Part Two: Digging into the PA Senate Ag hearing on the PMMB over-order premium

Posted on May 12, 2023 by Agmoos

By Sherry Bunting, Farmshine, May 5, 2023

HARRISBURG, Pa. — As reported in Part One, published in Farmshine’s April 28^th edition, the Pennsylvania Senate Agriculture Committee held a three-hour hearing on April 25 about the state’s mandated Class I milk over-order premium (OOP), which is part of the state’s minimum milk price per gallon set by the Pennsylvania Milk Marketing Board (PMMB).

Agriculture Secretary Russell Redding offered this equation to describe what is known and unknown about the estimated $30 million or more in annual OOP paid by Pennsylvania consumers: A+B=C.

‘A’ was confirmed by PMMB auditor supervisor Gary Golsovich to be $23.6 million collected by processors in 2022. But, he said, only $14.5 million of this collected OOP was documented as paid to Pennsylvania farms for milk that could demonstrate all three criteria: produced, processed and sold in Pennsylvania.

Golsovich gave an example: A processor sourcing 50% of its milk from Pennsylvania farms with 50% of its sales being consummated in Pennsylvania only has the obligation to pay 25% of the OOP to the Pennsylvania farms. This was something the PMMB tried to change 10 years ago, seeking to require processors to pay up to the percentage of in-state sales that matched in-state sources, but a constitutional interstate commerce challenge in the courts caused the state to back down.

‘B’, said Redding, is the additional $5 to $10 million in OOP that is paid by Pennsylvania consumers but is presently unaccounted for. Examples are packaged milk from out-of-state and other cross-border transactions. Legislation such as Senate Bills 840 and 841 from last session would capture this information, and Senate Ag Chairman Elder Vogel Jr. and Minority Chair Judy Schwank said they intend to re-introduce these bills in the current legislative session.

He estimates the total ‘C’ would be around $30 million, or more, but last year less than half that amount was paid to the intended beneficiaries: Pennsylvania farms.

The only way to fix the leakage, said the Secretary, is to “break the chain,” to remove the OOP from the minimum price and make it a fee collected at retail and remitted to the Department of Revenue into a designated fund. This would also require legislation.

“Pennsylvania has a system that is like no other,” said PMMB Chairman Rob Barley, a farmer in Lancaster and York counties. “The system worked well when people were drinking a lot of milk produced by Pennsylvania dairy producers. That’s changing. The system needs an adjustment.”

When the Senate Ag Chairman pressed the PMMB Chairman for specific ideas, Barley said the Secretary’s proposal, “while not ideal, is probably the only way to do it.”

He mentioned the potential for a tiered or scaled system where smaller farms could receive more and larger farms less, much like the federal Dairy Margin Coverage has a tiered program based on annual milk production history.

“We want to work with the legislature on this — to benefit everyone,” said Barley.

The consumer member of the PMMB board, Kristi Kassimer Harper from Fayette County, noted examples in her area of western Pennsylvania, where the OOP works among a variety of independent bottlers that buy Pennsylvania milk, process it in Pennsylvania and sell most of it in Pennsylvania.

She cited studies by St. Joseph’s University indicating consumers don’t give much thought to where their milk comes from, but a survey of Pennsylvania consumers showed that two-thirds would pay a 10-cent premium if the premium gets back to the farmers. (They are already paying a 13-cent OOP plus fuel adjuster embedded in the milk price, but less than half of it is getting back Pennsylvania farms.)

In his back-and-forth discussion with Vogel, Barley said a formula could be developed that would prioritize producers that are currently serving the Class I fluid milk market, using a graduated scale. This idea turned Chairman Vogel’s head. He said it’s the first time he’s heard this approach mentioned.

Something like this would address the concerns of milk dealers who are currently upholding the spirit of the law and the testimony from the State Grange, urging caution about diluting the meaningful amount of OOP 15 to 20% of Pennsylvania farms currently receive.

“Consumers are already paying this, it’s not a tax, but if we collected it from Pennsylvania retailers as a fee and put it in a restricted fund, we can avoid the constitutional issues with interstate commerce,” said Senator Gene Yaw. “We do this all the time, collect funds and put it toward programs we want to support. In this case, the people are already paying it, and if the money is in one place, we can audit it.”

The “mechanics” of how to distribute it, he said, can be worked out with the Board and the industry. But at the same time, Yaw and other Senators said they want to help more of the state’s farmers access what was intended for them, without harming those already receiving some.

Meanwhile, the Department of Agriculture’s plan mentions ‘uniform distribution,’ as do the policy points endorsed by Pennsylvania Farm Bureau.

PMMB board member Jim Van Blarcom, a farmer from Bradford County, stated that in his nine years on the Board, he has heard the concerns of producers across the state. He noted the geographic and generational diversity of the PMMB Board, and their ability to understand how different parts of the state have different experiences with the OOP.

“The OOP was put in place to help dairymen recoup some costs,” said Van Blarcom, explaining to lawmakers that the Milk Marketing Law already has built into it a 2.5 to 3.5% profit margin for bottlers and retailers. “Since then, the industry has changed, making it outdated and less effective. As a board member, it is getting more difficult to weigh the benefits for the farmers who receive a useful OOP vs. farmers who receive very little to none. When consumers pay a mandated 8 to 12 cents on every gallon of milk sold, this becomes a large sum of money, of which some is unaccounted for.

“During my time on the Board, I have heard over and over about the tanker loads of New York milk coming in and displacing Pennsylvania farmers’ milk. The primary reason these companies do this is they can take advantage of the OOP… We are essentially encouraging this to happen,” he explained.

Recounting testimony at a Board hearing from a dairy farmer milking 90 cows, he said the amount of OOP that farm received wass equivalent to one bag of milk replacer a month.

“I don’t believe one bag of calf feed keeps that farmer in business, but rather his tenacity and commitment to the family farm,” said Van Blarcom.

He also recounted testimony at a Board hearing from Pennsylvania Representative John Lawrence, who cited the accurate accounting on mandated fees for alcohol and fuel.

“This is not happening with the mandated milk OOP. It will continue to become more difficult to defend as a program with funds that are not accurately accounted for and not fairly distributed,” Van Blarcom asserted, adding that consumers will also “become more aware of the unfairness to themselves.”

Meanwhile, when laying out the Department of Agriculture’s plan, the Secretary talked about “a collective investment in PA Dairy,” such as using some of these funds to invest in processing.

Andy Bollinger, a Lancaster County dairy farmer testifying for PDMP said the organization has not taken a position on reforming the OOP because they want to see the facts and the results of a study they are working on with a third-party economist.

Zach Myers from the Center for Dairy Excellence also mentioned a study CDE is involved in to understand the obstacles to processing investment within the state. He cited the impact on farms from supply management programs placed on them based on processing capacity.

“We come to you and ask for investments,” Secretary Redding told lawmakers. “Here’s one that’s already done in the marketplace, and we’re failing to bring those dollars back specifically to reinvest in PA Dairy.”

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Why did PMMB go after raw milk farms for Milk Dealer licenses? Small farm bottlers push back, PMMB puts further licensing ‘on hold’

Posted on August 29, 2022 by Agmoos

When Lone Oak shared their public post to customers on facebook that their raw milk and chocolate milk would no longer be available at Back to Nature, they encouraged their customers in Indiana, Pennsylvania to come the extra 20 miles to the farm in Marion Center. The response was overwhelming. They chose to only sell their milk at the farm after being notified by PMMB about needing an intrusive Milk Dealer’s license on top of the PDA permit, inspections and testing they already do. Small processors are pushing back, and PMMB has put licensing of small processors on hold as it evaluates what to do. Facebook photo

By Sherry Bunting, Farmshine, August 19, 2022

HARRISBURG, Pa. — Calls and mailings from the Pennsylvania Milk Marketing Board to small dairy farms processing and selling their very own milk — including those that are permitted by the Pennsylvania Department of Agriculture to sell raw milk — are stirring up a hornet’s nest .

The context of the communications was to get these very small processors to fill out the intrusive applications for Milk Dealer’s licenses, to pay the flat fee, and to do the ongoing monthly milk accountant reporting and calculate and further pay their 6 cents per hundredweight on sales.

To most, this made no sense, given these farms do not purchase milk from other farmers. They do their own pricing based on their expenses — always well above the state-mandated retail minimum — and many are selling raw milk, which is not a general or interstate commerce item.

In the case of raw milk, these producers operate outside of the Federal Milk Marketing Orders, so why is the Pennsylvania Milk Marketing Board (PMMB) coming after them for a Milk Dealer’s license? And why now? Could it have something to do with the bill seeking to collect over-order premium and pool it and pay it to producers directly so that the big players can’t continue to strand some of that premium?

Think about it. The PMMB doesn’t license entities doing cross-border sales of packaged milk whether it was produced in-state or out-of-state to follow the money, but they want small raw milk farms to be licensed Milk Dealers? Something isn’t right.

