Covering Ag since 1981. The faces, places, markets and issues of dairy and livestock production. Hard-hitting topics, market updates and inspirational stories from the notebook of a veteran ag journalist. Contributing reporter for Farmshine since 1987; Editor of former Livestock Reporter 1981-1998; Before that I milked cows. @Agmoos on Twitter, @AgmoosInsight on FB #MilkMarketMoos
By Sherry Bunting, published Farmshine, Feb. 18, 2022
WASHINGTON — As reported in the Feb. 11 Farmshine, USDA announced a ‘transitional standards’ rule on Feb. 4 for milk, whole grains, and sodium for school years 2022-2023 and 2023-2024.
The transitional standards are only in place while USDA works with stakeholders on long-term meal standards through a new rulemaking.
The proposed rule for the longer-term is expected to come from USDA in fall 2022 and will become effective in school year 2024-25. It will be based on the Dietary Guidelines for Americans 2020-2025, but USDA says it is conducting a public comment and review process related to the standards and to the “gradual implementation” plan it will develop based in part on stakeholder input.
In the official transitional standards rule, USDA notes that full implementation of its 2012 meal pattern requirements for milk, grains and sodium have been delayed at intervals due to legislative and administrative actions. “Through multiple annual appropriations bills, Congress directed USDA to provide flexibility for these specific requirements.”
Now is the time to comment before March 24, 2022 and to call for an end to the prohibition of whole milk in schools. Request that USDA restore the choice of whole milk in schools by commenting at the online rulemaking portal https://www.regulations.gov/commenton/FNS-2020-0038-2936
Comments and questions can also be sent to: Tina Namian, Chief, School Programs Branch, Policy and Program Development Division—4th Floor, Food and Nutrition Service, 1320 Braddock Place, Alexandria, VA 22314; telephone: 703-305-2590. Include FNS-2020-0038-2936 in your correspondence.
In a rare move Feb. 7, the American Association of School Superintendents (AASA) made a public media statement on the transitional standards — pointing out their concern that the long-term standards will be ‘more stringent’ due to the restrictive Dietary Guidelines that were approved by USDA and HHS in 2020.
The Association of School Superintendents stated: “It is important to acknowledge that healthy meals are only healthy if students eat them.”
Agreed! This applies to the milk also. Students miss out on 21 minerals, 13 vitamins, complete high quality protein, a healthy matrix of fat and several nutrients of concern when they don’t actually consume the milk offered or served at school. Those nutrients ‘on paper’ are then not realized. Many key nutrients of concern are also fat-soluble. A study at St. Michael’s Children Hospital, Toronto, showed children consuming whole milk had 2.5 to 3x the Vit. D absorption compared with those consuming low-fat milk, and they were at 40% less risk of becoming overweight! Details were presented in a June 2021 hearing in the Pennsylvania Senate, listen here
Milk consumption plummeted and waste skyrocketed since USDA’s 2012 fat-free/low-fat milk rules were set for both ‘served’ milk and competing a la carte offerings. Studies by USDA and others show milk is now one of the most discarded items at school. In fact, USDA did a plate waste study comparing 2011 to 2013 (pre-/ and post-change) They focused on fruits and vegetables, but saw milk decrease significantly, waiving it off as though it were due to an “unrelated policy change.” Technically, it was the smart snacks rules for beverages and it WAS related to the 2012 standards as both were implemented together.
See the losses in Tables 2 through 4 below in ‘selection’ and ‘consumption’ of milk from the USDA study reflecting a 24% reduction in student selection of milk (offer vs. serve) after the 2012 fat-free/low-fat implementation and 10 to 12% reduction in consumption among those students being ‘served’ or selecting the restricted fat-free/low-fat white milk option or fat-free flavored milk option. That’s a double whammy for childhood nutrition and for dairy farm viability. Since 2012, at least one generation of future milk drinkers has been lost.
TOKYO — Commentators have likened Olympic gold medal swimmer Katie Ledecky to a Lamborghini, a powerful machine, gliding through the water in freestyle sprints and distance races. She won four gold medals for Team USA in Rio de Janeiro in 2016 and one in London in 2012.
Then, in Tokyo Tuesday, July 27, in the same 24-hour period — after winning silver in the 400-meter and missing medals altogether in the 200-meter — Ledecky came back with determination and poise to win Olympic gold by a healthy margin in the 1500-meter freestyle. Teammate Erica Sullivan secured the silver.
Ledecky was a machine Tuesday night in Tokyo. Her methodical straight line stretch of 30 laps in the 50-meter pool ended when she touched the wall at 15 minutes 37 seconds. That’s freestyle swimming of roughly one mile in just over 15 minutes – ranging 1.5 to 1.7 meters per second! She makes history as this is the first women’s 1500-meter freestyle Olympic event.
As she headed into the final four laps, NBC Sports commentators broadcast to a worldwide audience her training and nutrition regimen, how she fuels her body in the morning with oatmeal – made with milk, peanut butter and fruit — and always downs a 12-ounce bottle of chocolate milk after every race or workout.
Described as inspirational in her work ethic and a beast in her daily workout, Ledecky is one of Team USA’s Olympians who is proud to be powered by milk. Dairy farmers will be happy to know Ledecky teamed up a few years ago in the Built with Chocolate milk campaign, sponsored by the Milk Processors Education Program (MilkPEP). The campaign features athletes and the science behind low-fat chocolate milk as a recovery and refuel beverage. Low-fat chocolate milk is Ledecky’s choice, and milk and dairy are part of her dietary regimen in other ways too.
The swimmer told Fitness in 2018 that the bottle of chocolate milk 30 minutes after a workout or race has been part of her routine for more than a decade.
“This is my go-to post-workout recovery beverage since I was 13 years old,” said Ledecky in the Fitness interview. “I remember being a young swimmer when someone explained that drinking chocolate milk for recovery gives my body the nutrients it needs to refuel. Since then, I make sure to keep one in my lunchbox daily and drink it after a tough workout. Of course, it tastes great too.”
When the 2020 Olympics were postponed, Ledecky did the fun video of herself swimming 50 meters with a glass of chocolate milk on her head — without spilling a drop. That’s how steady, balanced and methodical her stroke is. Of course, at the end, she drank the milk — all smiles. The video went viral and inspired other swimmers to film themselves attempting the feat, and drinking the milk. Just a fun, feel-good moment for an accomplished Olympian who relies on and loves her chocolate milk.
