months in which Evercore received incoming interest from nearly 100 entities, including 55 potential strategic buyers (18 of them regional dairy companies) and 44 potential financial buyers. Of that number, 38 parties were provided with confidential information regarding Dean’s business. Several of those, including DFA, expressed interest in considering a transaction with Deans and were granted access to a data room containing additional confidential information on the bid assets.

Court documents also show Dean’s explanation that it continued to follow a “competitive process and arm’s length negotiations… to secure a bid from DFA,” which now pertains to the motion filed with the court on Monday seeking approval of DFA as the “stalking horse bidder.”

According to a Dean press release at the Dean Foods restructuring website (https://deanfoodsrestructuring.com/), president and CEO Eric Beringause states that, “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 they have come to expect.”

At a Northeast Dairy Leadership meeting in Syracuse, New York right after the Dean bankruptcy filing in November, DFA CEO Rick Smith was quoted in a Berry on Dairy blog post to say:  “Everybody’s been telling me for years that we are the logical owner of Dean’s. And I’ve already gotten phone calls about people who want to partner with us. We will be interested in some assets, undoubtedly. And not interested in some, undoubtedly. Some (assets) should be closed. Some will require partners.”

Of the assets excluded from the DFA-Dean agreement, half are currently operating plants and half are plants that are closed. Of the 13 closed plants Dean is looking to sell, eight were closed 15 to 20 years ago, several of them in 2001; and five were closed more recently in 2018 when over 130 dairy producers in eight states lost their Dean contracts after Walmart’s first milk bottling plant opened.

What’s included in the DFA-Dean agreement?

Included in the DFA-Dean agreement are all four currently-operating Dean plants in Pennsylvania – Lansdale, Lebanon, Schuylkill Haven and Sharpsville — along with the Florence, New Jersey plant.

Also included are one plant in New York, two in Massachusetts, two in North Carolina, one in South Carolina, two in Florida, two locations (three plants) in Tennessee, five in Texas, two in Ohio, two in Michigan, two in Indiana, three in Illinois, one in Iowa, one in Wisconsin, one in Idaho, two in Utah, one in Nevada, one in New Mexico, two in Montana, two in Colorado, one in California. The Barber Pure plant in Birmingham, Alabama is split with only the ice cream business being included in the Dean-DFA agreement while the fluid milk business has been excluded.

Brand assets that are part of the agreement include DairyPure, TruMoo and Steve’s Ice Cream.

Subsidiaries in Mexico are also mentioned in the agreement. Furthermore, Dean holds an ownership interest with Organic Valley in Organic Valley Fresh, and this distribution joint-venture is included in the DFA-Dean agreement.

Dean’s motions filed this week also seek certain “relief” items in the final auction process, including provisions that DFA would assume certain contracts and leases referred to as “proposed assumed contracts” that are connected to the sale transaction.

How this affects Dean Dairy Direct milk suppliers is unclear in terms of protection under the transfer of these milk supply contracts under the sale of related assets.

On Wednesday (Feb. 19), a hearing was conducted to handle a motion filed by a dairy farmer in Tennessee to end his milk supply contract with Dean to pursue a new contract with another milk buyer out of concern about potentially losing his Dean contract after the sale of assets is approved. Under bankruptcy court-supervised sale and reorganization, critical vendor contracts cannot be terminated or changed by either the debtor (Dean Foods) or the vendor (dairy producer) without court-approval. The outcome of the hearing was not yet available.

What’s excluded from the DFA-Dean agreement?

Among the 13 closed plants that are excluded from the DFA-Dean agreement are the recent closures of Meadow Gold in Erie, Pennsylvania, a Garelick plant in Lynn, Mass., and the Dean plants in Braselton, Georgia, Louisville, Kentucky, Florence, South Carolina and Livonia, Michigan.

They are all for sale, according to Divjak, who indicated Dean was “actively looking for buyers for these facilities before the asset purchase agreement was announced.”

Among the 14 operating plants that are excluded from the DFA-Dean agreement are notably the Land O’Lakes plants in Sioux Falls, South Dakota and Bismark, North Dakota, and several other Minnesota plant locations.

According to Divjak, the Land O’Lakes brand is not part of the DFA-Dean agreement. Dean has a long-term licensing contract with Land O’Lakes cooperative to use the brand name and Indian Maiden logo for fluid milk and soft products sold from Dean plants. That licensing agreement, which Divjak said could be negotiated by potential buyers, also applies to other Dean plants as whipping cream, half-and-half and other products sold under the Land O’Lakes brand name are found at supermarkets nationwide, while the Land O’Lakes line of whole milk, 2% reduced-fat, 1% low-fat and fat-free milk is a well-known brand with a following in the western Minnesota, South Dakota and greater Central Plains region.

Dean Foods’ minority interest in Good Karma, a flaxseed alternative non-dairy beverage, is not part of the agreement and is separate from the bankruptcy proceeding.

Before the November 12 Chapter 11 bankruptcy petition, Dean Foods had secured special financing of $850 million to underpin its position as debtor-in-possession as well as gaining court approval to use operational cash flow to continue operations and payments to critical vendors during bankruptcy and sale. The special financing was previously expected to keep operations going for about nine months — through July or August.