To their credit, however, the pushback from raw milk producers and citizens has resulted in PMMB putting this licensing effort “on hold”… for now.

Lone Oak Farm, Marion Center, Pennsylvania was one of the small producers to get a voice mail from an attorney identifying himself as a “special investigator for the Milk Marketing Board” wanting to know the name and address to send a packet to fill out.

The packet came. It was the same packet they had received two years earlier — a month before the Covid pandemic — but at that time they were only selling their raw milk and chocolate milk at the farm. They had stated in 2020 that the Milk Dealer’s license did not apply to them and never heard back from the PMMB.

That was the end of it, until August 2022.

This time, the packet included the same letter, along with an intrusive form requiring them to list all of their assets, liabilities — a complete financial statement of personal information — as part of a Milk Dealer’s License application along with monthly forms for calculating their 6 cents/cwt monthly licensing fee and the lesser fee for milk sold through products on which PMMB does not fix a price.

“There was no flow chart to determine if we needed to do this (like is shown below at PMMB website: https://www.mmb.pa.gov/Licensing/Dealer/Documents/License%20Flowchart%202020.pdf). My wife emailed back wanting to know why this pertained to us,” said Aaron Simpson of Lone Oak Farm in an Aug. 17 phone interview with Farmshine. “We were told it pertains to us because we were selling a small amount of milk off site at Back to Nature,” a health store in Indiana, Pennsylvania.

“Someone tipped them off,” he guesses. “We didn’t fill anything out (in the packet), and my wife responded that we would pull our small wholesale account out of Back to Nature rather than jump through these hoops.”

For Lone Oak and other small producers voicing concern, it isn’t even the 6 cents/cwt licensing fee that is the biggest problem, though they believe it is unnecessary. The real problem is the onerous and intrusive forms and the logistics and time it takes to fill out monthly milk accounting to the PMMB. Farms like Lone Oak already applied for and were granted raw milk permits by the Pennsylvania Department of Agriculture (PDA), which inspects them.

Furthermore, as a small producer, with several entities from produce to bakery to milk and more under one umbrella on the farm, the financial statement that the PMMB was requiring was information Lone Oak was not comfortable providing. Why should they? Why is it the PMMB’s business to know their personal business?

“They asked for our entire financial rundown of the farm — as a whole — right down to every asset we own, some of it not even related to the dairy. We are not willing to give that up for a (Milk Dealer’s license),” said Simpson. “This is not how it should be. The only reason we exist is because selling all of our milk conventionally has not been feasible. We are one of three dairy farms left in our township. We are down to the bits and pieces of who makes it and who doesn’t, and that’s been a failure of the dairy industry.”

Most farmers wouldn’t really choose to do customer service as they would rather focus just on farming and taking care of the cows, not running a store. Many have turned to this to preserve their livelihoods, their dairy farms.

“The whole reason we are doing this is because the Milk Marketing Board has failed the farmers, the dairy industry has failed the farmers. How many farms has Pennsylvania lost since 2015?” Simpson pondered aloud. “Within five miles of us, we have lost five or six farms since 2015, so we started selling our own milk with a permit from PDA in 2016.”

Simpson is part of the fourth generation at Lone Oak Farms, milking 40 cows in the same 1960s barn, and diversifying over the years instead of expanding the dairy herd. Now he gets calls from other farmers with all herd sizes wondering how they got started, including large farms wanting to scale back their herd size and get closer to consumers.

When Lone Oak shared their public post to customers on facebook that their raw milk and chocolate milk would no longer be available at Back to Nature, and encouraged their customers in Indiana, Pennsylvania to come the extra 20 miles to the farm in Marion Center, the response was overwhelming.

As the post was shared multiple times, PMMB executive secretary Carol Hardbarger commented that the PMMB staff was looking into what could be done, but that they had to “follow the law.”

The law, according to the flow chart found at the PMMB website (above), stipulates that any dairy farmer selling more than 1500 pounds of milk per month (less than 6 gallons per day) direct to consumers, would have to be a licensed Milk Dealer if they sold any of that milk at a site off the farm or if they sold more than two gallons per day to one customer.

This week, an official response from PMMB executive secretary Hardbarger notes that, “we have officially put licensing of small processors on hold until we decide what to do, sending a letter from me to each not licensed yet, to the ag committees with an explanation, and to PDA.”

But how did this come about and what will happen going forward?

If this requirement is truly part of the law, and if it requires small producers selling their very own milk privately in small amounts must be licensed as Milk Dealers, why have we not heard about it before?

In fact, a Penn State extension educator preparing for a value-added dairy seminar reached out to Farmshine for clarification after reading about the issue in Market Moos last week. She wanted to know why this was never brought to her attention when she asked state agencies for all of the things a small value-added dairy producer needed to know and do to sell milk and dairy products made on the farm. She wanted clarification.

According to Hardbarger, small producers, and those with raw milk permits have received packets and calls in the past, but that a list of raw milk permits was made available to PMMB recently through the online data-sharing that was set up this year between PDA and PMMB now that the weigh-sampler certification work PMMB used to help with has transferred exclusively to PDA. This put the list of raw milk permits directly into the PMMB’s hands.

This PDA list of raw milk permits has always been publicly available and updated online. So why was the action to get small producers to become licensed Milk Dealers started in earnest at this particular time? No clear answer has been given, except that the PMMB is now looking at the situation and putting it ‘on hold.’

Perhaps the biggest players in the industry — that have a stake in preserving the price-regulating and milk-accounting functions of the PMMB — are concerned about the increasing number of Pennsylvania producers going this route outside the system with some or all of their milk. Some dairy farmers are making and selling pasteurized milk and dairy products, others are selling raw milk.

In fact, at Ag Progress Days recently, a panel talked about farm transitions and how important value-added direct-to-consumer sales are for Pennsylvania’s agricultural industry. The Commonwealth has the second largest volume of direct-to-consumer sales of farm products in the U.S., and this is growing as farms are also becoming more diversified, the experts shared.

“As farmers, we don’t need another irritant to yield a pearl for PMMB. This (Milk Dealer’s license) is more administrative paperwork and a check we would need to send every month. It’s one more thing,” Simpson explained, listing all of the things they already do to sell milk through their permit with PDA and in general as dairy farmers.

“Fluid milk is breakeven across the spectrum,” he said. “We have enough irritants in a year’s time, and just that statement about irritants and pearls shows the disconnect between farmers and the PMMB.”

Farmers and dairy professionals around the state are questioning the very low 1500-pounds per month threshold on private sales of milk from farms that pushes these small producers into the category of a Milk Dealer — if any of that milk is sold at a store off the farm.

For example, Lone Oak milks just 40 cows and markets about one-third of that as direct-to-consumer sales of milk, chocolate milk, ice cream and yogurt. The rest goes to United Dairy. They are inspected four times a year for the raw milk permit and twice a year for the conventional bulk sales and federal inspection every 18 months as well. The milk tests are done twice every time they pull milk from the tank – once for the private sales and once for the conventional sales. There will also be new types of inspections coming as well, farmers are told.

Yes, small on-farm processors do not need ‘one more thing.’

“The limit for the number of gallons sold privately off the farm needs to be set drastically higher for this (Milk Dealer license),” said Simpson. “We are not even a blip on the radar, so there needs to be very large exemptions if we are to keep small farms in Pennsylvania.”

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Ghost of milk payments past invoked as intimidating letters seek money from farmers for big bottler’s bankrupt estate: Don’t pay. Don’t panic. Don’t sign anything. Sit tight. Gather records.

Posted on December 1, 2020 by Agmoos

BREAKING NEWS UPDATES 4:00 – 9:00 p.m. Dec 2: Updates after the essential background article below, appear in separate articles here and here.

USDA is forwarding inquiries about ‘preference action’ letters to DOJ. In PA, the Attorney General’s office is involved.

By Sherry Bunting for Farmshine

Disclaimer: I am not a lawyer, and this is not legal advice, but researched information based on many people working on the issue. This is a ‘what we know now’ pre-press preview of a rapidly evolving story, check Friday’s Farmshine and this link for updates, including information about a conference call for dairy farmers in Pennsylvania and open to affecte producers outside of PA (call details here); other states also mobilizing!

BROWNSTOWN, Pa. — Notices of Intended Litigation and Settlement Offers have been received by dairy farmers last week from ASK LLP, a law firm in St. Paul, Minn., seeking payment to the Dean Foods Company Estate under what is known as preference action recovery or trustee avoidance claims covering payments to dairy farmers for raw milk (and co-ops for ingredients) from August 14 to November 12, 2019 — the 90 days prior to Dean’s Nov. 12, 2019 filing for Chapter 11 bankruptcy protection and sale.

We have confirmed these predatory letters have been received by Dean Dairy Direct producers in numerous states – including Pennsylvania, Ohio, New York, Kentucky, Tennessee and assuredly others — on the day before and after Thanksgiving. These letters contain a record of payment transactions (on the Federal Order specified dates), list a total claim amount the farmer will be sued for, and a settlement offer at about 15 to 20% of that amount due December 19 or 24, 2020 (depending on the date of the letter).