As for Ledecky’s Tokyo Olympics this week, she has a few more events to go and we are rooting for her. Of her 1500-meter gold, Ledecky said in an NBC Sports interview just after the race that it “means a lot.”
With a nod to falling short of her goals in the 200- and 400-meter races just before the 1500, she said: “People may be feeling bad that I’m not winning everything, but I want people to be more concerned about other things in the world. People are truly suffering. I’m just proud to bring home a gold medal to Team USA.”
We are also rooting for the first-ever farm girl fueled to compete in the Olympics. Runner Elle Purrier St. Pierre arrived in Tokyo this week and will compete in the Olympic track events next week.
According to NBC Sports, Elle took first in the final 1500-meter race during Olympic trials, breaking a previous record and setting other track records as well, including breaking a 37-year-old record for the U.S. women’s indoor mile last year and breaking the two-mile record earlier this year.
Elle is a dairy farmer! She grew up on a 40-cow dairy farm near Montgomery, Vermont. Today she lives with her husband Jamie on his family’s Berkshire, Vermont dairy farm.
During the Covid-19 pandemic, Elle trained from the farm with her own equipment and has reported in various mainstream media interviews how working on the dairy farm has helped her own fitness.
She also explains every chance she gets how crucial dairy is to her diet. Elle’s husband studied dairy management at Cornell, and Elle studied nutrition at the University of New Hampshire. She says she could not have reached the heights of her running career without milk.
“The first thing I do when I get done running is, I chug a glass of milk, and I just know everything in there is going to help me do better,” says Elle in an interview with USA Today. “It’s got the perfect ratio of carbs and protein, when you add the chocolate, and just so many vitamins and minerals. It’s crazy what a great resource it is.”
There are also other Olympians proud to make milk and dairy part of their regimens, and to talk about it. We are rooting for Team USA and especially for Team Milk!
In that same June 2019 hearing, animal scientist and greenhouse gas emissions expert Dr. Frank Mitloehner of University of California-Davis explained the methane / CO2 ‘biogenic’ cycle of cows.
He said that no new methane is produced when cow numbers are “constant” in an area because methane is short-lived and converts to CO2 in 10 years time, which is then used by plants, cows eat the plants, and the cycle repeats.
Dr. Mitloehner also said that this cycle changes when cattle concentrations move from one area to another.
The milk produced and bottled in the Northeast and Southeast milksheds is not just carbon neutral, it’s already carbon negative, producing not just no new methane, but less than prior-decades’ methane.
Bear in mind, these new dairy-‘based’ — blended — beverages are NOT Class I products. I have been informed that the 50/50 blends, for example, do not meet the standard of identity for milk, nor do they meet the milk solids profile that requires Class I pricing. This means that even though milk is part of a fluid dairy-‘based’ beverage, it is not priced as Class I.
The milk used in these emerging products that combine ultrafiltered solids with water, additives and maybe an almond or two, fall into Class IV, some are Class III if whey protein is used. Examples include products like DFA’s Live Real Farms ‘Purely Perfect Blend‘ that arrived recently in Pennsylvania and the greater Northeast after its first test-market in Minnesota.
Think about it. Unity is great on many levels, and is to be encouraged in an industry such as dairy, but when it comes to marketing, who is calling the shots for future viability within the DMI integration strategy, otherwise known as unity?
Pre-competitive alliances and ‘proprietary partnerships’ working on food safety are wonderful because all companies should work together on food safety. But animal care? Environment? Climate? Why not just offer quality assurance resources and pay farmers certain premiums for investing as companies would like to see and pay them for providing the consumer trust commodity — instead of implementing one-size-fits-all branches in programs like F.A.R.M.?
These so-called voluntary programs have the power to negate contracts between milk producers and their milk buyers even though consumer trust is a marketable commodity that producers already own and are in fact giving to milk buyers, and their brands, without being compensated.
Instead, producers are controlled by arbitrary definitions of the consumer trust commodity that the producers themselves originate. This goes for Animal Care, Worker Care, Environment, and Climate.
The pre-competitive model used in food safety is applied to all four of the above areas today. This is exactly the supply-chain model World Wildlife Fund (WWF) — DMI’s ‘sustainability partner’ — set in 2010 to “move the choices of consumers and producers” where they want them to go.
In the 2019 Senate hearing referenced at the beginning of the above op-ed, Dr. Mitloehner stated that the mere fact there are 9 million dairy cattle today compared with 24 million in 1960 and producing three times more milk shows that dairy producers are collectively not only emitting zero new methane, they are reducing total methane as old methane and carbon are eradicated by the carbon cycle and less new replacement methane is emitted.
The problem may be this: Year-over-year cow numbers for the U.S. are creeping higher. While still much lower than four to five decades ago, the issue emerging for DMI’s Innovation Center for U.S. Dairy is how to accommodate growth of the new and consolidating dairy structures to attain the checkoff’s expanded global export goal and to accommodate massive new dual-purpose plants if dairy farms in other areas remain virtually constant in size, grow modestly, or decline at a rate slower than the ‘designated’ growth areas are growing.
DMI is at the core of this, you see, to reach it’s new collective net-zero goal, cow numbers would have to decline in one area in order to be added in another area, or they will all have to have their methane buttons turned off or the methane captured because now the emissions are being tracked in order to meet one collective “U.S. Dairy” unit goal under the DMI Innovation Center and F.A.R.M.
At that 2019 Senate hearing,Dr. Frank Mitloehner testified that dairies already create zero new methane but this can be tricky when cattle move from one area to another (as we see in the industry’s consolidation).Then we have DMI’s Dairy Scale 4 Good claiming the dairies over 3000 cows can be net-zero in 5 years and ‘spread their achievement’ over the entire milk footprint. Do we see where this is going?
Will all dairy farms have to meet criteria — set by organizations under the very umbrella of the checkoff program they must fund — to get to a ‘collective’ net-zero using the GHG calculator developed by the checkoff-funded Innovation Center in conjunction with its partner WWF (12 year MOU)? This GHG calculator has been added to the FARM program. These are the big questions.
So says Rohan Oza, an American businessman, investor, and marketing expert behind several large brands. He was with Coca Cola until 2002 and in the past 19 years has the distinction of being a brand mastermind behind Vitaminwater, Smartwater and Bai beverages, among others, and he has been a recurring guest on Shark Tank, a television show where entrepreneurs pitch their fledgling businesses to several investor “sharks” in hopes of getting an investment deal for a percentage of equity in their businesses.
In an archived episode of Shark Tank from 2018 when a husband and wife pitched their apple cider drink, known today as Poppi, Oza had other pearls of wisdom to share about the beverage industry.