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ADDENDUM PUBLISHED IN MARKET MOOS COLUMN:

Revealing details in Dean deal

A conference hearing Wed., Feb. 19 in the Dean Foods bankruptcy and court-supervised sale case in Houston, Texas, available by teleconference, revealed many details as motions were heard. Attorneys representing the creditors committee, lenders committee, bondholders committees, Dean Foods, DFA, and a growing list of interested parties covered some sale transition concerns and concerns of creditors about the the low bid of $425 million by DFA that Dean is asking Judge David Jones to approve as a “stalking horse bid” at a hearing set for March 12.

Attorneys argued that the flow of necessary proprietary information from Dean Foods to other parties interested in offering bids has been stalled and delayed to the point where other interested parties were learning about what plants are included and excluded in the DFA-Dean agreement for the first time on Monday — the same day as the rest of the world found out via press release from Dean Foods.

For example, the adhoc bondholders committee is still waiting on a critical piece of information related to milk payables. In that regard, an attorney representing the creditors committee revealed that DFA — as a large creditor of Dean Foods with significant payables — could have a $1 for $1 deduction in its bid offer to secure its claims that other creditors do not share because DFA is also a critical vendor.

Judge Jones had earlier commented that the business model of the company “worked great in the 1960s but not 2020.” As a self-proclaimed “numbers guy,” the judge said he has looked at the numbers and done the math, and his assessment was hinted at when he commented that there is a sense of urgency to get this deal done so that the bankruptcy proceedings do not fall on the backs of vendors, including farmers and communities.

He said he did not want to be responsible for schoolchildren not getting their milk if the process is protracted for too long and the company fails.

He also stated that, “If integration fixes the problem, we ought to be working on integration.”

Toward that end he asked the entities to work together to see to it that the information needed flows to where it needs to go, but responsibly, and that he will give hearings and listen to all qualified interests, but that he did not want motions and proposals that simply waste the court’s time.

Also, a dairy farmer seeking permission to end his milk supply contract with Dean in February was granted permission as he asserted concerns about ultimately losing the contract after the company is sold and had another option for his milk.

 

The time has come to disrupt the disruptors

Opinion: Dean bankruptcy offers opportunity we should earnestly pursue

By Sherry Bunting, Farmshine, Friday, Nov. 29, 2019

If ever there was a time for state governments to sit down with their dairy farmers and agriculture infrastructure for a meeting of the minds… it is now.

The future is very much at stake with Dean Foods – the nation’s largest milk bottler – in Chapter 11 bankruptcy and sale proceedings, as the industry is largely signaling the buyer should be DFA.

But not so fast.

This could be an opportunity to look at the strength of Dean’s holdings and consider a different path forward, one that returns some of the regional branding power to farmers and consumers in the regions served by Dean’s 60 milk processing plants.

Dean Foods accounts for one-third of the milk bottled in the U.S., and the roots of its holdings go back to family operations with brands that were once – and some still are – household names.

In focus groups and shopper surveys, consumers demonstrate they understand what it means to buy local. They understand that buying local – especially fresh staples like milk – means keeping their dollars working in their communities. Consumers also say they want to help local farms. And they want to see clear labeling to know where their milk comes from.

Meanwhile, surveys show the gallon and half-gallon jug are still the most popular packaging among real milk buyers. Even though the category as a whole is declining, it is still a huge category and one that has not been tended or nurtured or cared for in more than a decade. In fact, the category has seen the deck stacked against it by government rules and government speech.

Taste is also important to consumers, as is nutrition. Where fluid milk is concerned, these two areas have also been lacking because checkoff-funded promotion became government speech that pushed fat-free and low-fat milk to the point where consumers have no idea what real milk tastes like – until they switch to whole milk, and they are.

Folks, this is an opportunity to chart a new path for fresh fluid milk, to breathe some life into it. We see it in whole milk sales that are rising. Just think what could be accomplished if significant resources were devoted to truly revitalizing milk.

As the dairy industry streamlines behind innovation and checkoff-funded partnerships to disrupt the dairy case — to be more like the plant-based non-dairy disruptors — there is still a majority of consumers choosing real milk, and more of them are choosing real whole milk as whole milk today is the top seller in the category, and whole flavored milk is growing by double-digits.

Can we disrupt all the disruption with a disruptive back-to-the-future original? I think so. But now is the time to hit it hard. A few years from now will be too late.

Dean Foods has the network and the facilities and the history a savvy consortium of buyers could tap into for going back to local or regional emphasis with brands. The DairyPure national branding experiment started out strong, but in the past few years has been squeezed-out by large retailers – and notably Walmart — pushing their own store brands with loss-leading strategies while hoisting the price of Dean DairyPure much higher.

And that’s part of the problem. Stores think it’s okay to loss-lead with milk, but they are not willing to eat that loss themselves. We need them at the regional dairy future table as well.