Under Southern Foods Group LLC, case number 19-36313 in the bankruptcy court of Houston, Texas, with Judge David R. Jones presiding, the Dean Chapter 11 reorganization is headed to an omnibus hearing scheduled for Dec. 11, 2020 and disclosure hearing Jan. 11, 2021. Debtor filed its Plan of Reorganization as file number 3230 today, Nov. 30, on the docket at https://dm.epiq11.com/case/dnf/info

If you are a dairy farmer who received a ‘demand package’ from ASK LLP representing the Dean Foods Company Estate, don’t ignore the letter, but don’t panic, don’t pay anything, don’t sign anything, sit tight for a bit, get prepared, and know many trustworthy, well-situated people are working on this.

The letters and legal packets are an intimidating threat to see what ‘other people’s money’ the law firm can shake loose for the Dean Foods Estate after the fire sale in which the bulk of assets were sold to Dairy Farmers of America (DFA). For its part, DFA as the new owner of the bulk of Dean’s plants issued a statement that it does not control Dean’s decisions on their bankruptcy and did not participate in this decision.

The letters do mention two potential defenses in a separate “additional instructions” piece, urging producers to “make a copy of this letter and all enclosures to send to your attorney should you choose to defend this matter rather than settle and return the payments.”

The instructions go on to state: “Under certain circumstances you may have a defense warranting settlement of this action at less than the settlement offer extended. We will be happy to consider your defense and ‘explore’ settlement.”

Even in that statement the ‘instructions’ intimidate the dairy farmer receiving it to feel they might have some financial obligation to the Dean Estate (absurd).

Please know that as dairy farmers, you have produced milk that was paid for according to federal and state milk marketing laws, that provided nourishment to families and that has enabled the Dean Foods Company to continue to operate until it was sold.

What’s happening and what dairy farmers should know:

First. Know that you are not alone and stay tuned. A range of emotions and reactions are no doubt happening on receipt of these letters.

Second. Don’t panic, don’t pay, don’t sign, and hold off in hiring an attorney. If you already have a trusted attorney advisor, talk to them, but these letters are concerning from a collective perspective. They name individual farms as defendants and demand a refund of a portion of what they were paid for milk they produced and shipped to Dean, that was bottled by Dean and sold by Dean in the 90 days BEFORE Dean filed for bankruptcy protection.

The situation may ultimately require farms to individually hire a bankruptcy attorney to assert a defense and prove qualification for exemption. But, well-situated sources indicate that it is also possible that collective group action could occur. More answers are needed by authorities and interested parties.

Yes, this preference recovery action is a loophole in bankruptcy law with farms caught in the shakedown net cast by the law firm working for the Dean Estate. There are concerning aspects based on how dairy farms are paid via federal and state laws that preclude the normal business activities of “invoicing.”

In Pennsylvania, the Pa. Milk Marketing Board is looking into this, and the State Attorney General’s office is aware of these letters. Dairy farmers selling milk to a dairy processor and being paid per federal/state regulations is ordinary course of business.

Third. Sit tight but use this time to be prepared by gathering milk statements for the past 15 to 18 months. Many trustworthy and reputable people are working on this issue affecting hundreds of independent dairy farms, and entities to which portions of their milk checks were assigned.

Sources indicate regional cooperatives may have received such letters for raw milk sales, though none have confirmed this. USDA has not confirmed nor denied whether market administrators received similar letters regarding producer settlement fund payments in the pre-bankruptcy period.

One regional cooperative executive has confirmed receiving a letter six weeks ago in relation to ingredient sales during the 90-day pre-bankruptcy time-period and indicates other regional co-ops have as well. They have not agreed to nor negotiated any settlement, but they provided their volumes and documentation of these sales to the soliciting law firm through their bankruptcy attorneys — and are monitoring the situation.

Dairy farmers can do the same.

Absolutely don’t pay or sign anything right now.
Start gathering deposit records for the 3-month period (Aug 14 – Nov 12, 2019) plus the 15 months before that as stated in the letter’s instructions about potential defense assertions.
Don’t worry about putting any of this information into the requested spreadsheet or other formats mentioned in the letter, just get these items together for now.
The Pennsylvania Attorney General’s office is aware of these letters. Producers in other states could look at involving the offices of their Secretaries of Agriculture and/or Attorneys General.
The ordinary course of business affirmative defense means that the vast majority of farmers most likely will owe nothing, and people are working on how to get producers to that point in the most efficient way possible.

Fourth. Know that USDA AMS Dairy Programs has been contacted and is looking into the matter. Know that every one of the Federal Milk Marketing Order websites shows the strict dates and procedures concerning payment for milk. Dean Foods – or Southern Foods Group LLC as it is named covering all holdings in the bankruptcy case #19-36313 – could not have operated nor could it have been sold to yield any funds for the estate had the farmers not been paid for the milk sold.

Fifth. Know that in Pennsylvania, the Pa. Milk Marketing Board (PMMB) became involved immediately. The board and staff started their day Monday morning with a joint meeting on this issue that was brought to their attention over the weekend. Know that they have begun a conversation with Pennsylvania’s State Attorney General who is looking into this and is already familiar with some of the elements having been involved in getting final payments arranged using the mandatory bond insurance Pennsylvania requires all licensed milk dealers to carry. Know that in Pennsylvania, milk plants follow state payment and bonding regulations in addition to federal orders. Know that there are seven Dean Foods plants regulated by PMMB because they receive milk produced on Pennsylvania farms, and four of these plants are located in Pennsylvania.

Know that producers outside of Pennsylvania can band together and through their state dairy organizations or Secretaries of Agriculture – ask their State Attorneys General to look at this.

Sixth. Know that other well-situated people are looking into a way for all affected producers to fight this together instead of each farm going it alone and having the expense of hiring legal counsel with bankruptcy experience to “assert” their defense in writing to the law firm ASK LLP (aka Ebenezer Scrooge).

Seventh. Know that answers to various questions and concerns are being sought. More will be learned in the coming days, and the situation is one that is rapidly evolving.

Eighth. Know that ASK LLP should know better. The Dean estate trustee should already know that these dairy farmer critical vendor payments are not “preferential” payments warranting trustee avoidance claims. Not only should they know the critical vendors of Dean Foods — since the bankruptcy judge issued orders that dairy farmers be paid as critical vendors during the proceedings so Dean could operate and be sold – they should know that Judge David R. Jones in hearings on several occasions stated his big concern that school children would continue to receive their milk and dairy farmers would continue to be paid during the bankruptcy proceedings.

ASK LLP should know that the very charts they included in their ‘demand packages’ — showing all transfers from Dean plants to individual ‘defendant’ dairy farmers — are made on the precise same dates twice a month as is the regulation for milk payments under Federal Orders.

Ninth. Know that Bankruptcy Judge David R. Jones’ office in Houston, Texas has been notified of the ‘demand packages’ sent to dairy farmers for the pre-petition period. Several high-profile members of the U.S. House and Senate Agriculture Committees have also been notified.

BACKGROUND: The letters descended on dairy farms the day before and after Thanksgiving with due dates of December 19 or December 24. No, these were not Happy Thanksgiving and Merry Christmas John and Jane Q Dairy Farmer, these were thinly veiled attempts at blackmail – demands to pay Dean Foods Company Estate a portion of milk checks from August 14 through November 12, 2019 in order to avoid being sued for much larger sums of money.

Ebenezer Scrooge (ASK LLP) conjured up the ghost of Dean Bankruptcy Past to insinuate that monetary transfers from Dean to dairy farmers — or their assigns — in return for milk they received, processed and sold, were ‘preferential’ resulting in what are called Trustee Avoidance claims by the law firm purported to represent Southern Foods Group LLC the conglomerate name for the bankruptcy and sale of Dean and all of its holdings.

A Trustee Avoidance claim – the legal action that the letters state will occur after the due date for payment of the settlement offer – indicate that such payments to farms could have been ‘preferential’ to avoid the bankruptcy trustee making sure all creditors are treated fairly. In layman’s terms, the claim is that a defendant farmer’s payment for milk pre-bankruptcy could have been a ‘better deal’ than the ‘trustee’ would have divvied out.

Wrong. Federal and state law set forth dates and formulas for milk payments as a requirement for milk companies to operate. That money has already been spent by dairy farmers keeping cows fed and keeping lights on at farms already beleaguered by five years of marginal and below breakeven prices. No windfall there.

Sure, the intimidating packet shows ways a recipient can assert their defense – through hiring a bankruptcy attorney. They can show invoices for those three months – and the 15 months before that – to show “ordinary course of business.” They can assert their defense with milk check statements the scrooge law firm says must be supplied in Excel spreadsheets requiring certain types of entries and documentation. Or they can just pay the settlement offer at a reduced rate to avoid legal action commencing the week after the due date.

Did I mention the due dates are December 19 for some; December 24 for others?

