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USDA to invest over $5 bil. in food supply chain, focus is transformation, not relief; Public comments due June 21

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By Sherry Bunting, Farmshine, June 11, 2021

WASHINGTON — Long on transformation framework and short on meaningful details, USDA announced this week (June 8) that it will invest more than $4 billion to strengthen critical supply chains. This follows the June 4 announcement of over $1 billion for ‘healthy food’ and security infrastructure.

What these words mean is still the subject of USDA gathering input through public comments due June 21 and a series of stakeholder meetings. The first one was a 30-minute webinar attended virtually by over 3000 people representing food and agriculture organizations the day after the funding announcement (June 9).

These announcements are billed by Agriculture Secretary Tom Vilsack as part of the “Build Back Better” initiative to be funded by the Consolidated Appropriations Act of 2021 (passed by the 116th Congress and signed by President Trump in January) and the American Rescue Plan Act (passed by the 117th Congress and signed by President Biden in March.)

Vilsack will co-chair, along with Secretaries of Commerce and Transportation, the Biden administration’s new Supply Chain Disruptions Task Force for a “whole of government response.”

According to USDA, its investment announcements will include a mix of grants, loans and “innovative financing mechanisms” for the food production, processing, distribution and market access priorities that will “tackle the climate crisis and help communities that have been left behind.”

It has been six months since CAA funds were appropriated and three months since ARPA funding was authorized. These relief and support funds passed by two sessions of Congress and signed by two Presidents are now sitting in wait of a task force establishing supply chain transformation priorities after public comments and industry stakeholder meetings.

Meanwhile, dairy producers and other sectors of agriculture are still waiting for details about relief that was to some degree spelled out in the prior congressional language of these Acts. 

This includes waiting for USDA’s implementation of what was supposed to be an expanded base option for dairy producers in the Dairy Margin Coverage program; waiting for participation details for the Dairy Donation Program that is supposed to be retroactive; and waiting for a response from USDA to the bipartisan request by Senators seeking relief payments for dairy farmers for the first half of 2021 retroactive to January 1.

In the detailed request for public comment, USDA is making it clear that the CAA and ARPA funds will be spent on transformation, not relief. Guiding the transformation is President Biden’s February Executive Order 14017 America’s Supply Chain.

USDA says it is interested in comments spanning everything from animal, soil, plant and climate health, traceability, monitoring and technologies to agricultural inputs, energy, markets, storage, distribution, and digital security.

“We always knew this, but the pandemic really highlighted it for the rest of the country: Our food system is brittle, and any shock to it can have devastating effects down the chain. Now is the time — not to go back to normal — but to build a new normal,” said Mae Wu, Deputy Under Secretary of Marketing and Regulatory Programs during the first stakeholder webinar this week.

“Before we dealt with the pandemic, we had a food system in which nearly 90% of our farms did not generate the majority of the income for the farm families operating those farms. We had a food and farm system in which soil erosion was occurring at 10 times the rate that soil was being replenished,” said Vilsack as the first stakeholder webinar kicked off.

“We all know we have a substantial number of waterways that are currently impaired, and we also appreciate the fact that we had a food system that was prepared to address climate change but not yet fully embracing the opportunity side of that claim,” Vilsack continued. “So we had a system that needed help. We had a system that also was seeing rapid consolidation and a lack of competition. Then Covid hit and by virtue of Covid we learned that what we thought was a resilient system, really wasn’t resilient at all and had a difficult time shifting from food going into foodservice to going into food assistance.”

Citing the President’s February Executive Order, Vilsack said the focus of the new task force, he co-chairs, is to strengthen supply chains by “beginning the process of transformation.”

In the Federal Register document, USDA states: “(Our) initial thinking includes, but is not limited to, funding, through a combination of grants or loans, for needs such as: supply chain retooling to address multiple needs at once (i.e., achieving both climate benefits and addressing supply gaps or vulnerabilities concurrently), expansion of local and regional food capacity and distribution (e.g., hubs, cooperative development, cold chain improvements, infrastructure), development of local and regional meat and poultry processing and seafood processing and distribution, and food supply chain capacity, building for socially disadvantaged communities.”