In the bankruptcy proceedings at hand, some of Dean Foods’ unsecured bondholders are protesting a rapid sale of assets to DFA in what they say equates to a “fire sale” that doesn’t maximize value. Did Dean receive a proposal from them too before filing bankruptcy? Sources indicate bondholders offered restructuring terms before the bankruptcy filing that would have changed the current picture for Dean Foods.

Will these bondholders that are opposing sale to DFA make an offer now? Can Dean Foods’ assets be sold piece by piece to be broken up more regionally? These questions don’t have clear answers at this time.

What is clear is that payments for milk by Dean to DFA are being delayed five business days as bondholders want to be sure they are truly ‘critical vendor’ payments and that there are no shenanigans between the would-be buyer and seller.

What is also clear is that Dean and DFA have a history, and that history includes the good, the bad, and yes, the ugly.

DFA was there every step of the way as mergers and acquisitions led Dean Foods on its path to become the nation’s largest milk bottler. DFA is Dean’s largest supplier of milk, and DFA leaders are on record stating that Dean Foods is the largest buyer of DFA milk.

If DFA purchases “substantially all” of Dean’s assets, we know more rapid consolidation of the fluid milk market will occur. DFA’s leaders — as well as the leaders of all the prominent organizations in the dairy industry, including the dairy checkoff — have been clear if we’re paying attention. The future they see is in moving away from investing in fresh fluid milk and moving toward ultrafiltration and aseptic packaging and blending and innovating for beverages that can be supplied to anywhere from anywhere without transporting milk’s water-volume by tanker.

Those are more of the ingredients for a monopolization of milk that may not even be considered by the Department of Justice. Without another offer or series of regional offers on the table, DFA would stand as the only option — other than complete failure of the firm under bankruptcy. This, alone, could put the sale to DFA on the fast track as sources talk about bankruptcy clauses that allow purchases to occur — without DOJ approval — when failure is the only other option.

So while consumers are consciously being pursued by the industry and dairy checkoff to move them away from their habit of reaching for that jug of milk and toward new beverages that contain milk — or are innovated new varieties of milk, or are blended and diluted with plant-based alternatives — what happens to the dairy producers in communities whose relevance is tied closely with retaining fresh fluid milk as a nurtured market and being a producer of a ‘local’ and fresh product? These producers are also forced to pay into the dairy checkoff that is developing these alternatives, not promoting or educating about fresh whole milk, and in effect funding their own demise.

Who will tend this store, nurture these customers, satisfy consumer desires to buy-local and ‘help farmers’ and their new-found eagerness to learn more about real fresh whole milk nutrition?

If states and regions don’t work to keep fresh milk facilities in their midst, the global message on ‘sustainability’, ‘carbon footprint’, ‘flexitarian diets,’ and ‘planetary boundaries’ will overtake the public consciousness, and the choices disrupting and diluting the dairy case will overtake fresh fluid milk.

In business today, that’s all we hear: Innovate and disrupt. Maybe it’s time to disrupt the disruptors, to put together a fresh fluid milk branding and packaging campaign that makes milk new again.

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DEAN BANKRUPTCY: Court allows critical vendor payments; DFA’s Smith says ‘We are logical owner’

The level of transparency in the Dean Foods Chapter 11 bankruptcy is unprecedented.  Included in the Chapter 11 proceedings are Dean’s 60 dairy plants and numerous name brands, including: national brands DairyPure and TruMoo; along with regionally branded milks, as well as Friendly’s Ice Cream and other cream products. This graphic in the Dean Foods’ declaration to the bankruptcy court shows the implications for consumers, farmers, businesses throughout the nation, reinforcing the importance of Dean Foods continuing operations during the Chapter 11 bankruptcy proceedings and court-supervised sale of assets.

By Sherry Bunting, Farmshine, Friday, Nov. 22, 2019

BROWNSTOWN, Pa. – When a dairy firm files bankruptcy, the first concern is whether farmers will be paid for milk already shipped. That first hurdle was passed as independent shippers to Dean Foods plants in at least three states report receiving payment in full for October milk, though the settlement checks due Nov. 15 were deposited two to three days late, in many cases.

In Pennsylvania, because of its unique Milk Marketing Board that implements and oversees the state’s Milk Marketing Law, PMMB indicates they are following up to be sure payments are made every two weeks instead of waiting for normal periodic auditing. Pennsylvania’s mandatory over-order premium on fluid milk produced, processed and sold in Pennsylvania is part of the minimum price bottlers must pay, and there have been no actions by the board to adjust this in any way.

Other states’ producers also report receiving payments in full.

In fact, Dean Foods’ spokesperson Anne Divjak reported to Farmshine last week that it is “business as usual” for Dean Foods to keep the milk flowing from farms to schools and supermarkets during the Chapter 11 bankruptcy reorganization and sale. The first regulated payments for milk after filing bankruptcy encountered just a small delay as banks needed to be aware of honoring the payments after the bankruptcy court decision last Wednesday afternoon allowed “critical vendor” to be paid.

Multiple sources indicate that Dean focused on getting payments to independents first, then small cooperatives, then DFA. There is no confirmation on whether DFA’s milk shipments were paid in full or what portion of the $172.9 million attributed to DFA as a creditor in the bankruptcy filing represent milk shipments.