Did I mention farmers have 21 days from the date of the letter to sign and pay the ‘settlement offers’ with checks payable to Dean Foods Company or risk – says the letter – paying amounts 5 to 6 times higher?

Yes. This is what intimidation looks like, a shakedown to see what they can get away with, what money can be extorted, to improve their cut on the deal by threatening hard-working, nose-to-the-grindstone dairy farmers with big numbers, big words, and big assumptions.

They know better, and if they don’t, they should.

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

Posted on May 22, 2020 by Agmoos

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.

Handlers 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.

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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Call to action: Grassroots dairy group seeks PA Senate leadership action to move House-passed bills forward

Posted on April 21, 2020 by Agmoos

By Sherry Bunting

HARRISBURG, Pa. — The Pennsylvania House of Representatives passed two dairy bills virtually unanimously last December, but the Senate Ag Committee has failed to act.

On April 7, the Grassroots PA Dairy Advisory Committee sent a LETTER to Senate President Pro Tempore Joseph Scarnati asking to bring new leadership to the Senate Ag Committee to move these bills forward.

The Grassroots group is now asking fellow dairy farmers and citizens to help by contacting Senate President Pro Tem Scarnati’s office at jscarnati@pasen.gov and/or 717.787.7084. Simply email or leave a message asking for new leadership in the Senate Ag Committee to move H.B. 1223 and 1224 forward for Senate consideration.

“Now, there is an opportunity of a lifetime for you to save our dairy industry from complete failure. With the COVID-19 pandemic, displacement and dumping of local Pennsylvania milk and a 35% milk income loss across our farms in one month and expected to continue for the next three, at least, you have an opportunity to get these bills out of committee and onto the floor,” the letter to Scarnati explained.

“The Pennsylvania dairy industry is at risk to losing it all — given our small and numerous herd size — the heart of rural PA. Rural Pennsylvanians are counting on this industry to survive COVID-19,” the letter continues. “Now is your time to act.”

“These two bills were overwhelmingly passed by the House, so why is the Senate Ag Committee stalling? For five months they have ignored these bills,” said Nelson Troutman, a Berks County farmer. “Pennsylvania dairy farmers put their income right back into their communities, but they get no help from the Senate on these issues that are critical for our farms to stay in business.”

“How does this happen? How can the House pass two dairy bills 196-0 and 194-2 while the Senate keeps them in a drawer? It doesn’t make sense. We can’t continue down this road,” said Potter County dairy farmer Dale Hoffman.

His daughter Tricia Adams and her brothers are all partners in the farm with a third generation now involved also. Like other dairies, Hoffman Farms is economically important in their community while providing wholesome nutritious milk and hosting farm tours for nearby schools.

“People in our community ask me all the time, what can I do to help? They want to know the milk they are buying is as local as possible, and they want to know they are supporting the farms in their community who provide it,” said Adams. “There is a point when we have to stand behind something and take action. Is it too much to ask that the premiums be returned to farmers as intended? Is it too much to ask for the Senate to consider these bills that the House passed in a bipartisan way?”

The two bills — H.B. 1223 and 1224 — were introduced early last year by Rep. John Lawrence (R-13^th).

H.B. 1223 passed by a vote of 194-2. According to Rep. Lawrence, this legislation would establish Keystone Opportunity Dairy Zones (KODZ) to incentivize expanded dairy processing facilities in Pennsylvania to expand markets for milk from Pennsylvania farms. It is modeled after the long-standing Keystone Opportunity Zone (KOZ) program. To qualify, applicants would have to use private capital, create new jobs, and use primarily milk from Pennsylvania farms.

H.B. 1224 passed by a House vote of 196-0. According to Rep. Lawrence, the legislation would give the Pennsylvania Milk Marketing Board (PMMB) the ability to coordinate the collection and distribution of state-mandated milk premiums with the Department of Revenue, ensuring the premiums reach struggling dairy farmers.

“Pennsylvania’s family dairy farmers are struggling due to historically low prices and foreign competition. Taken together, these bills will positively impact every dairy farmer in Pennsylvania,” Rep. Lawrence observes. “I appreciate the bipartisan support these bills received in committee and on the House floor.”

According to Rep. Lawrence’s press release, both bills also received support from family dairy farmers across the state, the Pennsylvania Farm Bureau, the Pennsylvania Association of Milk Dealers, the Pennsylvania Association of Dairy Cooperatives, and the Pennsylvania Milk Marketing Board.

“We are at a crossroads in Pennsylvania, where agriculture is our number one driver of our state’s economy, and dairy is the linchpin. We are losing farms every day, hundreds of them every year, and with them, we stand to lose other businesses, jobs and the economic vitality of our rural communities,” said Karl Sensenig of Sensenig’s Feed Mill, New Holland.

“Our farm families are being pressured from all sides by five years of economic stress and market losses as rapid consolidation accelerates production in other regions. Now the coronavirus pandemic is revealing how the system is starting to collapse and how easily these state-mandated premiums disappear in the system between the consumer and the farm,” said Mike Eby, a Lancaster County farmer and chairman of National Dairy Producers Organization. “These bills are following the same pattern we saw in three previous sessions where other transparency bills were passed by the House only to die in the Senate without consideration. What is Senate Ag Committee Chairman Elder Vogel afraid of?”

“The current pandemic shows how important it is for our state to have strong farms and vital processing for our citizens to be food secure. We see our farms being forced to dump milk, losing access to markets, and at the same time scarce supplies of milk and dairy products at stores and limits on purchasing,” notes Krista Byler, a farmer in Crawford County. “These bills help connect some of those dots between farms and consumers.”

For Katie Sattazahn, a dairy producer in Womelsdorf, these bills “offer hope as the dairy situation in Pennsylvania is deteriorating. We have the land, climate and young producers who have grown up on the farm, pursued degrees, and come back with knowledge, passion and talents to move family farms forward, but wonder if they’ll have the opportunity,” said Sattazahn.

Over the past decade, Rep. John Lawrence has introduced other bills aimed at improving PMMB over-order premium transparency. Previous bills also passed the House but were ignored by the Senate Ag Committee.

Now, this pattern continues as H.B. 1223 and 1224 languish without consideration by the Senate Ag Committee under the leadership of Chairman Elder Vogel Jr., representing Pennsylvania’s 47th district.

“This has gone on for too long,” said retired agribusinessman Bernie Morrissey of Robesonia. “Our farmers have been patient. They have been involved in working on these issues for more than 10 years. Our consumers pay a higher price for milk that includes these premiums that the law requires be paid to farmers. It’s time for the Senate to act on this legislation that helps make sure these funds get to our Pennsylvania farms.

“It’s time for Senate President Joe Scarnati to bring a leadership change to the Pennsylvania Senate Ag Committee,” Morrissey added.

The Grassroots PA Dairy Advisory Committee is chaired by Morrissey and is comprised of dairy producers and related agribusiness representatives from diverse regions of the state.

Their letter was also sent to Senate Ag Committee Chairman Elder Vogel and all members of the Senate Agriculture and Rural Affairs Committee on Tuesday, April 7, 2020.

To support action and leadership on these bills, farmers and citizens of Pennsylvania are asked to contact PA Senate President Scarnati at jscarnati@pasen.gov and 717.787.7084. Simply email or leave a message asking for new leadership in the Senate Ag Committee to move H.B. 1223 and 1224 forward in the Senate.

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New PMMB consumer rep sees dairy crisis from outside-in

Posted on October 1, 2018 by Agmoos

Dr. Carol Hardbarger is digging in and looking at all angles of PA dairy crisis.

By Sherry Bunting, from Farmshine, Sept. 7, 2018

HARRISBURG, Pa. — Solving problems, bridging gaps, making connections, bringing different interests together – these are skills Carol Hardbarger, Ph.D. has been using throughout her career in education. Today, she brings a unique combination of skills and background to the Pennsylvania Milk Marketing Board (PMMB). She was appointed by Gov. Tom Wolf in May and confirmed by the Senate in June.

“It is a tremendous honor for this to come at the end of my career, to be asked by Governor Wolf, to meet with Senators during confirmation, and to have this opportunity to do something for the state and the dairy industry I love,” Hardbarger said in a recent interview with Farmshine at the PMMB offices in Harrisburg.

She reflects on that call from the Governor’s office, telling her she had been nominated and asking if she would serve. She promptly began looking at the information on what the PMMB does.

“There is a crisis in the dairy industry,” says Dr. Hardbarger. “Oftentimes, when there is a problem, there is a solution that can be obvious to someone looking at the problem from the outside, to go back to what the objectives are of an organization or project at hand, looking at what has been done and why it hasn’t worked.”

She talks about the smaller steps that may be missed in trying to get to an end goal.

“That’s how my brain is wired,” the intense, but easy-to-talk-to Hardbarger says with a smile. She is a big-picture thinker with an obvious knack for process details.

In every job before retirement, she was brought in to help solve a problem and was able to deal successfully with those situations.