He said the largest companies aren’t creating the drinks, they’ve perfected the manufacturing and distribution. Instead, they rely on entrepreneurs to have the vision to bring a new beverage to market.
Packaging and marketing matter. Information is power. Flavor is king.
Oza said consumers want beverages they can feel good about.
That’s what has been missing over four decades in the milk industry, especially the past decade since 2010 when fluid milk sales took the sharpest nosedive. This has stabilized a bit in the past two years as whole milk sales rose 1% and 2.6% in 2019 and 2020, respectively, providing a bit of a safety net to overall fluid milk losses.
There is an innovative and entrepreneurial trend in bringing to market new dairy-based beverages that contain dairy protein, or ultrafiltered low-fat milk as an ingredient. However, MILK, itself, as a beverage, lost its power to make people feel good because people were not empowered with good information, and children were robbed of opportunities to choose the good milk — whole milk — at schools and daycares.
What milk itself lost as a beverage was the power to make people feel good about drinking it — because people lost touch with what they were getting from milk, what whole milk actually does for them. One big reason? GenZ-ers (and to some degree millennials) have grown up drinking (or tossing) the low-fat or fat-free milk as their only choices in school, and then found themselves searching for something else to drink in the a la carte line.
That’s changing. Research, studies and scientific papers keep coming forward, identifying the benefits of whole milk. When people try it, a common reaction is, “this is the good milk.”
Yes, whole milk is winning customers. Efforts by dairy producers — at large and through organizations like 97 Milk — have been focusing lately on giving the public the information they need about whole milk to make informed choices. It’s about giving people the opportunity to know what whole milk can do for them, and we hope that bills in the United States Congress as well as conversations with the Pennsylvania State Senate bear fruit in the ongoing effort to legalize the choice of whole milk in schools… so future generations can feel good about milk too.
We notice that if USDA can give the coveted Child Nutrition label to the Impossible Burger — a fake meat product with more saturated fat (8 grams) in a 4 ounce patty than whole milk (5 grams) in an 8 ounce glass and more sodium (370 mg for Impossible vs. 120 for whole milk) and more calories, then surely USDA can loosen its grip on the fat content of the milk choices for children in schools. Incidentally, the USDA approval of Impossible for school lunch is really a head scratcher next to 85/15 real beef because the real thing has less saturated fat, less sodium, and fewer calories.
Yes, USDA qualified Impossible Burger for reimbursement with taxpayer funds in the National School Lunch Program, but still outright forbids the choice of whole milk in schools.
USDA and Congress are moving toward universal free lunch and breakfast (even supper and snack) for all kids. FDA is in the procedural phase of developing a “healthy” symbol for foods that “earn” it — according to whom? Dietary Guidelines! The trend in government is toward giving consumers less information on a label, not more.
This is why milk education and freedom of choice are more important than ever. Even the Hartman Group young consumer insights cited at PepsiCo’s K-12 foodservice website state that GenZ-ers show a preference for ‘fast food’ and ‘familiar tastes.’ Millennials and GenZ-ers both show high preference for foods they grew up with.
Kids need to grow up able to choose the good milk — whole milk — not have that choice forbidden. That’s why the milk kids get to choose at school where they get 1, 2, even 3 meals a day is so important.
Give them the choice of the good milk that is good for them, and the power of information, and they’ll remember feeling good about milk.
Happy June Dairy Month! A big thanks to dairy farmers for all they do.
By Sherry Bunting (updated since originally published in Farmshine in 2018)
LORETTO, Pa. — Take a step back to a simpler time. A time when dairy farmers were looked up to, not questioned. A time when the milkman delivered fresh dairy milk to the metal ice box on the doorstep. A time when milk’s good name was upheld. When milk was milk.
A visit to Vale Wood Farms, Loretto, Cambria County, Pennsylvania, is in some ways a step back in time, but it is also a bold look into the future — one that delivers fresh, local, real milk and dairy to consumers. One that develops farm-to-consumer relationships as everything old becomes new again.
It’s not easy to corral a few of the third and fourth generations of the Itle family as they go about their work here. Getting them to drop what they’re doing for a group photo? Forget about it. Everyone’s busy with three separate businesses under one sign. And they’re not keen on drawing attention to themselves, but rather draw attention to milk and dairy.
Converging trends shape their market, and consumer connections are critical. (For example, today, two years since this article was first published, people have rediscovered whole milk and cream and since the Coronavirus pandemic, local foods and home delivery are a trend.)
But in the overall dairy industry, there is a growing number of competing beverages marketing outside the lines of real milk’s FDA standard of identity — introducing a growing surge of competing imitations into the dairy case.
In these challenging times, many dairy farmers consider on-farm processing. Carissa Itle Westrick, director of business development at Vale Wood Farms, acknowledges the risk and insecurity of this business that relies on building consumer and community relationships.
She points out that in some of their sales – wholesale and institutional – they, too, are price takers.
“My great great grandfather (C.A. Itle) was grappling with difficult economic choices in 1933 when he hitched up his horse and wagon and went to town,” Carissa relates.
Today, the Itles have a window into seeing how milk production levels in excess of demand impact profits throughout the supply-chain.
In the dairy sector, we often hear the experts and consultants drive home the point that ‘the next pound of milk is the most profitable milk on the farm.’
“Our economics are different,” Carissa points out. “That next pound of milk is not necessarily the most profitable. If we can’t sell that next pound of milk, then making it means we just made less profit on all the milk. For us, that approach doesn’t make sense.”
What does make sense is adding processing efficiencies and capitalizing on consumer trends, while helping to shape them.
“We have to make sure what we do fits today’s families,” Carissa notes. “We are small enough to be fairly nimble, which is so important to our business model.” For example, customers can sign up and manage their home-delivery online.
Technology-driven, home-delivery — Valewood-style — still comes with a personal touch. Of their 50 employees, five are drivers.
“Our drivers cater to our customers. They might even be asked to let the cat out or pet the dog or put the product right in the fridge,” she says with a smile. “We are hyper-local, and it’s not just a selling point for us. We shake hands with whose buying our milk.”
Meanwhile, connecting consumer dots is very much a family affair as events like the mid-July Pasture Party draw in large numbers from the community and those members of the Itle family not involved daily in the business. They bring their friends and tell their neighbors.
“When people come to an event here and go on the crazy hay wagon ride, it’s us on that wagon. It’s my uncle Dan on that wagon,” she says. “That’s our one-on-one time to tell about our cows and how they are cared for. We focus our education on how much attention we pay to the cows. They are our livelihood, and we depend on them. The effort, time, energy and emotion we put into keeping them healthy and comfortable – that’s what we want people to understand.”