In one subsection, USDA notes that it is interested in comments on “the availability of substitutes or alternative sources for critical goods and materials…” For example, USDA says it “encourages commenters to consider agricultural products that could be domestically grown but are not practically available today for various reasons, and to describe whether and how such products (or their alternatives) could be made available through supply chain resilience efforts.”

To-date, there are 297 public comments on the docket. A quick look through 55 that are viewable presently includes many food banks and feeding programs, some mentioning dairy, but few comments are logged from dairy organizations to-date.

For its part, the National Farmers Organization attached a document and stated: “The farmer dumping milk needs a market today, not in the long run. The person standing in a food line needs something to eat today, not in the long run. We need to look more carefully at what is going on if we are to understand, and effectively address, the dilemma of too much milk on one end of the supply chain and not enough dairy products on the other.”

Vilsack (who worked as a dairy checkoff executive for the four years between being Ag Secretary in the Obama and Biden administrations) also referenced milk dumping, saying the dairy industry had bottlenecks as foodservice demand shut down while retail demand for consumer-packaged goods skyrocketed.

In fact, in a recent Fortune magazine interview, Vilsack said the cost of $1.50 per gallon to put milk in a jug created a disincentive to donate excess milk instead of dumping it.

However, in reality, there was more to it than that in parts of the country where Governors brought the curtain down on the economy to strict degrees of people ordered to stay home, while also scolding them in public service announcements for buying too much food. Retailers hit the brakes by putting purchase limits on milk, butter and other dairy products, just as processors loaded up the silos with milk for the retail surge, only to find their retail orders came to a screeching halt as the purchase limits contributed to backing milk up from plant storage into farm pipelines faster than donation efforts could get organized or find facilities to bottle or process.

Facility issues were also cited at the time, in terms of separated cream filling storage silos with nowhere to go as butter capacity was busy switching to pull bulk butter from storage and convert it to print butter, and butter imports skyrocketed. It took a while to unwind the institutional governance of low-fat milk into making more whole milk available as consumers could choose. And it took a while for governments to allow institutions (like schools) to temporarily give whole milk. The result, in the Northeast especially, was a huge volume of dumped milk.

Among the viewable comments to USDA at the Federal Register, so far, are groups citing industry concentration and consolidation.

In its comments, the Montana Cattlemen’s Association pointed out that Secretary Vilsack, along with then Attorney General Eric Holder, held concentration and antitrust listening sessions across the U.S. during the Obama administration, and nothing ever came of it. One of those USDA / DOJ national listening sessions was on dairy, specifically, in Madison, Wisconsin in 2009.

The National Grocers Association echoed these concerns, detailing the way a few global companies already control food retail, foodservice, food processing and distribution, and how this affects farmers and ranchers, independent retailers and restaurants, and thereby affects regional food supply chains, and ultimately consumers and America’s security.

Both the cattlemen and grocers call for specific actions that would increase competition, regional processing and market access and thereby make the U.S. food system more secure and critical supply chains more resilient.

During the stakeholder webinar, Vilsack addressed a question on market competition by saying USDA will “first make sure the markets that do exist are as open and transparent as possible” by looking at the current rules along with other federal agencies and taking any steps to rectify. But he also pointed to developing new markets.

At the other end of the public comment spectrum, groups like the Good Food Institute, a lobbying organization for plant-based and cell-cultured replacements for animal-sourced foods, paint a picture of how their streamlined lab-style production through pop-up bioreactors and fermentation vats in rural, suburban and urban areas can be built to provide supply chain resiliency and food security. GFI also claims that their models would be a climate mitigation strategy.