Orders signed by Judge David Jones of the Southern District of Texas bankruptcy court where Dean’s petition was filed, are what allowed Dean Foods to pay “critical vendors” for pre-petition purchases and to continue its operations by accessing cash on hand as well as having access to up to $475 million of the new $850 million in debtor-in-possession financing to keep the ship sailing for nine months as reorganization and sale are sorted out.

Included in the Chapter 11 proceedings are Dean’s 60 dairy plants and numerous name brands, including: national brands DairyPure and TruMoo; along with regionally branded names for example Swiss Premium and Lehigh Valley in Pennsylvania; Garelick in New York and New England; Mayfield and Purity in the Southeast; as well as the Land O’Lakes milk brand in the Central Plains, where Dean licenses the Land O’Lakes logo and name and the cooperative supplies those plants. It also includes Friendly’s Ice Cream and other cream products produced by Dean Foods.

As the nation’s largest milk bottler, Dean Foods accounts for roughly one-third of the U.S. fluid milk market but saw volume losses from various fronts in the past two years and stock shares had fallen below $1.00 with bonds also decreasing in value.

Overall fluid milk consumption is down. Private label store brands are a larger share of the down-trending market compared with brands. Walmart’s new plant in Fort Wayne last year affected their contracts to bottle Great Value and also changed the geography and position of Dean brands in several important Southeast and Mideast markets. 

Dean also suffered other contract losses last year, and as Walmart bottled its own store label brand in several states and worked with Midwestern cooperatives to accomplish and supplement that start up, Dean saw its DairyPure and TruMoo brands replaced by Prairie Farms in many of those stores, and other Walmart stores as well.

Divjak did confirm that Dean’s majority interest in Good Karma, a non-dairy alternative beverage made from flaxseed, is separate from their dairy holdings in the bankruptcy proceedings. Dean purchased the Good Karma majority share a year ago for $15 million.

Interestingly, on Tuesday, November 12, the day that Dean Foods announced its bankruptcy petition, DFA was holding its Northeast Dairy Leadership meeting in Syracuse. Part of Dean’s announcement indicated that the company is in “advanced” talks with DFA about purchase of “substantially all assets.”

Chicago-based food science writer Donna Berry, with ties to DMI, was in Syracuse that day as a guest speaker on dairy protein and how it can be used in innovative foods and beverages to make plant-based options better. According to her Berry on Dairy blog story two days later, entitled “Dairy protein completes plant-based foods,” the mood in Syracuse was “upbeat.”

“Let’s face it, too often dairy marketers take the conservative road when it comes to promoting their products. Dairy Pure was the best Dean Foods could do for fluid milk, and it was not enough, as we see in its bankruptcy filing this week.

Berry went on in her blog post to quote DFA CEO Rick Smith before “a room packed with about 500 Northeast members of DFA and suppliers of services to DFA” at Tuesday’s Syracuse meeting.

The news of Dean Foods’ bankruptcy filing had just broken that morning, and Smith was already stating that, “Everybody’s been telling me for years that we are the logical owner of Dean’s. And I’ve already gotten phone calls about people who want to partner with us. We will be interested in some assets, undoubtedly. And not interested in some, undoubtedly. Some (assets) should be closed. Some will require partners.”

The week before, DFA chairman Randy Mooney’s comments at the NMPF / DMI meeting in New Orleans were loaded with concern about dairy farmers going out of business and loss of rural towns and infrastructure and that NMPF’s priorities were trade and immigration.

But something else Mooney said at that convention the week before Dean’s bankruptcy filing was foreshadowing. He talked about looking at a map and seeing “milk plants on top of milk plants” and how the industry needs to “collectively consolidate” toward plants “capable of making the new and innovative products consumers want.”

Dairy checkoff has made it clear that the emphasis of the future is on innovative new beverages and other products. While we are told that consumers are ditching the gallon jug (although it is still the largest sector of sales in 94% of households) and we are told consumers are looking for these new products; at the same time, we are also told that it is dairy checkoff’s innovation strategy to work with industry partners to “move consumers away from the habit of reaching for the jug and toward looking for these new and innovative products” that checkoff dollars are launching.

Meanwhile, Mooney’s comments about consolidating plants gives us a window into how DFA might treat those Dean assets if the “advanced talks” with Dean about purchasing them come to fruition. DFA will be a prime mover in the further consolidation of fluid milk assets markets if history is a guide.

Other industry analysts are also indicating that potential sale of “substantially all” Dean assets to DFA would likely consolidate these regional fluid milk bottling plants and create major shifts in how fluid milk is supplied to consumers in the future.

Dairy checkoff weighed in just hours after Dean’s bankruptcy announcement, Scott Wallin, vice president of industry media relations and issues management for Dairy Management Inc. (DMI), sent a media statement that, “Dairy Farmers of America (DFA) is in discussions to purchase the assets,” and went on to point out that, “In a decade shaped by a constantly changing marketplace, U.S. dairy has and will continue to successfully navigate the current economic environment… well positioned to expand its growth through innovation to meet the changing tastes and needs of today’s consumers.”