The nearby schools also bring classes to connect with the farm providing their milk. In fact, Carissa’s aunt, Jan Itle, developed the “Moo to You” formal school tour program that began with five teachers and today works with nearly 75 teachers and reaches up to 5000 students annually, in addition to the other community events hosted at the farm.
Jan was recognized as 2017 Pennsylvania Dairy Innovator of the Year. Her good-natured humor is evident when she talks about working with seven brothers. And she is enthusiastic about hosting school tours.
“Give back to the community at all times,” is something Jan says they learned from their parents.
For her generation growing up, the Itle house was the gathering place, Jan recalls. “Our house was like a train station, and we still extend that invitation to the community today — to come and see what we do and share our passion.”
As the public becomes more generations removed from farm life, and the dairy disconnect grows, the Itles are doing all they can to reconnect. That helps their business model and the dairy industry as a whole.
The Itle family has seen it all in their farm-to-consumer business at Vale Wood Farms. The land on which the farm and processing plant sit today has been in the family since 1841, and while they’ve been processing and home-delivering milk and dairy products since 1933, “we are still addicted to our cow habit,” says Carissa.
Carissa is one of six fourth-generation family members working full-time here. Her father Bill is one of eight third-generation siblings involved full-time, plus another involved to some degree with a career as a veterinarian.
As company president, Bill manages the processing side. His brother Pat manages the 500 acres of crops. His sister Jan is the herd manager with her nephew Zach as assistant herd manager.
Being one of the oldest of the 18 members of her generation, ranging from adults to infants, Carissa describes the overlap. It’s easy to see how her role serves as a bridge between generations.
All told, Vale Wood Farms employs 55 people, including family members. In fact, Carissa confirms that some of their employees are also multi-generational. In fact, even the many family members with careers outside of Vale Wood Farms, come back to help with events and such. “We were all raised to jump in and do, when we see something needing done,” says Carissa.
When Bill Itle looks at the future, he notes the confusion about what is real dairy is an issue.
“We feel the pain when farmers feel the pain, because we’re part of that, and it’s not always the processor making the money,” he says. While he has seen an increase in whole milk consumption, the overall drag on total fluid sales, says Bill, is confusion in the dairy case.
“It’s tough to get our name back and away from imitation products. They’ve been doing it a long time. They aren’t hiding in the woodwork,” Bill relates.
Carissa agrees, noting that some consumers don’t really know that almond milk isn’t milk.
“I have friends who ask why we don’t make it,” she says. “They think it’s a milk flavor.”
For all of its challenges and opportunities, this is a family that loves what they do.
“We appreciate how lucky we are to have this tradition here, and we also have a responsibility to keep it alive,” says Carissa, noting that for multiple generations to run three separate businesses together takes flexibility.
She recalls her grandmother often saying, “you can disagree without being disagreeable.”
“Balancing the generation with one foot out the door with the generation gaining life experience can be tricky,” says Carissa, admitting sometimes her role is more “cat herder” and interpreter.
“In a family business, we learn that there will be differing opinions, but at the end of the day, we make decisions and everyone supports the decisions. In a family business, you learn to have good healthy debate and to strongly support your point of view, but then to compromise and accept a decision once it’s made, and that’s how you thrive.”
As the industry changes around them, the Itle family jumps in to make key consumer connections. As a result, they maintain a steady market for their steady milk supply, growing home-delivery sales in the face of increased competition and consolidation being the new reality in supermarket dairy case sales.
They have an on-site dairy store, but it is off the beaten track and represents just 2% of their sales. As we sit in the pavilion that Carissa’s sister Jen has decorated for the following week’s Pasture Party, Carissa explains the evolution of dairy trends coming full-circle.
She gives four examples: The resurgence of fresh, real and local foods; the ‘new’ idea of home delivery; how ‘old’ products like whole milk, butter, and cottage cheese, are making a comeback; and how those old paper cartons are making a comeback too.
(In fact, take a look at the dairy case the next time you go to the supermarket. Most ‘new’ plant-based non-dairy beverages and ‘new’ dairy case items like iced coffees are packaged in paper cartons.)
“Consumers are gravitating back to the carton,” says Carissa. While Vale Wood bottles a variety of sizes in plastic bottles, paper half-gallon cartons are also available “because our customers see this as a great thing, from an environmental standpoint, and we like it because it protects the milk from light.”
We talk about the growing number of consumers seeking food delivery services and how the meal kit companies have really taken off. In fact, the three biggest food retailers – Walmart, Kroger and Amazon/Whole Foods — have either bought or created meal kit or food box delivery services.
Even as total consumption of dairy milk continues to erode, the large chain supermarkets and big-box stores are getting into the game because their checkout scanners confirm that milk — real dairy milk — is still the most frequently found item in grocery baskets.
So the future will either be a competition for shrinking market share – or an all-out effort to expand the fluid market. Vale Wood pays attention to those trends to steady their market while opening eyes of consumers expand it.
The upheaval in the industry reveals the trend toward the nation’s larger retail chains wanting a bigger piece of the shrinking fluid market. Small processors, like Vale Wood, on the other hand, seek to appeal to consumers and increase product demand.
The direct competition for supermarket shelf space is becoming intense because milk, though consumption is down, is still a store’s gateway to win customer loyalty.
As all processors navigate the competitive pressures, it is the home delivery service that is steadying the ship for Vale Wood. That part of their business brings them back to that key: connecting with consumers. A big part of that connection is the cows at the farm.
“It’s unique that we still milk cows,” says Carissa. “The cows are central to our farm history and heritage and our sense of identity.”
The Itle family milks 200 cows. Their processing covers 400 cows, as they purchase milk from three neighboring dairy farms instead of expanding their own.
In addition to bottling milk and flavored milk and making ice cream, they do soft products like dips and cottage cheese, and are now doing flavored butters. They do “a little bit of everything” to capitalize on trends. This helps them deal with increased competition for fewer milk drinkers.
“We can never underestimate the effort required to get into (or keep) a market,” Carissa says. And those barriers to entry are becoming more challenging as store brand private label market share increases at the same time that non-dairy beverage alternatives compete for space in the dairy case.
Still, 95% of Vale Wood’s milk utilization is Class I, thanks in large part to their consumer connections and education that lead to product awareness and loyalty.