GFI addressed each of the USDA bullet points on supply chain resilience, climate action and new market opportunities to describe why the CAA and ARPA funds should be used for research and infrastructure that shifts away from animal agriculture to plant-based and cell-cultured through digital and genetic technologies that are already within the USDA Agricultural Research Service wheelhouse.

GFI lays out their description of how recombinant proteins and GMOs, along with the storability of frozen cells and dry plant-based powders, can be turned into food quickly, and in exact amounts needed, and can be grown and manufactured anywhere — without waiting for animals to grow — leaving land available for so-called ‘climate strategies’ and biodiversity. 

But, they say, research and infrastructure are needed to make their science-fiction novel come true. This, despite the huge investments of tech industry billionaires in these replacement technologies, and the way the largest meat and dairy processors are diversifying, to brand – and blend – such alternatives to look, taste, and feel like the real thing.

Interestingly, the food economy is, right now, dealing with supply chain disruptions and inflationary price hikes on animal-sourced products from eggs and milk to bacon, beef, and chicken wings. The price squeeze is having a big impact on independent grocers, independent restaurants, and consumers. At the same time, prices paid to dairy and livestock producers are turning lower just as farmers and ranchers were hoping to get back on their collective feet.

That paradox is not sustainable nor resilient for producers or consumers, but growing cells in bioreactors or harvesting yeast-excrement from fermentation vats — instead of animals on farms —simply gives even more control of food to even fewer entities that would control the genetic alterations that make it scientifically possible.

USDA states in its press release that it wants to address competition and small and medium sized processing capacity and that it wants fairness, competition, equity, and access for producers and consumers, while accomplishing climate mitigation at the same time. 

The question is: What do these buzz words actually mean? The June 9 stakeholder webinar gave a glimpse.

Vilsack explained that USDA is putting the series of funding announcements into a series of four supply chain ‘buckets’: production, processing, distribution / aggregation and markets / consumers.

He said USDA will begin by providing assistance for beginning farmers and socially disadvantaged farmers, including the debt relief for farmers of color.

“We’ll look for ways to provide assistance for those who work on the farms and those who work in the processing facilities. We’ll look for how we can encourage those transitioning from conventional to organic agriculture if they choose to do so,” said Vilsack. “All of this will be designed to create greater resilience in terms of the number of people available to farm and the types of farming systems that we have. You’ll also see investments in urban agriculture.”

Vilsack said on the food processing side, USDA is “very focused” on ways to create more options for farmers by “shoring up and expanding” existing small and medium size processing to create more markets for farmers.

He highlighted “food hubs” in the distribution bucket and “access to healthy foods” in the consumer bucket.

Answering a question later about how government grant-writing is beyond the scope of most farms, especially small farms, Vilsack said: “One way for folks to get expertise and capacity is to join with others who are similarly situated to form a food hub to aggregate products. There is money for food hubs in this.”

Calling the Dairy Donation Program an investment in the production / producer bucket, and referencing it four times in the webinar, Vilsack said the DDP “will enable producers to more quickly shift in the event of a disruption from foodservice or retail that might not be available for whatever reason into food assistance mode.”

He identified the need to “significantly invest in storage and refrigeration infrastructure to accept significant quantities of food to be stored for a period of time and distributed over a period of time. Right now, we are not equipped to handle a great influx of meat, and produce all at one time, and as a result, animals were destroyed and milk was dumped,” he said.

Vilsack said another way to look at USDA’s incremental roll out of the CAA and ARPA funds is that it reflects “how we are going about the transformation of our food and farm system. We need to continue to invest to make sure there are multiple ways for people to get into the farming business and to stay in business.”

To be profitable, he said, “means we need to develop more new and better markets to be invested in. We want to make sure it is sustainable, circular, regenerative in its approach. We want to make sure it is equitable in its application so that people of all races, ethnicities, gender and so forth are able to access the programs completely at USDA,” said Vilsack.

