Monday night, a woman from church asked me what was happening to dairy farmers. She had seen the evening news about the Dean Foods announcement, and wanted to know what it really meant for local farmers.
I tried to explain in very general, layman’s language, but don’t know that I did a very good job.
The U.S. milk market is confusing. Even most dairy farmers have a hard time understanding the intricacies of the global milk market and domestic milk pricing.
Early in my career, Tim Houck, a former fieldman for Milk Marketing Inc. (now Dairy Farmers of America), used to sit in my office and patiently try (over and over) to explain it all. And the only time in 33 years I’ve sent an article to a source for review before publication was when the local federal order switched to multiple component pricing.
Today’s depressed dairy situation has lots of layers and moving parts. And even beyond milk pricing, there are other triggers of trouble in the dairy industry, including a trucking shortage, and bad weather.
Let’s look closer at the Dean Foods announcement, which is basically the result of Walmart building its own milk processing plant near Fort Wayne, Indiana. It will supply more than 600 Walmart stores and Sam’s Club stores in five states, including Ohio, which are currently supplied by Dean Foods.
What’s particularly troubling about this announcement is that very few places are taking “new” milk from displaced producers right now. One Pennsylvania dairy farmer called eight milk marketers after receiving her notice from Dean Foods. None are taking new farms. Their family’s conversations now include the possibility of selling the cows if they can’t find a new market, Lancaster Farming reports.
It’s widely known that retailers often price milk to drive traffic to stores — the idea being that you pop in for that cheaper milk and end up with a full cart of other items too. So if Walmart has the potential to control and source its milk at a lower cost, it can pass that along to consumers (in theory).
One source indicated that Walmart’s Indiana plant will get its milk from Michigan and within Indiana, and that a Wisconsin processor is handling contracts
And in today’s full-traceability, food-safety-driven atmosphere, Walmart’s strategy makes sense.
So don’t blast Walmart, as it should be no surprise that retailers are trying to become more vertically integrated. That has always been a model within the dairy industry (think United Dairy). Today, Kroger operates 15 dairy manufacturing plants; the grocer Albertsons Safeway also operates 19 manufacturing plants, including six dairies; and Meijer also moved into milk processing, and now operates the Purple Cow Creamery near Tipp City, Ohio, as well as a plant in Holland, Michigan.
Speaking of the state up north, where milk production in Michigan grew 77 percent between 1992 and 2014, there are two processing plants on the drawing boards there, including a 55,000-square-foot dairy processing facility in Greenville, Michigan, operated by Greenville Venture Partners, a subsidiary of Foremost Farms USA Cooperative, and a cheese and whey production facility, a joint partnership of Irish-based food and dairy company Glanbia, Dairy Farmers of America and Select Milk Producers.
Unfortunately, it remains to be seen how many dairymen can hang on until these plants are operational.
If you don’t have a market for your product, what do you do today? I don’t have an answer.
By: Susan Crowell
Source: Farm and Dairy