AUTHOR’S NOTE: There is no single “reason” why farmers are being forced to dump their milk and why stores are largely still limiting the amount that consumers can purchase this week. The situation is complex, and two rumors are confirmed to be untrue. First, there is no health problem or health-related plant closure, nor is there a shortage of gallon jugs, according to Department of Agriculture sources. And no, milk jugs are NOT made in China. Most milk processing plants have their own plastic blow-molds and U.S. companies produce them as well.
Now that a few rumors are out of the way… Here is the industry narrative for plunging farm-level milk prices and farms being forced to dump their milk. It goes something like this: “Schools are closed, foodservice demand is stalled and exports are drying up. The first two weeks of so-called “panic buying” at supermarkets settled into a third week into the COVID-19 national emergency finding consumers continuing to ‘buy’ more milk and dairy products, but “not buying enough to overcome” the aforementioned sales losses…”
It’s difficult to buy something that is not available or has store-level restrictions enforced on how much to buy. Schools account for 8% of fluid milk sales under normal conditions, and children are still served milk with grab-and-go meals offered, which keeps a portion of that 8% going. It is not a ‘panic buy’ when a family of four wants to buy 8 gallons of milk a week because all family members are home due to COVID-19. Interestingly, one week earlier, before store purchase limits were set, USDA reported Class I beverage milk usage quite differently and Nielson Global insights showed sales up exponentially (See more here and here)
While a full report is still in process, here’s my take below as filed for the midnight April 1 press deadline for Farmshine after exhaustive calls, emails, texts, messages, reports, and analysis of letters and forms that I am still pouring over for a more complete report for next week’s edition… One late breaking detail not found below, is that some farms were able to find private food pantries such as Blessings of Hope to take milk that was destined for dumping. In order to go to food banks, the milk needs a processor to pasteurize and bottle it or turn it into something like cheese. Another late-breaking detail not found below is the unofficial tally of milk dumped in the Northeast and Mid-Atlantic region north of 200 loads, and the Southeast could approach 150, meanwhile sources indicate large national footprint cooperatives handling nationwide farm milk supplies met a weekly demand increase in the East of twice that amount. The math isn’t adding up.
Stephanie Younker of Mohrsville, Berks County, Pa. watches as her family, along other farms shipping to Clover Farms Dairy in Reading, dump two days worth of milk early this week. According to the Northeast Market Administrator’s office, six to eight different milk ‘handlers’, many of them cooperatives, reported dumping milk at the end of March and that more reports are expected into the first week of April as stores continued limiting purchases with varying availability.
March ends with dairy supply chain bottlenecks, utilization management; Farmers forced to dump milk while stores limit dairy purchases
By Sherry Bunting, Farmshine, Friday, April 3 edition (updated)
BROWNSTOWN, Pa. — While most supermarkets placed limits on consumer purchases of milk, butter and other dairy products — with the majority still enforcing those limits through April 1 at this writing — dairy farmers were forced to dump unprecedented amounts of milk throughout the Mid-Atlantic, Northeast and Southeastern states. Reports late Wednesday indicate some dumping also began in Wisconsin this week.
On Wednesday, the Northeast Market Administrator’s office confirmed six to eight different handlers, principally cooperatives, had reported dumping milk at the end of March in the Northeast Federal Milk Marketing Order. (Payment, pricing and utilization of Class I beverage milk is regulated by the U.S. Department of Agriculture (USDA) under 11 Federal Milk Marketing Order regions across the country. Prices paid to farmers are based in part on the receipts and utilization reports that are filed by milk “handlers” at the end of each month — dividing the milk by how it was used into four classes of which Class I beverage milk is the highest priced, Class II is frozen and soft products, Class III is cheese, and Class IV is butter and powder and is typically the lowest class.)
USDA Dairy Programs in Washington had received numerous phone calls and inquiries from milk handlers (processing plants and cooperatives) last week and issued a notice late last Wednesday, March 25, stating that, “In response to questions from the dairy industry, USDA will be implementing allowable flexibilities … to meet the changing consumer demand within the Federal milk marketing order program. The flexibilities will meet changing needs of both the dairy farmer and dairy processor and manufacturing communities to ensure efficient milk movements from farm to table. USDA wants the public to feel reassured that retail outlets will have milk available.”
This was followed by a letter (above) from the Northeast Milk Market Administrator, allowing flexibility for milk to move from unregulated non-pool dairy product plants into regulated Class I beverage or pool plants and between Milk Marketing Order areas to serve “increasing demand” for fluid milk. The same document states that milk disposal on farms that are “historically associated” with the Order can be dumped, pooled and priced on the Order as “other use” at the lowest Class value. (Clarification: Outside milk from other Orders going into Class I use would be pooled and priced on the Order from which the milk came.)
For March 2020, Class IV is the lowest value, with the price announced for all Federal Orders Wednesday, April 1 at $14.87 per hundredweight (100 pounds) or $1.27/gal. compared with the Class I beverage milk price in the Northeast for March at $20.71 ($1.78/gal). The more Class IV or dumped ‘other use’ milk priced on the order for March, the lower the blend price paid to all farmers for all uses combined. It is already looking like prices paid to farmers for the next three months could fall into the $13 to $14 / hundredweight ($1.16/gal) range or lower. Average breakeven price for farms to produce milk is $17/hundredweight or $1.45-$1.50/gal.)
What started with the news that Mount Joy Farmers Cooperative and the greater DFA cooperative would be forced to dump eastern Lancaster County milk into manure pits for lack of a plant to process it over the weekend (March 28-29), grew to include confirmation of farmers in Berks, Lebanon, Cumberland, Franklin and Perry Counties being forced to dump milk into early this week. And reports from western Pennsylvania indicate the same.
By Monday, all independent dairy farm producers for Clover Farms Dairy in nearby Reading, Pa. were receiving notices that they would have to dump 48 hours worth of month-end milk between Monday and Wednesday (March 30-Apr. 1).
Add to this, confirmation that DFA members were having to dump milk in New York and Vermont, and that small independent cooperatives in New York were either having to dump some of their milk or were being shut out of the ‘spot’ market and having to dump all of their milk. Farms in the Southeast states began reporting they, too, were being notified they would have to dump milk with no where for it to go.
Furthermore, Land O’Lakes member farms in Pennsylvania’s mid-state reported dumping significant milk loads Tuesday, after shipments to the Weis Markets bottling plant in Sunbury, Pa. were turned away despite the Weis Markets stores throughout the region having scant supplies of milk and still enforcing 2-gallon per shopper limits as of Wednesday, April 1.