The dairy industry issues go well beyond the regulatory aspects of the PMMB. As the board’s consumer representative, Hardbarger seeks a broader role in marketing and advocacy that is refreshing.

She has rolled up her sleeves to dig in, confessing that she loves an intellectual challenge.

Her intention to spend one day a week at the PMMB offices in Harrisburg, quickly became two days a week and has now evolved into a full-time 40- to 50-hour work week.

Hardbarger serves on the board with dairy producers Jim Van Blarcom of Bradford County and Rob Barley (chair) of Lancaster County. They are also putting more time in their roles.

“That’s okay,” she says. “In order to accomplish what the Governor and Senators have communicated, that level of time and organization is necessary.”

She spends her time combing through records, meeting with government and industry entities, opening lines of communication, and being helpful to staff, which has been reduced in recent years by unfilled retirements.

Hardbarger sees external communication and a visible, accessible board on “advocacy things” as vital for developing the relationships that lead to solving problems.

She started the PMMB facebook page and twitter feed (@PAMilkBoard), as well as an email newsletter to legislators and industry that will eventually broaden to consumers. She also helped organize upcoming listening sessions. There is no need to pre-register or pre-submit comments, and the board urges those who can’t attend to send comments electronically to ra-pmmb@pa.gov.

The first listening session was held Sept. 26 from 6 to 9 p.m. in western Pennsylvania. The second will be Oct. 16 at Troy Fairgrounds in northern Pennsylvania, and another is being planned for southeastern Pennsylvania, potentially in Lebanon in November.

In the office with staff through the week, Hardbarger says Pennsylvania’s dairy industry is lucky to have these individuals, who are “highly capable and dedicated in jobs that are not easy.”

On the road forward, she sees a starting point is identifying where there is agreement.

“We have to start with what we all agree are issues to address. Otherwise, we are just putting on band-aids,” says Hardbarger, explaining that such a “holistic approach” is a way for deep-rooted past, present and future issues to be addressed for the long-term.

“I have some concern as I listen to the various constituency groups in the dairy industry — the farmers, the dealers, the retailers, the consumers — that when they speak, for the most part, I hear a lot of individual agenda,” she relates. “I believe strongly that we must be able to look at the agendas of all the groups and somehow integrate them to come up with solutions and prioritize them.”

When Hardbarger talks about “systemic solutions,” as she did in her Senate confirmation hearing, she means the longstanding parts of the system that are “built into how the industry operates.”

She gives the example that some are talking about “temporarily suspending” the minimum milk price, which would require changes in the law.

“We told the Senate that we want to look at some legislative items and see what makes sense for 2018 and 2019,” says Hardbarger.

Another example is some want the over-order premium to end.

“They believe it is not working the way it needs to,” she says. “We are not hearing many suggestions to raise the over-order premium. It will be interesting to see what comments and ideas we get at the upcoming listening sessions.”

The challenge is, according to Hardbarger, “how do we blend a holistic approach to a problem and how it developed systemically over the years with legislation and regulation that was implemented in a time very much different from today.”

She says the board is taking a neutral approach as they look at impacts.

“There are some misconceptions about what the board can and cannot do… so I hope the newsletter and outreach will develop good lines of communication with the legislature while correcting misconceptions and give us the ability to come back to the Assembly with information they need,” Hardbarger relates. “We obviously have the two laws we are responsible for with the associated regulations. But as our name implies, we are ‘marketing.’”

Through facebook and twitter, Hardbarger posts things she sees every day of interest to dairy. The newsletter will eventually include a calendar, an information piece from the chairman, questions and answers by staff, and the school nutrition aspect will be discussed.

Asked why the PMMB’s facebook and twitter profile picture is the PA Preferred logo, Hardbarger responded simply: “We want to promote Pennsylvania dairy products.”

She gave the example of a recent step — sending information to retailers and processors on how special milk promotions can legally be done, and suggesting such promotions be linked to PA Preferred milk.

Hardbarger says she wants PMMB’s communications to be an information clearinghouse between the industry and the legislature and ultimately the consumer.

In developing her role as consumer representative, she is already pursuing relationships with consumer groups and civic organizations to provide information about the nutritional benefits of consuming dairy products and what the industry means to Pennsylvania and its communities.

For example, Hardbarger has already reached out to school nutrition officials with ideas about how milk and dairy are nutritionally assessed within the USDA meal profile for school breakfast, lunch and after school programs.

“If milk and dairy products were separated from the nutritional analysis… we may see schools offer more milk and dairy in the morning and after school programs without having to fit into a total nutrition analysis,” she suggests, adding that this idea is being provided to Representative G.T. Thompson, who sits on the Congressional workforce and education committee as well as to U.S. Senators Pat Toomey and Bob Casey.

“We are also communicating with USDA on this issue of getting whole milk (unflavored) in the schools along with now flavored 1% milk,” she said.

PMMB also sent official comments to the FDA docket to enforce and uphold milk’s standard of identity, and sent emails encouraging others to do so.

Hardbarger understands the nutritional tightrope schools walk to serve foods and milk that students enjoy and will consume. She is aware of the steady drumbeat of scientific studies showing dairy as a complete protein and complete source of vitamins and minerals children today are lacking, as well as the positive dietary revelations about whole milk and full fat dairy, especially for children.

She remembers her youth and spending much time on her grandparents’ dairy farm in northern Maryland, of making and consuming everything from homemade cottage cheese, butter and farmers cheese to whipped cream pies.

And she reminisces about doing just about every chore on that diversified farm, pointing out a decades-old framed photo of her son as a child milking one of four Jersey cows the family kept at that time.

While her career has been in education and technology, she is quick to point out that she has been around farmers and agriculture all of her life.

“There is a passion people have for this life, this business. And the dairy industry is vital to the economy of our state and a big part of what defines us, of who we are,” the proud mother and grandmother two-generations removed from dairy farming explains.

Since her first day on the PMMB in early July, Hardbarger has encountered “no real surprises” but a fuller understanding of issues that have swirled for years.

What surprises her is “the differences of opinion among constituent groups and their differing opinions about what needs to be done,” and seeing how far the industry is from dealing with differences over coffee and a handshake.

“Now we have groups with lawyers and CPAs and very strong individual agendas,” Hardbarger observes. “That has surprised me. I wasn’t aware of how fractured it is. This is an observation, not a criticism, because each constituency has a business interest to protect.”

From staff development to planning a staff retreat, to emailing staff for their ideas, Hardbarger says the momentum is “forward,” even though it’s “frustrating” to learn that state bureaucracies do not move as quickly as desired and there are regulations for literally everything.

“We can’t” are words she does not like to hear.

“There are very few things in this world that cannot be done. It may be that we need to do them in a different or particular way,” says Hardbarger. “We have to fix this dairy crisis, and we can, if we get all the players involved.”

Toward that end, Hardbarger says her next goal is to have the PMMB work with other agencies in forming a “rapid response team” for dairy.

“We hear stories about how a vital bridge can be fixed within 40 days… how the state government made it easier to deal with regulatory processes and provided waivers to make something happen, fast, because it was economically feasible to do that,” she says. “Pennsylvania has a Dairy Development plan… and we need the same ‘rapid response’ in dealing with our dairy crisis.”

Looking ahead, she is most hopeful that, “We can get a working group together of one or two representatives of each constituency group… and start hammering out solutions to our problems, to talk honestly face-to-face about the issues and come up with a few solutions that will work, and that my time here will be productive.”

Adds Hardbarger: “The most rewarding thing so far is the people I’ve met. There is nothing like coming into the office in the morning and seeing smiles and enthusiasm among the staff and having positive responses and feedback from Senate and House staff, to see us moving in a direction.”

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PHOTO CAPTION Hardbarger9825

Retired education and technology expert Carol Hardbarger, Ph.D., of Newport, talks about the dairy crisis and her role as the new consumer representative on the Pennsylvania Milk Marketing Board during a recent interview at the PMMB offices in Harrisburg. She says the Bonnie Mohr painting behind her is a favorite reminder of youthful days spent on her grandparents’ dairy farm. “It also reminds me that the number of dairy farms throughout Pennsylvania help define who we are as a state,” she says. Photo by Sherry Bunting

Changing of the guard: New PMMB chairman sees increased fluid milk demand as job no. 1

Posted on September 9, 2018 by Agmoos

RobBarley6539 (2).jpg By Sherry Bunting, Reprinted from Farmshine, August 3, 2018

CONESTOGA, Pa. — The number one problem needing solved for dairy is bringing back fluid milk demand. Good things are happening in the dairy industry, which makes now the critical time to seek ideas, think outside the box, and be open to seeing — and seizing — opportunities.

That’s what came through during a recent interview with Rob Barley in his office at Star Rock Farms. The Lancaster County farmer and dairy producer is having a busy summer as the new chairman of the Pennsylvania Milk Marketing Board (PMMB).

He is also the first dairy farmer to be appointed by USDA to the at-large general public seat on the National Fluid Milk Processor Promotion Board, which funds the Milk Processors Education Program (MilkPEP) for educating consumers and increasing fluid milk consumption.