Others make the point that the Dean bankruptcy signals a milk information problem, not a milk demand problem. Noted agriculture radio personality Trent Loos stated in a broadcast drawing on his history with dairy farmers over the past 20 years, stating: “progressive producers were on the cutting edge of consumer education,” but that “their associations and most of the processors” have pushed in the opposite direction, insisting that consumers want low-fat and skim milk and skim water. He talked about how this is affecting the health of our children and teenagers not consuming enough milk, especially whole milk.

“Now that the producers are filing bankruptcy, the milk processors are filing bankruptcy too. Where does the milk industry go from here? The consumer’s not always right when they don’t have all of the information,” Loos said.

Meanwhile, in the “first-day” hearing on the Dean Foods Chapter 11 bankruptcy in Houston, Texas last Wednesday, at least one attorney — representing one-third of Dean’s bondholders — equated the filing and potential sale to DFA as a “fire-sale” of the company’s assets to DFA and they opposed this move.

Whether other serious buyers emerge – or strategies to regionalize sales of assets – remains to be seen.

For now, farms who ship milk to Dean Foods as independents or cooperatives are operating under levels of transparency and “business as usual” that were not seen in dairy bankruptcies of the past. Stay tuned.

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Dean Foods files bankruptcy, talks advance with DFA about assets

The map of Dean Foods’ plants around the U.S show regional brands of years gone by that are part of the Dean Foods national milk business. Some analysts observe that the refrigerated distribution network of the company make it an optionality for whole milk and full-fat dairy products as those sales are rising while overall fluid milk sales have continued declining and the company is further challenged by contract volume losses and margin losses to below-cost private-label milk wars. Alternative beverages, reduced cereal (and with it milk) consumption, and other factors are being blamed. But at least some in the industry are recognizing that as the industry’s associations and some processors, along with the government, have pushed fat-free and low-fat as what consumers want or should have, fluid milk sales suffer from an information  and education problem that has led to a consumption problem, and questions about where milk goes from here. More analysis on that next week.

By Sherry Bunting, Farmshine, Friday, Nov. 15, 2019

HOUSTON, Tex. — The dairy industry shake-up reached new levels Tuesday, Nov. 12 when Dean Foods, the nation’s largest milk bottler, filed voluntary Chapter 11 bankruptcy restructuring “for orderly and efficient sale.”

The announcement indicated that the sale of “substantially all” assets could most likely be to DFA as talks between the two parties have “advanced.”

The bankruptcy filing includes all Dean entities and holdings under one name — Southern Foods Group LLC d/b/a Dean Foods — in the bankruptcy court of the Southern District of Texas, where case judge David R. Jones signed an order the same day granting “complex Chapter 11 bankruptcy case treatment.”

The early morning announcement came just ahead of Dean’s scheduled third quarter earnings call, which was canceled, although Q3 SEC reports were filed. Dean Foods’ shares on the Stock Exchange have been halted.

A hearing of 17 motions — including provisions to pay for milk delivered in the 30 days prior to the bankruptcy filing — was slated for Wednesday afternoon, Nov. 13, where the judge granted Dean Foods’ request to pay “critical vendors” in order to continue operating during the Chapter 11 proceedings and sale.

In its pleadings, Dean specified the need to retain access to cash flow in order to pay suppliers and employees and other routine costs of doing business.

As for milk shipped after the Nov. 12 bankruptcy filing, new financing from existing lenders has been secured so that payments can be made going forward.

This is a court-supervised process, to which Dean Foods has filed a number of these customary motions seeking court authorization to continue to support its business operations, which includes paying for the milk. Dean states in the announcement that it expects to receive court approval for all of these requests and that it is officially filing bidding procedures with the court to conduct a sale.

“Our expectation, based on the motions Dean has filed and the hearing in Houston this afternoon (Nov. 13), that they will be allowed to pay for pre-petition milk shipments,” said PMMB chief counsel Doug Eberly in a Farmshine phone call Wednesday. He indicated that while any bankruptcy proceeding is unpredictable, the Board expects that the four Dean plants in Pennsylvania and the plants in other states, will continue operating and paying producers.

“This is a priority for the Board and our auditors to be out there first thing every two weeks when advance and final payments are due to make sure payments are made,” said Eberly. Pennsylvania’s Milk Securities Act administrated through the Pa. Milk Marketing Board ensures such auditing and bonding of milk dealers and handlers.

Not all states have this bonding protection; however, the motions before the bankruptcy court Nov. 13, if granted, would allow Dean to pay for the milk already shipped. Dean estimates having $100 million in commercial surety bonds, not enough to cover all of the payments to suppliers and employees and other required payments to continue operating, which is why there is an expectation that the motions that would allow the company to use cash on hand to do so would be uncontested and granted. Without this ability, the company would not be able to continue, the proceedings would become disorderly, and then no one’s interests would be ultimately served.

New financing to keep Dean operating

In order to keep the milk flowing, and to keep suppliers, vendors and employees paid in the future during the bankruptcy process, Dean has secured $850 million in new “debtor in possession” financial support on Nov. 11 from existing lenders, led by Rabobank.