Walmart’s milk cooler in Hamburg, Berks County, Pa. on April 1, 2020
As Walmart, Weis, Aldi’s, Target, some Giant stores, and others were confirmed to have sparse or empty dairy coolers — and a few chains and small town stores reported good stocks of milk and some dairy products — farmers continued to be forced to dump their milk, being told the dairy plants were full, the stores were not ordering, and consumer demand had shrunk after being described by USDA the previous week as “exponentially higher” than a year ago and “extraordinary”, “haywire” and “overcoming inventories” the week before that.
Signs like this one at Target were the rule, not the exception among many store chains this week, while nearby dairy farmers were forced to dump milk.
Adding to the complexity of the issue is milk silos and tanks full of cream that could not be moved as candy makers and bakeries closed or cut back, and foodservice and institutional trade came to a standstill.
As the industry supply chain adjusts product lines from schools, restaurants and other foodservice products to retail-packaged products, some plants reported not being able to process milk fast enough for two weeks of surging demand, bringing outside milk in — only to find the stores had started limiting consumer purchases or were spreading their risk of running out by stocking other brands. Difficulties unloading milk to stores in New York City was also cited.
In store dairy cases where milk was most scarce this week, store managers indicated issues with getting supplemental milk from other processors in other areas due to regulatory pricing “zones”, which they interpreted to mean that milk was being rationed so a more uniform distribution of available supplies would occur.
In terms of retail manufactured products, butter continues to be mostly unavailable at stores checked throughout the Mid-Atlantic region, and reports coming in from other areas indicate similar scant supplies and restricted purchases.
By Wednesday, April 1, some stores were re-stocked with milk and dairy products, and a few chains were lifting restrictions on gallons of milk, but they were the exception, not the rule. Almost universally, however, butter was absent or limited at retail outlets despite a cold storage bulk inventory report by USDA last week stating there was 25% more butter in storage than a year ago. Still, last week, processors made more bulk butter for foodservice that ended up in inventory, doing ‘print’ butter for retail on more of a hand-to-mouth basis, and the result is obvious in the lack of butter available to consumers seeking it at retail.
Jennifer Huson, senior director of communications for DFA Northeast reports that anyone having to dispose of milk should take measurements.
According to USDA Dairy Programs, producers should also collect an agitated sample. If not available, it is possible that missing samples can be quantified using previous and next samples in order to calculate protein and butterfat levels for the volumes of discarded milk that in most cases officials say will still be pooled and priced on the Federal Orders.
It is also apparent — according to Federal Order rules and the announced flexibilities — that Class I handlers have a clear financial incentive to price and pool this dumped milk on the Order because it will be priced at the lowest class value ($14.87 instead of $20.71), allowing them to draw from the pool while diluting the previously exponentially higher Class I utilization percentage experienced across the entire Northeast Federal Order the previous two weeks in terms of reducing the USDA blended price based on the milk handlers’ reports of receipts and utilization for March due around April 10 to the Market Administrator’s office.
While there are conflicting reports from some plants and handlers about whether farmers will be paid for the milk they are forced to dump, DFA says dumped milk will be pooled and paid, but they are tracking and looking at it from a comprehensive standpoint to see how to handle and aggregate it going forward.
“We want to make sure we are doing everything we can to fully understand our best opportunities moving forward through dynamics that are changing day by day and hour by hour,” said Huson. “Most importantly, in these uncertain times, we are working to make sure milk continues to be picked up, plants continue to operate, and wholesome dairy products continue to be available to consumers. We are not sure what is coming at us, and we want to make sure as this is evolving that we are doing all of those things.”
Look for a full and ongoing report next week in Farmshine.
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By Sherry Bunting, Market Moos, Farmshine, Friday, February 28, 2020
Winter dairy conferences have been replete with talk of a changing dairy industry along with optimism about the future of innovation in dairy foods and beverages. If you’ve read the food and grocer trade magazines or watched the dairy case at supermarkets, the name of the game is new-new-new, everyone wants to put out something new. Some new products fly off the shelves, others not so much.
The big new non-dairy competitor in the milk case these days, for example, is oat beverage — and as the trade journals state, it’s a virtual explosion.
But dairy beverages are getting a makeover too in some quarters.
Meanwhile, we have retailers telling us that 95% of shoppers put a gallon or half gallon of real dairy milk in the cart.When asked what can be done to put more of those attention-getting nutrition tidbits on fancier milk labels, the answer inevitably is “there’s only so much real estate to work with on a gallon milk label,” or “we don’t change our gallon milk labels very often,” or “there are a lot of regulations about what we can and can’t put on a gallon milk label.”
Of course dairy producer audiences are always reminded that that The Milk is a low-margin product.
Put simply, this means the industry doesn’t want to do much with low-margin commoditized milk, they’d rather put their effort into high-margin products, which means new, different, adjusted, blended, extended, ultrafiltered and differentiated products for which they can charge more — all the while loss-leading The Milk right into low-margin or no-margin territory because 95% of shoppers put in their cart. Something is wrong with this picture.
When asking a retailer who spoke at a dairy conference recently in the Southeast if there’s anything that can be done to stop the ridiculous levels of loss-leading we see at stores (outside of Pennsylvania of course), his answer was a question: “How does that sell more milk?”
Explaining that the extreme loss-leading for real dairy milk ($1.50, $1.25, 99 cents/gal) pushes stress back through the supply-chain and conditions consumers to disrespect the most nutritious option — that admittedly most shoppers still put in their cart — my explanation was met with a shrug, and this reminder: “It’s got to be moved, and we eat the loss, and the only thing more expensive than selling milk cheap is throwing it away.”
Hmmmmm. Doesn’t the decision to do extreme loss-leading make The Milk an even lower-margin product?
By the looks of the whole milk shelves in supermarkets and convenience stores — more often than not these days — they’re understocked, hardly in danger of being overstocked, even in Pennsylvania where loss-leading is prohibited.
With all of these new and “high-margin” dairy case beverages and foods and blends and mixtures and substitutes competing for space, at least one retailer revealed that shelf space will begin becoming an issue.
There are opportunities for real whole dairy milk within this strange set of marketing circumstances. It is a curious fact that sectors with more variety — like today’s dairy case — do more in sales overall, but where is the respect for The Milk?
It becomes apparent why the gallon jug is both loved by retailers as the “get you in the store loss-leading staple with a high turnover (but shorter shelf life) ” and at the same time ignored precisely because it is the low-margin high-turnover product they say they don’t make money on taking up all of that space that could be used for high-margin products with longer shelf life and better return.