For producers, allied industry, consumers and organizations, now is the time to visit the USDA Federal Register Docket at https://www.regulations.gov/document/AMS-TM-21-0034-0001 to read the guidelines for commenting and submit a “Supply Chain Comment” referencing Docket AMS-TM-21-0034-001 by June 21, 2021.

Comments may also be sent to Dr. Melissa R. Bailey, Agricultural Marketing Service, USDA, Room 2055-S, STOP 0201, 1400 Independence Avenue SW, Washington, DC 20250-0201. For further information about how to comment and the guidelines for commenting, contact Dr. Bailey by phone at 202-205-9356 or email melissa.bailey@usda.gov

(Author’s Note: The pandemic revealed that the institutional feeding models replete with anti-fat rules based on un-scientific Dietary Guidelines are part of the supply chain disruption problem. Governmental and non-governmental organizations continue to try to systemize food distribution into dietary lanes that don’t reflect the science or consumer attitudes about healthy fat and animal protein. Now ‘climate’ is being used as a potential animal-dilution driver. When someone wants to give families a gallon of whole milk (instead of fat-free or low-fat) when they pick up the school lunches for their children during a pandemic, the last thing any governmental or non-governmental organization should be telling them is “you can’t do that, it’s against the rules,” or pushing them into an adjacent parking lot so they aren’t “next to” the institutionally rule-inundated food. That is just one aspect I plan to write about in commenting to the USDA. Loosen those dietary restraints that give all the power to the global consolidators in foodservice, processing and distribution. Let free-enterprise and good will work for good.)

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‘Unify or die’ concept doesn’t cut it

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Time for transparency on where dairy checkoff’s partnerships are leading

By Sherry Bunting, Farmshine, August 28, 2020

Partnerships and proprietary information stop many conversations from moving forward when it comes to the direction of dairy checkoff leadership under Dairy Management Inc. (DMI).

Meanwhile, contrary to DMI CEO Tom Gallagher’s assertions in the Aug. 5 ‘open mic’ call, consumers DON’T know the nutritional benefits of milk. That’s why grassroots efforts to promote milk (like the Drink Whole Milk 97% Fat Free effort) get so much action. People really know very little about milk and dairy after decades of dairy farmers spending hundreds of millions of dollars annually in promotion and education.

But that’s okay, according to Gallagher, DMI is a supply chain expander.

We keep hearing this theme that consumers will deal with fewer players, shop at fewer stores, become less brand-loyal, learn to accept pre-planned food categories and assortments, realize ‘generics’ are just as good as brands, and will focus more on how diets affect the planet, while spending more for new innovative products… We have to stop a minute and wonder:

What does all of THAT mean?

First off, the math is not adding up.

More than one report or webinar has hit on the indicators showing consumers are focused on food purchases that address their concerns about health and economic value, and they are finding comfort in traditional choices – like real milk and dairy products.

Furthermore, the food disruptions of the pandemic have created more interest among consumers in where their food comes from – is it local, regional, produced in the U.S.? They are more in touch with the importance of local and regional food systems, and less keen on global supply chains nor globalization — not just of food, but also medicine and other necessities.

While rank-and-file consumers and farmers find opportunity and security in building localized or regional food systems, that is the last thing the big players want to see happen. So what do they do? They mine consumer data, something DMI will help with, to twist consumers’ health- and value-focused concerns to fit a ‘planetary’ values system that steers consumers straight into the jaws of the global suppliers that have checked all their pre-planned criteria boxes.

They want consumers to prioritize planetary diets so supply chains can be centralized and globalized — pure and simple — and our own industry checkoff organizations are participating at best, helping them accomplish it, at worst.

In fact, the “good for the planet” mantra — as defined by World Wildlife Fund (WWF) and its World Resources Institute (WRI) is what global corporations and Silicon Valley tech food investors are all about. They are creating the boxes, checking them off, and then trying to convince consumers that this is what is important to them when making decisions about their food.