“For way too long, producers have been struggling with profitability. I’m looking forward to the opportunity to help bring back a positive atmosphere, that gives farmers hope, to know we have a product people want, that makes their lives better, while providing a return for our hard work,” says Barley. “In the long term, there are issues to address and to quantify, but in the short term, we want to find ways to increase fluid milk consumption because that solves a lot of our problems.”

In the farm business partnership with his brother and cousin, as well as in leadership roles through the years, what Barley says he enjoys most is “the people in this industry. They are good and hard working. I’ve been part of the dairy industry all my life, and I want Pennsylvania to remain a strong dairy state.”

July brought a changing of the guard and a fresh spirit of optimism and forward-looking energy to the PMMB with the June Senate confirmation of both Barley and Dr. Carol Hardbarger, who join Jim Van Blarcom on the three-member board.

While Barley wasn’t actively seeking the appointment, he was often been called upon to give a dairy producer’s point of view at House and Senate hearings over the past 10 years during his previous involvement with the Dairy Policy Action Coalition (DPAC).

“There was a clamor for change, and people were encouraging me to consider a PMMB appointment,” he says. People were vocal about it. Fellow dairy farmers asked Rob to get involved, and the support of Senators Scott Martin and Ryan Aument of Lancaster County, as well as the Senate leadership, was instrumental.

Once it became clear there were two openings for board terms that had expired without re-appointment, Barley had discussions with Pa. Secretary of Agriculture Russell Redding and was honored when the Governor appointed him in May.

Now, just a month after being confirmed by the Senate, Barley says he is getting a feel for the PMMB’s regulatory function. At the same time, he wants the board to exercise a leadership role in the collective efforts underway to strengthen Pennsylvania dairy.

That process of idea-gathering began with Secretary Redding’s letter to the previous board in April, followed by the previous chairman, Luke Brubaker, holding several open hearings for public comment.

Barley wants to keep that momentum going. In addition to spending a day or two each week in Harrisburg with staff, he has been reaching out in person and by phone to talk with people from all facets of the dairy industry. He wants to understand the landscape of what’s being done now, and take-in ideas from others about what can be done going forward.

“We have opportunities, and a board and staff that really want to work on this. We’ve had discussions about many things, including how to support and encourage our schools where milk is concerned. Jim is really engaged in this and Carol has some ideas on the consumer side,” says Barley of his fellow PMMB board members. “Carol is a retired educator, and she really has a passion to get information to the consumers, and that’s in her purview as the PMMB member representing consumer interests.”

During the July 2 hearing and sunshine meeting, the first for Barley as PMMB chair, the enthusiasm was apparent among board, staff, industry participants and onlookers as the reorganized board is challenging everyone to bring forward ideas.

“We want all ideas on the table, whether or not they’ve been looked at before,” says Barley. “At this point, we’re focusing on putting anything on the table that will increase demand or bring it back. We’ve challenged the staff to bring out ideas, and they are very engaged.”

The PMMB is also engaging the Pa. Department of Agriculture, Center for Dairy Excellence and the PA Preferred program.

“There’s a limit to what we can do from a regulatory side, because our job as a board is fairly narrow, but we can show vocal support and leadership, and if we see something we can do that can help, we can consider it, or make suggestions to the legislature,” Barley explains.

In fact, the Senate Ag Committee encouraged Barley and Hardbarger to do just that during their confirmation hearing. Senators said they wanted to keep dialog going and see ‘marketing’ put back into the meaning of the Milk Marketing Board.

Barley sees real opportunity in Pennsylvania. And while the multi-part Pennsylvania Dairy Study shows the Keystone state as a good bet for new processing, he realizes new plants are costly, and attracting a new processing plant will take time.

“We are competing with other states that may have more incentives or more sites, but we have the milk and the infrastructure and the quality and the people, and we can overcome some of those challenges by looking at new opportunities with existing plants,” he suggests.

Discussions are already happening with existing fluid milk plants in the industry around ideas for expansion associated with re-tooling and innovation.

“The normal market for fluid milk is not expanding, but maybe we can offer other ways for consumers to enjoy milk,” says Barley. Working with businesses already located in Pennsylvania, with a commitment here, could be a less expensive and faster course of action to get accomplished versus attracting a new plant or new business to the state.

That’s how Barley thinks. He thinks in terms of opportunities and how to capitalize on them, and in these new roles, he is using those skills to strengthen an industry he cares about and bring that to the farm level.

“I’m excited to finally see some good things happening in dairy,” he cites the recent University of Texas Health Science Center published July 11 in the American Journal of Clinical Nutrition. It shows the clear health benefits of enjoying full-fat dairy products and whole milk. Barley is also is encouraged by FDA’s recent move to look at what actually is milk.

“Consumption of most dairy products is good, but we are losing fluid demand. With some of the good things beginning to happen, we have this opportunity right now,” says Barley. “All we ever heard for decades is that eggs are bad for us, and now they’re recommending two eggs a day. I see this happening with science supporting dairy.”

Barley looks forward to his first MilkPEP board meeting in Boston in August. Of that separate and voluntary, unpaid promotion board seat, he says “I’m looking to bring the farmer perspective.”

Of the PMMB chairmanship, Barley acknowledges that, “There are hurdles in the current system, and we’re finding out what the board can do, where we fit as the state looks at dairy processing and economic development and in what ways we can encourage innovation to increase demand.”

In both appointments, Barley is focused on fluid milk demand. Pure and simple, he considers it job number one. His bottom line is that doing the right thing is something no one should be afraid of.

“That’s really what I want to see — and what farmers want to see, and what everyone wants to see — is that fluid milk demand to increase. If everyone working on it can start bringing it back, that will help the profit margins the whole way through the chain,” he says. “If we continue to have fluid milk demand being destroyed, nothing will save our industry.”

As the board and staff engage with farmers, cooperatives, processors, retailers, and even consumers, Barley stresses that, “We want to hear as many ideas and meet with as many folks as possible. There’s more agreement in this industry than most people think.”

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RobBarley photo caption

Rob Barley at Star Rock Farms, where he is in partnership with his brother Tom and cousin Abe in the diversified dairy, crop and livestock business. As the new chairman of the Pennsylvania Milk Marketing Board (PMMB), and first dairy farmer recently appointed to an at-large seat on the National Fluid Milk Processors Promotion Board, he hopes to help make fluid milk demand job number one. “That’s really what I want to see — and what farmers want to see, and what everyone wants to see — is that fluid milk demand to increase. If everyone working on it can start bringing it back, that will help the profit margins the whole way through the chain. If we continue to have fluid milk demand being destroyed, nothing will save our industry.” Photo by Sherry Bunting

A story interview with the new PMMB consumer representative, Dr. Carol Hardbarger, appears in Friday’s Sept. 7 Farmshine, beginning on page 3. This one will also be posted at this blog in the future.

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

Posted on May 29, 2018 by Agmoos

By Sherry Bunting from Farmshine, May 25, 2018

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

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

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

Rob Barley

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

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

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

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

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

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

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

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

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

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

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

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

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

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PMMB responds to Pa. Dept. of Ag with hearings May 2 and 16

Posted on April 29, 2018 by Agmoos

Public comment must be pre-submitted by Apr. 30 and May 11 to speak at the hearings on May 2 and 16. Separate from the PMMB hearings, the Pa. Dept. of Ag is seeking public comment to improve the market for dairy in the state and invites the public and industry to provide suggestions or comments online to be considered moving forward.

By Sherry Bunting, @agmoos

HARRISBURG, Pa. — In responding to Pennsylvania Secretary of Agriculture Russell Redding’s petition for hearings and review, the Pennsylvania Milk Marketing Board (PMMB) announced April 18 that it will conduct the first of two public hearings on May 2 with an expedited process requiring testimony to be provided in advance by noon on April 30.

The first hearing is set for May 2, 2018 at 9:00 a.m. in Room 309 of the Agriculture Building across from the Farm Show Complex on North Cameron Street, Harrisburg.

A second hearing is set for May 16, 2018 at 9:00 a.m. in the Monongahela Room of the Pennsylvania Farm Show Complex. The second hearing was announced this week, and like the first hearing, stipulates pre-registration with copy of comments provided in advance by noon on May 11.

PMMB states that the purpose of the first hearing on May 2 is to receive testimony and comments regarding the specific “Recommendations for Statutory Changes” found in the Ag Department’s April 5 petition.

The hearing will occur before the PMMB Sunshine Meeting already scheduled on that day, which sources indicate will address another portion of the PDA petition — asking PMMB to amend regulatory provisions dealing with termination of dealer-producer contracts. Since this portion of the petition involves a board-level action rather than a statutory change, steps to begin the regulatory review process will begin during the Sunshine Meeting that follows the public hearing on May 2.