The answer lies somewhere in the middle of this scenario, and maybe it begins with a simple request of retailers and the dairy industy: please respect The Milk. If we don’t respect it, how can we expect consumers to respect it, desire it and want to pay what it is worth?
Single-serve 16 ouncers with pretty packaging, that’s one way to differentiate that so-called low-margin whole milk. Experiential flavors is another. Flavored milk is hot, growing by double digits year over year.
But gallons? For families? They are the shopper-draw that doesn’t “capture growth” … just captures customers through the doors where they can buy it cheap.
Processors and cooperatives that are innovating in the real fluid milk space have their work cut out for them when store-brands continue to loss-lead The Milk into a space of disrespect within a dairy case that is literally bursting at the seams with high-margin new products seeking to capture growth… after taking it away from The Milk that got the shoppers in the door.
By 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.
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.
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.
‘Business as usual’ motions face lender objections over how cash reserve is accessed and used. Judge grants Jan. 7 ‘interim’ relief with authority to pay pre-petition ‘critical vendors’, including producers supplying milk. A hearing on the final order in regard to critical vendor payments and cash management is set for Jan. 23.
By Sherry Bunting, Farmshine, Friday, January 10, 2020
WILMINGTON, Del. — Citing unsustainable debt, including pension funds, negative dairy industry trends, fluid milk category declines as well as margin pressure in a loss-leading, commodity-driven market, the Borden Dairy Company, based in Dallas, Texas, but organized in Delaware, became the second major fluid milk bottler in the past 60 days to file for Chapter 11 bankruptcy protection.
Unlike the November Dean Foods filing with intentions to sell assets, Borden states its intentions are to use the Chapter 11 process to restructure its business for the future.
The company seeks to combine the bankruptcy filings of its 12 affiliated milk plants and one transport company stretching from Texas to Florida and north to Ohio under Borden Dairy Holdings LLC, owned by Acon Investments LLC,which had recapitalized these assets as recently as 2017 when purchased from Laguna Dairy after they were spun off from Grupo Lala.
Processing 500 million gallons of fluid milk annually for customers including supermarkets and schools, Borden employs 3300 people at milk plants in Alabama, Florida, Georgia, Kentucky, Louisiana, Ohio, South Carolina, and Texas. Milk is supplied by dairy producers and milk cooperatives in these and other states.
In addition to licensed brands Borden and Poinsettia, other brands involved include Coburg, Dairy Fresh, Dairymens, Flav-O-Rich, Kid Builder, Saba Sunburst, Sallie’s Southern Tea, Sunburst, and Velda. DFA separately owns the Borden brand license for cheese.
In Delaware District Bankruptcy Court, Wilmington, Judge Christopher S. Sontchi heard Borden’s first day bankruptcy pleadings on January 7.
“Concurrent to the decline of the number of milk producers, dairy processers have seen bottling margins decline due to competitive pressures from milk suppliers and large (and sometimes vertically integrated) customers. Couple this with the fact that … consumption has steadily declined, and it is no surprise that Borden and other dairy suppliers (such as Dean Foods) have begun to feel the same negative effects that have plagued dairy farmers for the past decade,” said Borden Chief Financial Officer Jason Monaco in his declaration with the court.
While all expected motions were filed to allow Borden to continue ordinary business while restructuring under bankruptcy protection — including motions to use a cash deposit reserve to pay pre-petition critical vendors such as dairy producers — attorneys for unsecured creditors objected Tuesday.
The lenders argued that, “(Borden) should not, and cannot, be allowed to use chaos of their own making to distract from the clear facts. There is no economic justification for… sudden chapter 11 filings, and the debtors cannot use the lenders’ (cash) collateral to finance an attempt by Acon to re-trade the out-of-court transaction,” that the parties had previously been negotiating.
The unsecured lenders contend that the bankruptcy filing occurred virtually on the eve of their out-of-court terms being ready for signatures. They contend that the $30 million cash deposit reserve is collateral and that other cash collateral Borden seeks access for operations are “insufficient.”
Acknowledging the importance of Borden continuing operations to preserve equity for all parties, the objecting lenders seek various protections from the court, including a position of consent with some oversight of budgets for the use of cash reserve and payment to critical vendors, including milk producers.
A day earlier, Borden CEO Tony Sarsam cited major milestones for Borden last year, including the revival of its spokescow Elsie, the brand’s reintroduction in Ohio and the launch of several innovative products such as state-fair inspired milk flavors and a new Kid Builder flavored milk line using 2% milk and containing 50% more protein and calcium with no added sugar.
Sarsam also explained in a press release that the company “continues to be impacted by the rising cost of raw milk and market challenges facing the dairy industry” that have contributed to “making our current level of debt unsustainable. He said ultimately, reorganization through court-supervision was the only solution “for the benefit of all stakeholders.”
Court documents reveal that Borden reported 2018 consolidated net sales of $1.181 billion with gross profit of $292 million but experienced operational income loss of $2.6 million and total net income loss of $14.6 million. These losses continued into 2019, with reported operational income loss of $22.3 million and total net income loss of $42.4 million from January 2019 through December 7, 2019, according to court documents.
Borden maintains that its situation differs from the Dean Foods bankruptcy.
“We believe that, from an operational standpoint, we are in a much better position than Dean Foods. Borden is EBITDA-positive and growing, which means we have solid earnings and are healthy,” Sarsam said in a public statement. “Borden intends to continue operations and strengthen our position … whereas Dean Foods announced its intention to sell substantially all of its assets. We are confident that, once we fix our balance sheet, we will be equipped to win together in the market.”
Documents also note Borden’s “need to raise new investor capital” to “continue to innovate with new products, modernize our facilities and equipment and improve Borden’s ability to compete in today’s market.”
The bankruptcy process is still in preliminary stages with more than 45 items filed on the docket within the first 48 hours.
Stating that this bankruptcy reorganization will not affect dairy producer contracts, Borden announced on Jan. 5 that it fully expects business as usual and to move quickly and efficiently through the bankruptcy process.
However, on Jan. 6 and 7, unsecured lenders filed the objections to many of the motions that would allow business as usual – creating potential ripples in that scenario.
As of Wednesday afternoon, Jan. 8, a signed interim order from the Jan. 7 hearing authorizes Borden to maintain its cash systems and bank accounts and provides interim relief to pay certain pre-petition obligations, such as payments to ‘critical vendor,’ including milk suppliers.
A hearing on the final order in regard to critical vendor payments and cash management is set for Jan. 23.