Data clouds, omnichannel marketing, digitized food, personalized experiences, purpose-driven marketing, planetary diets – these are but a few of the buzz terms and technologies driving future of food transformation.

Through GENYOUth, the dairy checkoff is actually facilitating transformation, grooming schoolchildren to make choices that will eventually pad the wallets of billionaire tech-sector food investors and give them control under the guise of planetary diets and climate change. The future-of-food players need a global ‘value-driver’. It was climate change. 

Then came Covid, and people were forced home and began to turn inward to the health and economic needs of themselves and their families. They began to see the importance of communities and began to recognize that farmers are connected to their communities.

To bring them back “on-task”, WWF recently launched a campaign to link Covid-19 to the already set goals. In fact, according to its website, WWF explains that, “A big possible casualty of COVID-19 are the world’s Sustainable Development Goals (SDGs).

In a July 22 report on the pandemic and planetary health, WWF scientist Robin Naidoo states that, “In 2015, the United Nations adopted (Sustainable Development) goals to improve people’s lives and the natural world by 2030.The success of these SDGs depends on two big assumptions: sustained economic growth and globalization.

“COVID-19 has now torn both assumptions to shreds,” the WWF report states. “This has fundamental implications for how we conceive of and prioritize sustainability in a post-pandemic world.”

The report then goes on to twist the narrative on these UN SDGs (that are also part of DMI’s Net Zero Initiative) to say 30 of the targets “would help to lessen the likelihood of another global pandemic.”

Like a chameleon, the big players adapt the plan by changing the picture to shift consumer focus back onto the planetary diets and by honing in on post-Covid concerns about health and economics from a different angle. Easier to do this when people do not know much about milk and dairy.

Yes, there is a tug of war emerging from the pandemic in which consumers seek and grassroots farmers can deliver real, whole, healthful foods in regional, national and international food systems that are in direct competition with centralized global supply chains that want to streamline, limit options and control diets.

While DMI leaders are busy convincing dairy farmers to get with the program of unified marketing in order to compete – as one — in a big marketplace, what is DMI actually doing with their empowerment?

— DMI has a close working relationship with WWF to write the rules of the ‘sustainability’ and ‘net-zero GHG’ playbook – the driver.

— DMI’s marketing and public relations contractor Edelman has close ties to WWF, the EAT Lancet forums, and is developing new terms for brands in the plant-based alternative milk sectors.

— DMI partners with DFA to help launch a 50% milk 50% oat or almond juice beverage with pretty packaging and marketing that make it appear superior to the milk produced and bottled from dairy farms.

— DMI’s GENYOUth program facilitates access to schoolchildren so global corporations and other partners can groom schoolchildren into future decision-making consumers focused on “planetary diets” – their global value system.

— DMI recently hired a digital food and cellular ag proponent as its vice president of Dairy Scale for Good. Caleb Harper’s hiring has brought many questions but is merely one more cog in the supply chain wheel being built with dairy farmer checkoff money. His focus will be large dairies. His background is controlled environment horticulture through computerized plant boxes that several science publications, and even public radio, pointed out were “smoke and mirrors.” His father has ties to the early rendition of fairlife through Mike McCloskey, and both Harper and McCloskey are part of WWF’s thought leadership group

Innovation is normally something to be enthusiastic about. Technology is progressive and something farmers embrace. Competition is healthy and provides entrepreneurial opportunities.

But when it comes to mandatory promotion dollars, gone are the days of managing content that everyone can see, as it all goes digitally underground to meet proprietary consumer targets of partners. Gone are the days of education to promote the benefits of dairy to meet the needs and questions of consumers.

When farmers are forced to fund an entity with the power to set parameters on how they do business, an entity that is overseen by USDA and yet is partnered with activist groups, large multinational companies and global supply chain consolidators, and an entity that can pay for research that then becomes proprietary and could involve diluted dairy products such as butter that is mostly water, and an entity that begins to see its role as the expander of the supply chain… yes, transparency and vigilance are most definitely needed.