(Author’s note: As you read on, please keep in mind that most Pennsylvania dairy farmers I speak with want transparency. They are not seeking a more complex system. They are seeking truth and a level playing field from which to compete. Pennsylvania is unique in having this lawyered-up state-level milk pricing system cohabitating with two Federal Order milk pricing systems. The state system (PMMB) sets a minimum retail milk price and minimum wholesale milk price for 6 regions of Pennsylvania, and the farm premium built into it only passes back to the farm IF the milk is audited to have met three specific criteria: produced, processed and sold in PA. However, the money is collected from all Pennsylvania consumers on ALL milk sold in Pennsylvania no matter where it came from or what pathway of logistics it utilized in getting to a PA store shelf. In turn, the very high per-gallon minimum price creates an uneven playing field for PA-produced milk as the state has become a magnet for increasing numbers of out-of-state dealer licenses as well as out-of-state milk usage, as well as out-of-state distribution warehouses and companies that specialize in logistics while the nation is overcome by supermarket loss-leading and price wars for customer acquisition).

In Wednesday’s hearing (May 2), PMMB will receive testimony on the following statutory items specifically mentioned in the Ag Department’s petition, many of which were suggested by PMMB staff as far back as 2009, but were never moved on, nor implemented!

LICENSING OF RETAILERS

In its petition, the Pa. Dept. of Ag mentions a recommendation by PMMB staff back in 2009 that was never implemented. It would have enabled the Board to require retailer reporting of volumes of fluid milk purchased and volumes sold in Pennsylvania “to track the amount of fluid milk sold at retail, the amount of consumer dollars being generated by the various components that make up the minimum retail price, and to identify the wholesalers and other sources of all fluid milk sold in Pennsylvania.”

The PDA petition notes that this is “a noted absence of data which prevented Drs. Novakovic, Stephenson and Nicholson’s study from being more conclusive on PMMB pricing’s impact on retail prices and Pennsylvania processing volumes. Such data is necessary for the continuation of credible, industry-supported and publicly-supported, PMMB pricing.”

TITLE TO MILK

Regarding Title to Milk, the PDA petition cites another amendment suggested by the PMMB staff in 2009, but never implemented, “to declare by statute, for the purposes of producer pricing only, that title to milk transfers to a milk dealer at the farm pick-up.”

In its petition, PDA notes that, “This (amendment) enables the Board to account for milk transported for out-of-state processing and to track that milk if it comes back in-state via wholesale or, coupled with the above, by a retailer.”

RETURN ABOVE COST OF PRODUCTION

The PDA petition also cites portions of the statute that result in “a return above the cost of production must always be guaranteed in the wholesale and retail price but not in the producer price.”

The petition recognizes that while the producer price under Section 801 must be, according to statute, “cost of production and a reasonable profit to the producer,” there is this exception stating that ‘the market for Pennsylvania-produced milk is threatened,’ which has “so permanently swallowed the rule that increasingly producers question the legitimacy of the entire PMMB pricing system,” PDA states in its petition.

“This is a major problem that must be addressed with transparency and clarity. This petition specifically requests that the PMMB staff be charged with investigating and recommending options to the Board for a statutory revision that has industry acceptance and equitably allocates the impact of market conditions across producers, milk dealers and retailers. If that is not deemed advisable, consideration of a statutory amendment nevertheless remains necessary to replace the existing language,” the petition states.

(Author’s Note: In other words, in times when the minimum price must be lowered to protect the market, the “pain” should be allocated to the other sectors and not taken on solely at the farm level. For example, when supermarkets loss-lead and get into price wars to acquire customers, should they not calculate that cost to their business rather than pass it back through the chain to the farm? It’s the retailer’s decision to use the price on a staple to acquire customers. It’s the processor’s decision to negotiate for large contracts. In the same sense, farmers cooperatives have admitted (in at least one civil proceeding) to doing the same by “sharing” profits gained by collective distribution efficiencies in the form of rebates to processors that are then passed on to retailers. Meanwhile, farmers are told the efficiencies of these collective distribution efforts are meant to reduce the cost of the hauling that is passed on to the farmer and that cost been steadily rising.)

RETURN OF BENEFIT TO PRODUCERS

Finally, the May 2 hearing will receive testimony on the point in paragraph 18 of the Pa. Ag Department’s petition concerning the return to producers of the benefit of minimum wholesale pricing.

The PDA petition explains it this way: “Much has been said over the years about the language of Section 805 of the Milk Marketing Law and whether the price increase built into the minimum wholesale price for payment of the over-order premium is being ‘given to producers’ as required.

“The allowed exception (‘ … necessary in order lawfully to maintain proper milk markets and outlets for producers and consumers’) has, again, permanently swallowed the rule. As with Section 801 producer pricing, consideration should be given to amending Section 805 to clarify the intended result. This is another area where positive perception of PMMB pricing appears to have been eroded by a perceived lack of clarity and transparency,” the petition explains.

The PMMB hearing announcement states that intent to present testimony, and a written copy must be provided by noon on April 30, 2018 either electronically at deberly@pa.gov or by filing at the PMMB office, Rm 110, Agriculture Building, 2301 North Cameron Street, Harrisburg, PA 17110.

For the May 16 hearing, the purpose is to solicit and consider suggestions for statutory changes to the Milk Marketing Law as requested by the PDA in its petition.

Those wanting to give testimony or comments on May 16 must provide notification and a written copy in advance to the PMMB by noon on May 11 either electronically at ra-pmmb@pa.gov or by filing at the PMMB office, Rm 110, Ag Building, 2301 North Cameron St., Harrisburg, PA 17110.

Announcements for the May 2 and May 16 public hearings indicate that both will be listening sessions with no examination or cross examination by interested parties.

A copy of the Pennsylvania Department of Agriculture Petition can be found at the Board’s website and drafts of the proposed amendments may be obtained on the Board’s website at http://www.mmb.pa.gov/Legal/Documents/Petition%20for%20Hearing%20MMB.pdf.

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Seismic shifts in milk supply chain ahead: New Walmart plant triggers Dean’s cut of over 100 dairy farms in 8 states

Posted on March 9, 2018 by Agmoos

SwissDeanStory9468

By Sherry Bunting, from Farmshine, March 9, 2018

LEBANON, Pa. — He saw the mailman drive up and linger in the driveway, wondering if they were expecting a package. Moments later, his wife was standing there, holding a letter she had signed for.

The certified letter informed this Lancaster County dairy farm family that after 13 years of sending their milk to the Swiss Premium plant in Lebanon – along with decades of the farm’s milk in generations before them — the agreement with Dean Dairy Direct would end May 31, 2018.

The same story played out Friday among neighboring farms on the same hauling route to the same plant. And it was the same scene in driveways for approximately 120 dairy farms in eight states, including 42 in eastern and western Pennsylvania — around half of the Dean Dairy Direct shippers to three plants in the state.

Reace Smith, director of corporate communications for the Dallas, Texas-based Dean Foods, confirmed in a phone call Monday that against the backdrop of expanding raw milk production, and companies “asserting and expanding their presence in a market where consumers are drinking less milk (namely the Fort Wayne, Indiana Walmart plant where bottling begins this month) over 100 dairy farms in eight states received 90-day termination notices” from Dean Dairy Direct on Friday and Saturday, March 2 and 3 stating that their agreements will end May 31, 2018.

Smith confirmed that the over 100 affected dairy farms are in the states of Indiana, Ohio, Pennsylvania, New York, Kentucky, Tennessee, North Carolina and South Carolina.

“This affects all size herds and is not a large or small farm thing,” said Smith. While she was unable to supply specific information about the farms that were terminated, she said the widespread volume adjustments at multiple plants across four Federal Orders was necessary due to the new Class I plant (Walmart) coming online this month and the loss of a contract through a competitive bidding process (Food Lion).

Both market losses for Dean indicating structural change to the dairy industry as more retailers move into milk bottling in more centralized distribution models.

Sources in the various states confirm the affected farms range in size from less than 100 cows to over 1000 cows.

“This was an incredibly difficult decision. We tried very hard to avoid it and regret this decision had to be made,” said Smith. She indicated that Dean Dairy Direct field representatives are serving as resources to these producers and can provide a list of contacts for potential milk buyers. They are also offering counseling.

While the company will not provide a list of affected plants or a state by state break down in the number of farms or volume of milk affected, they have indicated that the state that may be hardest hit on a volume basis is Indiana.

In fact, the volume of displaced milk in Indiana, alone, has been estimated at over 20 million pounds per month, representing the under 100 to over 1000 cow size range but most of them milking 300 to 1000.

The affected Indiana farms shipped milk to the Dean plant in Louisville, Kentucky, which also terminated 22 Kentucky dairy producers, ranging from 50 cows to 250, according to Maury Cox, executive director of the Kentucky Dairy Development Council.

In Tennessee, Julie Walker of Agri-Voice near Knoxville has confirmed nine (now 10 confirmed) affected producers ranging 60 cows to 300, and numbers in the Carolinas are unknown at this time.

From the standpoint of the farms affected, Pennsylvania is hardest hit, and while the number of New York farms is unknown at this time, some may have shipped to Dean plants in Pennsylvania.