Approximately half of the $850 million in new financing will be used to restructure current debt with those existing lenders and the other half, combined with cash on hand, would finance continued operations for nine months, including paying suppliers, vendors and employees “without interruption” as restructure and sale take place under Chapter 11 bankruptcy protection.

“Right now, it is business as usual for us,” notes Anne Divjak, vice president of government relations and external communications for Dean Foods in an email response to Farmshine Tuesday. “This means we are continuing to work with our raw milk suppliers so we can continue providing our customers an uninterrupted supply of dairy products.”

She notes that information about the restructuring is found at DeanFoodsRestructuring.com and additional information will be available from pleadings and motions as they are filed.

Will Dean assets be sold to DFA?

In announcing the bankruptcy filing, Dean Foods also announced it is engaged in “advanced discussions with Dairy Farmers of America, Inc. (DFA) regarding a potential sale of substantially all assets of the company.”

If the two parties reach agreement on terms of a sale, it would be subject to regulatory approval by the Department of Justice and the bankruptcy court and would be subject to higher or otherwise better offers in the bankruptcy, according to Dean announcements and statements made by DFA CEO Rick Smith in a letter to members, obtained by Farmshine Tuesday.

DFA’s largest customer

Dean Foods is DFA’s largest customer, according to Smith in his letter to DFA members, where he also indicated that DFA produces and delivers the vast majority of milk to Dean Foods.

According to the Chapter 11 bankruptcy docket, DFA is the third largest “non-insider” creditor owed $172.9 million.

In his letter to DFA members, Smith referenced this substantial amount owed to DFA as being for milk shipped prior to the bankruptcy filing, “You will receive milk checks without interruption, and milk will continue to be picked up as normal throughout this bankruptcy process,” Smith wrote.

In addition to pension funds and DFA as the top three creditors, others on the list of the top 30 “non-insider” creditors include USDA $16.8 million, Land O’Lakes $8.9 million, Saputo $8.9 million, California Dairies $7.4 million, Southeast Milk $6.5 million, and Select Milk Producers $6.2 million. Former Dean Foods CEO Ralph Scozzafava is also listed as a creditor for his unpaid employee severance of $5.4 million.

Smith explained that DFA has monitored Dean Foods’ financials closely and have “prepared for various scenarios to minimize the impact to DFA.” He also confirmed that DFA “decided to enter into discussions” about purchase of Dean’s assets.

Questions about how long DFA and Dean Foods have discussed potential sale of assets were unanswered, although previous reports indicate some level of discussion occurred prior to the bankruptcy filing and are now, according to Dean Foods, “advancing.”

Questions about how Dean Dairy Direct shippers would be handled in the event of a sale of assets to DFA, along with other questions, were not answered. Instead, a request for an interview was declined by DFA chief of staff Monica Massey, who responded to this reporter to say: “We will not be participating in an interview with you as, in the past, you have not been fair and balanced — or accurate — in your reporting.”

Dean Foods responded to questions to indicate their website will be updated frequently and their are frequently asked questions and answers there for producers and others, including a separate website devoted to the Dean restructure and sale.

As of mid-November, no Dean Direct shippers have reported any communication on any changes to their status as a result of these actions, and Dean’s spokesperson confirmed they are conducting “business as usual.”

At the root

Dean Foods had appointed a new CEO, Eric Beringause, on July 26, and then concluded a strategic review process announcing in September that a sale of the company would not be pursued, but instead work on other strategies as the company dealt with volume losses, contract losses and in the face of “rising commodity costs.”

Beringause, on the job less than four months, said in a public statement Tuesday that these actions “are designed to enable us to continue serving our customers and operating as normal as we work toward the sale of our business.”

He talked about Dean’s “strong operational footprint and distribution network, robust portfolio of leading national brands, extensive private label capabilities and 15,000 “dedicated employees.”

“Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment, marked by continuing declines in consumer milk consumption,” Beringause said.

With a new management team in place, he noted that this bankruptcy for an orderly sale is the best path forward after taking a look at the challenges.

Look for more analysis in Milk Market Moos and stay tuned. Additional information is available at www.DeanFoodsRestructuring.com

In addition, court filings and other information related to the proceedings are available on a separate website administered by Dean Food’s claims agent, Epiq Corporate Restructuring, LLC, at https://dm.epiq11.com/SouthernFoods, or by calling Epiq representatives toll-free at 1-833-935-1362.

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As producers struggle, cooperatives fumble: How is ‘excess milk’ determined to be a problem in deficit areas?

By Sherry Bunting, updated from Farmshine, June 1, 2018

KENTUCKY — As the calendar turns to June, the saga of lost markets has meant a transition for some, exits for others, and in Kentucky, 14 producers who still faced May 31, 2018 contract terminations with Dean Foods were given a 30-day reprieve.

“It’s down to the wire and we’re working on a hail-Mary,” says Maury Cox, executive director of the Kentucky Dairy Development Council (KDDC). “We started with 19 affected producers, and we’re down to 14. Some have exited the business and we may lose a couple more.”

According to Cox, the KDDC and other state officials are still working, leaving no stone unturned, for these 14 producers, confirming on May 28 that Dean Foods did extend their contracts to July 1.