In the meantime, dairy producers supplying milk to Borden plants, are advised they may need to file a proof of claim with the court to be eligible for payment or otherwise consult an attorney for guidance.
The company’s claims agent, Donlin Recano, can provide appropriate forms once a deadline for filing claims has been set by the court. For more information on that, dairy producers can call the Borden restructuring information center toll free at 1 (877) 295-7345 or e-mail email@example.com.
MINNEAPOLIS, Minn. – The news of DFA’s new Dairy Plus Blends – a half lactose-free low-fat milk / half plant-based beverage concoction broke mid-July. DFA’s Live Real Farms brand website showed Lund and Byerly’s stores as the place to buy the Dairy + Almond and Dairy + Oat, but a visit to two stores on the list at the Minneapolis city limits did not have the beverages in the dairy case – yet.
Looking at the packaging, a first impression is: Wow, why doesn’t 100% milk packaging look this good. If only the agencies managing mandatory milk promotion funds and dairy-farmer-owned co-ops put as much thought into packaging and marketing 100% Real Whole Milk as they do for a diluted “innovation,” imagine what could be accomplished!
A further examination of the new Dairy Plus Blends packaging brought this thought: Why use words such as “Purely Perfect” and “Original” for a blend, when such words would seem best reserved for marketing the actual original, purely perfect 100% Real Whole Milk that the DFA member-owner dairy farmers produce and that actually results in the dairy-checkoff promotion funds.
We asked DFA for some background. In fact, we sent 11 questions to DFA and to DMI communications staffs because we were aware that DFA’s Live Real Farms brand is part of a checkoff-supported partnership between DMI and DFA to innovate products in the fluid milk space under the auspices of DMI’s Innovation Center for U.S. Dairy.
We first wanted to know, why the blend? Why not just create an almond FLAVORED 100% real milk beverage? Because, after all, the new Dairy Plus Blends have half the calories, but they also have half the natural nutrients and only slightly more than half the protein of real 100% dairy milk.
It seemed like value was being subtracted, not added.
We all know that almond beverage has barely any almond in it, being mostly filtered water and some additives, so it seemed like the product is an offering of diluted milk. Since we couldn’t find any on the shelf yet at Lund and Byerly’s in Minneapolis, we aren’t sure if consumers will be asked to pay more – for less.
Of course, the packaging does have more. It touches all the right chords.
DFA was kind enough to answer some of our questions, although we have heard nothing back yet from DMI.
“In an effort to meet the demands of modern consumers, Live Real Farms has launched a new beverage, Dairy Plus Blends, which combines all the nutritional benefits of real cow’s milk with the flavor and texture of alternative beverage options like almond or oat,” stated Rachel Kyllo, senior vice president of growth and innovation at Live Real Farms, a DFA-owned brand.
The reply came by email to the questions we submitted.
“All the nutritional benefits of real cow’s milk”? (The label says 5 grams of protein per 8-ounce serving, not 8, and the other naturally occurring nutrients in real cow’s milk are also reduced.)
Kyllo continues in the reply:
“Nearly 50% of consumers who buy plant-based beverages also have dairy milk in the fridge, so they’re buying both products,” she writes. “This product is not about pivoting away from dairy, instead we saw an opportunity to fulfill a need as people like almond or oat drinks for certain things and dairy for others. This product combines the two into a new, different-tasting drink that’s still ultimately rooted in real, wholesome dairy.”
We wanted to know DMI’s part in developing this concept, seeing that dairy farmers mandatorily pay a checkoff promotion fee on every 100 pounds of milk they sell.
DFA’s response stated that, “The overall product concept for Dairy Plus Blends was developed along with DMI and the Innovation Center for U.S. Dairy. Consumer focus groups were conducted with Millennial and Gen X primary shoppers. Overall feedback was positive regarding the product concept, taste and packaging.”
We wanted to know more about how the product will roll out.
“Dairy Plus Blends are now being test marketed at more than 300 retail stores in Minnesota,” the DFA response stated. “If successful in test, the brand plans to roll out more broadly across the United States, beginning in the Central and Northeastern regions of the U.S.”
DFA has already been bottling plant-based alternatives in copacking arrangements in the Midwest. And, the Cumberland Dairy plant in New Jersey, formerly owned by the Catalana family, and purchased in 2017 by DFA, bottles plant-based beverages also as the Catalanas still operate the plant and retained ownership of their plant-based beverage investments.
We also wanted to know how the real dairy milk that makes up 50% of the new Dairy Plus Blends is classified for Federal Order pricing, but that question was not answered.
And, we wanted to know if DFA in its “partnership to innovate” with DMI has any plans to innovate the marketing and packaging of 100% Real Whole Dairy Milk in such a pleasing and attractive way as they have with the Dairy Plus Blends? That question was not answered either.
We also wondered if this “blend” will pull dairy milk drinkers as they hear all this talk about becoming “flexitarian” – cutting back on foods that come from cows and adding more foods that come from plants to, you know, save the earth and all.
Along these lines, DFA’s response attributed to Kyllo at Live Real Farms was: “We’re confident milk will continue to have a place on family tables for years to come, but we also understand and appreciate that consumers have choices in what they drink today. We think Dairy Plus Blends offer a refreshing taste experience and provides a unique way to get dairy in front of consumers who might explore other beverage options.”
We wonder if this is an invitation by a dairy-farmer-owned cooperative, funded in part by dairy-farmer-checkoff to lure consumers into experimenting with something new instead of dairy milk or will it appeal to people who have no intention of drinking 100% real dairy milk? It’s hard to tell, but it’s worth watching.
Some advocates of this kind of experimentation say that the fluid milk market needs more lactose-free choices. There are already lactose-free milk choices, there is also A2 for other types of digestive sensitivity, and there’s one thing everyone seems to be forgetting. Whole milk is more easily digested by people with these sensitivities. There’s actual real proof of this now, not just personal experience, but that’s a story for another day.
In this time of continued fluid milk sales losses, farm milk prices below breakeven for five years and dairy farms exiting the business, why does the dairy-checkoff not re-brand and re-market and innovate the packaging and promotion of Real 100% Whole Milk that is virtually 97% fat-free and loaded with natural goodness? Why not actually partner to innovate the brand-promotion MILK? What a novel idea!
Oops, that’s right. I think USDA lawyers would have a problem with that.
One thing that is impressive coming out of Live Real Farms is the Wholesome Smoothie line of Whole Milk yogurt smoothies last year. DFA says it plans to develop “a robust product line with the launch of additional, innovative products over the next three to five years.”