According to Jayne Sebright, executive director of the Center for Dairy Excellence, 42 Pennsylvania dairy farms shipping to three Dean plants in eastern and western Pennsylvania received notices Friday – representing half of the Dean Dairy Direct shippers in the state. This includes 26 producers in eastern Pennsylvania, including Lebanon and Lancaster Counties, as well as 16 in western Pennsylvania, where the Dean plants in Sharpsville and Erie also ended agreements with Ohio farms. The number of Ohio farms affected is unknown at this time.

“The (Agriculture) Department and the Center have been reaching out to other markets to see what capacity is available, but at this point we do not know of any with available capacity,” said Sebright. “We are working to support the affected farms as best we can. We are very concerned both about the future of the farms and the well-being of the farm families.”

Sebright noted that the Center is making additional resources available and recommending use of their Dairy Decision Consultants Program to evaluate options — both within and outside of the dairy industry. “This is a difficult situation to be in and we are concerned.”

In fact, the farm this reporter visited in Lancaster County Tuesday was already working to call every available market and neighbors who also lost their contracts were looking at everything they could think of. Four or five trucks go through the county picking up milk every day so they wonder if each one can find a market or if they are better off pulling their milk together to find a single-haul market.

The producer was thankful, at least, for being part of a dairy producer discussion group and thankful for folks like Dr. Charlie Gardner with the Center who leads the group.

Not only were the Pennsylvania dairy farms shocked to receive the letters, veterinarians, nutritionists, feed company and equipment maintenance folks are facing this loss with their farm customers as the news spread this week throughout farm communities and the greater dairy community.

In Indiana, where estimates are that over 20 million pounds of milk per month has been displaced, producers had already been on edge as the Walmart plant took shape in their state and they contemplated its milk sourcing.

“We are working with producers and contacting cooperatives and potential markets to try to work together to get through this thing,” said Doug Leman, executive director of the Indiana Dairy Producers. He has been in contact with affected producers, the Indiana Department of Agriculture, and the plants and cooperatives that provide markets for milk in the region.

“I’ve had calls not just from the affected producers, but from many other Indiana dairy producers sharing their concern and asking if there is anything they can do,” said Leman. “I’m encouraged by that, and I am encouraging our producers to keep their chins up through this difficult time in their lives, families and businesses in the hopes that we can work through this together.”

Leman said he does not want to blame Walmart because, wherever the first Walmart plant would have been located, this was coming. Indeed, Walmart has entered a trend among retailers to move toward bottling their own private label store brands (Great Value and Sam’s Club Member’s Mark) rather than contracting with Dean Foods.

“Walmart was coming to Ohio, Michigan or Indiana, and I still believe it is better to have the plant in Indiana because it offers opportunities,” said Leman.

While fluid milk consumption is on the decline for 15 years — although stabilizing with more consumption of whole milk last year — retailers notice that nearly every shopping basket going through their stores includes milk. They seek their own store brand loyalty as loyalty to their store and some of the retail price wars happening in states without loss-leader protection are evidence of this. As is the ability to pull premiums away from states that have loss-leader protection or a minimum retail price as in Pennsylvania, to “fund” price wars in other surrounding states without any loss-leader protection.

The dichotomy points to a need, perhaps, for a federal loss-leader threshold versus random state programs that can fuel the picking of winners and losers in today’s times of seismic structural change to the dairy industry from retail all the way through the supply-chain.

In short, the region would likely have been affected by Walmart’s decision to vertically integrate its Great Value and Member’s Mark milk brand for its stores in the region — no matter which state the plant had been located.

In fact, sources indicate potential sites to the south are being eyed for a second Walmart plant in the future, revealing a corridor strategy to this vertical integration of single-source, full-traceability, each-truck-one-farm model.

The Dean Dairy Direct letters of termination to dairy producers in the region were dated February 26, 2018, which was the same day as Dean’s 2017 earnings call where the company projected its strategy in brand and private label supply and to “right size” its milk volume and consolidate its supply chain to achieve a “flatter, leaner and more agile” company into 2019.

According to Smith, there are no official announcements of any plant closures at this time and none of the plants involved have released all of their shippers. Still, there remains concern that some of the plants that have released a larger portion of their farms are vulnerable.

“We still have a commitment to local milk,” said Smith about the volume adjustments. “There are many factors that impacted this decision. We are seeing surplus raw milk when the public is consuming less fluid milk, and we see companies asserting and expanding their presence in a market where consumers are drinking three gallons less annually, per capita, since 2010 while the U.S. dairy industry is producing 350 million gallons more milk annually than the year before.”

In addition to the overall imbalance Smith said that, “The introduction of new plants when there is an industrywide surplus forced us into the position of further adjusting our milk supply according to demand.”

As vertical integration of milk at the retail level leads to consolidation by the nation’s largest milk bottler – Dean Foods – the company has diversified into soft dairy product brands that are just starting out of the gate and were discussed in the Dean earnings call as well.

Specifically, the letter received by Indiana and Kentucky dairy producers shipping to the Louisville plant stated “two indisputable dynamics led to this difficult decision. First and foremost, a retailer’s new Class I fluid processing plant is coming online in the region, significantly decreasing our production as milk volume is moved away from our facility to this new plant.

“The second reason is bigger than all of us. The steady increase of raw milk production combined with the decrease of Class I fluid dairy consumption…” the letter stated.

Letters received by producers in the southern market as well as eastern Pennsylvania did not specifically reference the new Class I fluid processing plant built by a retailer (Walmart) as had the letter to Kentucky and Indiana producers serving the Louisville plant and western Pennsylvania and Ohio producers serving the Sharpsville plant.

Those letters received by farms further to the east and the south indicated the plants had “lost a portion of customer fluid milk volume to a competitor through a customer-bid process.” Sources indicate this may include both the Food Lion private label store brand and the Walmart Great Value private label in these areas as well.

The letters received by producers said further that Dean was “unable to lock-in enough new customer volume to offset this loss.” This is a function of the overall decline in fluid milk consumption and the new milk via large multi-owner, multi-site farms in surplus regions of the Mideast and Midwest.

One thing is also clear in speaking with producers, veterinarians, organizations and others in the industry, the farms that are facing this difficulty are largely well-managed and producing high quality milk. Many of them are young families representing the next generation. Many are progressive, with updated facilities and technologies as well as utilizing the resources available to them for continued improvement in all that they do to supply their communities with milk.

In these states affected, whole transportation routes were terminated, presenting both challenges and opportunities for a collective effort in dealing with these market losses.

Walmart will not reveal the farms they have secured to supply the plant, but it is widely known that some of the milk will come from the north, some from within Indiana, and that a processor in Wisconsin is handling contracts and in a position to balance the Walmart plant’s fluid needs that may or may not have involvement by cooperatives.

As in Indiana and other states, Cox said of Kentucky: “We, are contacting other potential markets for our producers and would like to meet with Dean Foods to see what more we can do for these producers and to have a better understanding about the future of the Louisville plant” (where both the affected Kentucky and Indiana producers shipped their milk.)

Some state dairy organizations, state departments of agriculture and other industry leaders indicate they want to let the dust settle and allow options to emerge as they adopt a patient mindset to look at potential options for their respective state’s producers.

In the meantime, all are reaching out to producers and urging producers to reach out to them, and to each other. In fact, right now, more than ever, the dairy community needs to be reaching out and talking about its future to higher levels of relationships beyond what has occurred in the past.

“We want to survive,” said the dairyman this reporter visited 15 minutes from my home in Lancaster County, Pennsylvania, just four days after receiving the letter.

Like others this reporter has spoken to, they have done everything the industry suggests to make their farm competitive. While a small farm whose milk shipped for generations to the Lebanon Swiss plant serving local stores and consumers, this young farm family had invested in the latest technology, produces milk with very high components and very low somatic cell counts.

But here they are, facing what 120 of all sizes face throughout eight states as vertical integration from Walmart and other retailers sends a ripple effect and seismic shifts throughout the supply chain.

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Ag Moos

Tag Archives: Pennsylvania Milk Marketing Board

Part Two: Digging into the PA Senate Ag hearing on the PMMB over-order premium

Why did PMMB go after raw milk farms for Milk Dealer licenses? Small farm bottlers push back, PMMB puts further licensing ‘on hold’

Ghost of milk payments past invoked as intimidating letters seek money from farmers for big bottler’s bankrupt estate: Don’t pay. Don’t panic. Don’t sign anything. Sit tight. Gather records.

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

Call to action: Grassroots dairy group seeks PA Senate leadership action to move House-passed bills forward

New PMMB consumer rep sees dairy crisis from outside-in

Changing of the guard: New PMMB chairman sees increased fluid milk demand as job no. 1

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

PMMB responds to Pa. Dept. of Ag with hearings May 2 and 16

Seismic shifts in milk supply chain ahead: New Walmart plant triggers Dean’s cut of over 100 dairy farms in 8 states

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