Five of the original 19 affected producers in Kentucky have sold their cows and a few others, like Curtis and Carilynn Coombs, are in the process of incrementally downsizing their herds as the termination approaches.

In southern Indiana where seven producers were unable to find a market, Doug Leman, executive director of Indiana Dairy Producers, indicates that some are drying off cows, others are selling, and one is getting into on-farm milk processing. There are a select few that have been offered 30-day Dean contract extensions, mainly because their contract renewal dates were different, and Dean could utilize the milk.

In Kentucky, there is the added and unusual situation of an 800-cow dairy not being able to move into their new 8-robot dairy barn because the processor receiving their milk classified the second location, two miles from the main barn, as a start up instead of an existing patron’s modernization project that in total represented a modest expansion.

As the new robot barn sits empty, and many contacts made with no takers, Kentucky dairy leaders scratch their heads at the gate-keeping that is going on — wondering how is it possible that these things are happening? That in a milk deficit region, just two loads of milk from 14 former Dean Dairy Direct farms — that now have until July 1 — can’t find a home? That in a milk-deficit region, this separate situation happens to  a progressive dairy having to let their new completed barn sit empty and keep milking exclusively in the old facility, in order to keep their existing milk contract with another bottler?

All of this happening in a state that is part of the Southeast region that University of Wisconsin dairy economist Mark Stephenson says has a 41-billion-pound milk deficit in terms of production and consumers. And all of this happening in a state spanning two Federal Milk Marketing Orders (5 and 7) that regularly utilize transportation credits and diversions to move milk — bringing milk in from up to 500 miles away to meet the actual processing needs.

It doesn’t make sense. The movie playing-out in Kentucky could come to other theaters in the eastern U.S., and the previews are already being shown.

Repeated emails to Dean Foods went unanswered over the past two weeks as the company’s corporate communications director indicated by automatic reply that she is on “paid time off” until June 4.

Phone calls and emails to the communications department for the Kroger Company have also not been returned as Kroger bottles 100% of its store-brand milk at its own plants, including the Kroger Winchester Farms Dairy plant in Winchester, Kentucky, which is supplied by Select Milk Producers, Inc. and Dairy Farmers of America (DFA).

IMG-0010x(Incidentally, a billboard popped up recently on I-65 North outside of Louisville, Kentucky –picturing Holstein dairy cows grazing and proclaiming Kroger as “proud to support Kentucky farmers”. What could this mean? As noted in this report, requests to Kroger’s communications department — to understand what these billboards mean and what percentage of milk in Kentucky Kroger stores actually comes from Kentucky farms — have gone unanswered.)

Prairie Farms recently announced it is closing a plant in Fulton, Kentucky and will operate a distribution point there. Prairie Farms and DFA own or supply other milk processing assets in the state and region.

Numerous sources outside the directly affected region indicate that Prairie Farms is working with Walmart to source milk and bottling for Walmart while the Fort Wayne plant start up is delayed . Prairie Farms, Great Lakes Milk Producers and Foremost Farms are the three cooperatives, along with Walmart’s independent milk contracts, meeting the single-source loads requirement for Walmart’s new plant in Fort Wayne, Indiana.

(Author’s note: While Walmart touts the milk for its new bottling plant, once fully operational, will come from within 180 miles of the Fort Wayne plant, the plant’s reach in Great Value bottled milk distribution will be much farther — up to 300 miles away where milk that is more ‘local’ to those Walmart stores in Kentucky and southern Indiana is displaced. So far, none of the cooperatives working with Walmart have taken on this southern milk.)

With Prairie Farms, Dairy Farmers of America (DFA), and Select Milk Producers all supplying milk processing operations in Kentucky, not one has agreed to take on the Dean-dropped dairy producers as members.

New members are a problem for Prairie Farms when their own members are on a quota system, and yet, the cooperative is working with other cooperatives and Walmart to source milk to supply a consumer need that was previously sourced from the dropped herds via the Dean plants.

As for other plants, even Bluegrass Dairy and Food, a dairy powders and ingredients company — with plants in Glasgow and Springfield, Kentucky balancing milk supplies in the region — is not exclusively owned by the local Williams family who founded it in 1995. The majority of the company was purchased in 2010 by a private investment firm. Sources indicate Bluegrass cannot accept the displaced milk from independent producers because they are completely co-op supplied and balance co-op milk at the two Kentucky plants as well as a third plant in Dawson, Minnesota.

When asked if DFA is taking new members, John Wilson, senior vice president and chief fluid marketing officer wrote in an email: “Our Area Councils monitor local milk marketing and manage membership decisions as well as other local issues. Membership decisions by this group of local dairy farmers are evaluated based on a number of factors, including an available market for milk, which continues to be out-of-balance in some areas of the country.”

On the Kentucky situation, specifically, Wilson said that, “We are concerned for family farms. We recognize the dairy farmers in Kentucky and southern Indiana who have been displaced face a tough situation. While there is excess milk in the area and finding a home for this milk will be a challenge, we are working with others to determine if we can provide any assistance.”