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Market Moos: COVID-19 impacts how consumers are supplied with food

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By Sherry Bunting, excerpt updated from Market Moos in Farmshine, March 27, 2020

Ten days into the 15-day COVID-19 “flatten the curve” mitigation strategy, supermarkets are still scrambling to remain supplied with in-demand food items — including milk, especially whole milk, dairy products, especially butter, eggs and beef.

Nielson data show nationwide fluid milk sales were up 32% last week, dairy products like butter (up 85%), cheese and yogurt up over 50%, egg sales up 44%, and beef sales, including ground beef, up 77%!

Walmart and other supermarkets have started setting limits on how many gallons of milk or cartons of eggs or packages of butter can be purchased per customer, meaning shoppers will be making more frequent trips to feed their families and supply their older loved ones.

In Pennsylvania, for example, Secretary of Agriculture Russell Redding sent a message out on various television news programs Wednesday evening, asking the state’s consumers to “stop hoarding food” and to “think of others who may need the food.”

Unlike toilet paper (and there’s more to that story too in terms of paper product imports), what we are seeing with food essentials is not “hoarding.”

What may not be clear to state and national ag and government leaders is that consumers are not hoarding food, they are buying what they need for a week at a time (to avoid multiple trips exposing them to multiple people). Their grocery lists are more full because for most of them, their whole families are home all day and evening with schools closed and all non-essential businesses shut down.

In addition, many shoppers are buying provisions for elderly parents or neighbors to leave on their porches for them.

This is not “food hoarding”, this is providing for one’s family now that families are not being institutionally-fed according to the government’s rules restricting calories derived from animal products at least one or two meals at least five days a week.

This is a major shift in where the supply chain needs to focus its distribution of the abundant milk and beef that farmers are producing, but is meeting a severe tamp-down in terms of base pricing, production penalties being deducted from milk checks, and over this past weekend even the dumping of milk due to what industry leaders say is “processing disruption” or “loss of foodservice and hospitality trade” despite huge increases in retail purchasing indicating supply chain shifts. (See more on that here.)

A dilemma for some farms that have transitioned into direct sales to get closer to end-users, is that their businesses often rely on people assembling through agro-tourism, farmer’s markets, events, and casual dining restaurants that are more geared to dining-in than taking-out.

Some of these diversified and direct-to-consumer dairy, beef and farmsteading operations have large and fairly recent processing equipment and marketing investments and now must limit access to the consumers their businesses served.

A provision in the $2 Trillion COVID-19 federal aid package is $9.5 billion for livestock, dairy, and specialty crop producers that are part of “local food systems” where their marketing is impacted by COVID-19.

Farms that have developed consumer-facing businesses may also qualify for “bridge” loans to small businesses that are also part of the package.

Meanwhile, dairy, beef and ag organizations are beginning to also raise a concern to USDA to be alert to price manipulation as sales and value to processors is rising rapidly with the surge in demand for dairy and beef, while the prices paid to dairy and beef producers is falling rapidly in the other direction as both milk futures and live cattle futures plunged.

American Farm Bureau Federation even raised this concern, along with transportation and labor as three points of vulnerability on farmers’ minds.

A spokesperson for National Cattlemen’s Beef Association expressed NCBA’s concerns in a CNBC business news interview indicating that farmers and ranchers selling cattle once a year as their income for the whole year, felt the huge drop in live cattle on the futures market for fats and feeders. This can break an operation selling cattle at this juncture, after the tough year last year.

Meanwhile, boxed beef prices are rising rapidly, to where processor margins are $600 profit per head, whereas farm losses are more than $100 per head. This also happened a year ago when the relationship between farm pricing and wholesale to retail pricing was equally inverse, showing massive profit-taking at the processing level and big losses for cattle producers for many months after a fire at one beef processing plant in Kansas.

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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

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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.

DeanFoodsMap.jpgWhile 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.”

Dean-Cows.jpgIn 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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