DFA-FMMO.jpgFollow up questions about how “excess milk” is determined to be a problem in a milk-deficit area, have not been answered. (Since publication, DFA’s John Wilson replied in an email that the excess milk situation is really the region, not specifically Kentucky.” One can see why when comparing the DFA Area Council Map, above right, to the USDA Federal Order Area Map, above left…  Note how in the above DFA Area Council Map, the lines are drawn with the navy blue of DFA’s Mideast Area Council dipping straight into the maroon of the deficit Southeast Area Council right through central Kentucky, for example, and it becomes apparent that the decisions can be weighted toward surplus transport between Orders within Area Councils and between them.)

After all, milk moves in mysterious (and not so mysterious) ways.

MilkTruck#1Meanwhile, of the over 100 dairy farms in eight states affected by the Dean contract terminations, it has been the willingness of smaller regional bottlers and smaller regional cooperatives to mobilize compassion, leadership and local marketing efforts to pick up the slack.

In Pennsylvania, it was localized (PA Preferred / Choose PA Dairy) bottlers like Schneider’s Dairy and Harrisburg Dairies that picked up many of the eastern and western Pennsylvania farms, with much of the balance being picked up by New York-based Progressive Dairymen’s Cooperative, marketing with United, a bargaining co-op covering both New York and Pennsylvania. Six Pennsylvania farms sold their cows.

In addition, one New York producer shipping to the Erie, Pennsylvania plant slated for closure, made his last shipment of milk on May 31 and sold his 150-cow herd and equipment, although he is hoping to rent the freestall barn he built a year ago.

In Tennessee, at least one farm exited, and all but one remaining were picked up by the new Appalachian Dairy Farmers Cooperative that is marketing to a bottler featuring local milk.

In northern Indiana, the farms with lost markets were picked up by two regional cooperatives Michigan Milk Producers and the Ohio-based Great Lakes Milk Producers.

In addition, with the new Class I Walmart plant in Fort Wayne, and the destabilization of fluid milk sales as U.S. population growth is not making up for declining per-capita fluid milk consumption, Dean plant closings are on the horizon. Sources indicate that Dean plans to close as many as seven plants by September but that no new producer-termination letters are expected in the near-term.

This level of Dean consolidation was mentioned in quarterly earning reports. However, Dean Foods has not publicly announced specific plant closings and repeated emails and calls to the Dallas-based company were not answered.

Three plant closings later this year have been confirmed by town authorities quoted in press reports.

One is the Garelick plant in Lynn, Mass.

Another is Dean’s Meadow Brook plant in Erie, Pennsylvania. The Erie Regional Chamber reported to Erie News Now that Dean intends to sell the Erie plant and transfer its bottling to the plant in Sharpsville, Pennsylvania while purchasing a smaller property in Erie for a distribution center.

The third reported Dean plant closure of an estimated seven to be announced is the Louisville, Kentucky plant where many of the Kentucky and Indiana farms that received contract-termination letters ship their milk.

Meanwhile, as Walmart’s new milk sourcing with the “Midwest supply-chain” gets underway ahead of its new Fort Wayne plant becoming fully operational, the 90 to 100 million gallons of milk per year (roughly 800 mil. lbs) are already being moved away from regional bottling and distribution channels to consolidated sourcing and distribution — with the biggest effects at the farthest edges of the new Fort Wayne plant service area, like Kentucky, where dropped producers are unable to find milk buyers.

There just does not appear to be any market access at other plants in the region without being members of cooperatives like DFA or Select or Prairie Farms, and despite multiple attempts by state dairy leaders, none of these three cooperatives have stepped up to accept the displaced producers as members.

As noted in a May 15 Farmshine report,  the KDDC, Kentucky Department of Agriculture and the Governor’s Office of Ag Policy have all been involved in helping these farms find a solution.

It is not an issue of no processors for the milk. The issue is the gates to these processors are closed to these displaced independent producers because they are not already members of the cooperatives manning the gates.

In the most recent March/April edition of KDDC’s Milk Matters newsletter, president Richard Sparrow talked about the situation for these Kentucky dairy farms as “operating in a very limited, if not closed market, with few or maybe no options.”

In his Milk Matters president’s corner, Sparrow offers this commentary:

“It is a really sad commentary on the state of our dairy industry that all the major fluid milk processors in Kentucky have a large percentage of their day-to-day milk supply coming from farms hundreds of miles outside our state’s boundaries. Yet, at the same time, Kentucky dairy farm families can’t find a home for their milk,” writes Sparrow. “This situation did not happen overnight. It is not an oversupply problem or a quality problem. It is a marketing problem.”

KDDC executive director Maury Cox said in a phone interview that he did not want to be negative. However, when he looks at the whole picture of the market, the increased hauling and marketing fees, the quota programs and base-excess programs in this milk-deficit region, the amount of milk being sold $1.00 or more below mailbox price, and the effect of potentially losing these producers upon the infrastructure for remaining producers, he admits that it is difficult to see light at the end of the tunnel.

“They are putting us out,” he says. “I think we are looking at the complete demise of Kentucky’s dairy industry. I think that is what we are seeing.”

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