The story begins in 2020, when the nation’s largest dairy processor, Dean Foods, filed for bankruptcy and sought to sell 44 of its plants to the nation’s largest milk cooperative, Dairy Farmers of America (DFA). After reviewing the proposed deal, the Department of Justice (DOJ) saw a big problem. The sale would eliminate competition between Dean and DFA’s plants, leaving DFA to dominate nearly 70% of all fluid milk processing in Wisconsin and Northern Illinois and more than 50% of processing in the Northeast, the DOJ alleged. DOJ decided it would only approve the deal if Dean Foods sold off three key plants to other processors so that DFA would face some regional competition.
Dean sold its milk processing facility in Chemung, IL, and a milk and sour cream plant in De Pere, WI to an entity called New Borden, which is a joint venture between two private equity firms, KKR & Co. and Capitol Peak, created to buy the bankrupt Borden Dairy. That might seem dubious enough, but this May, just one year after New Bordon took over these plants, the firm announced that it would shut down the Chemung facility and stop fluid milk processing in De Pere. Now retailers and schools in much of the upper Midwest will have just two major fluid milk distributors to buy from, according to estimates by Peter Hardin, editor in chief of dairy industry publication The Milkweed. Too few milk providers could mean less competition for public school milk contracts, higher prices, lost jobs, supply chain fragility, and fewer milk buyers for struggling dairy farmers.
Hardin says this deal was particularly suspect given that former Dean Foods CEO Gregg Engles, runs Capitol Peak, the private equity firm behind New Borden. As Dean’s CEO, Engles had a reputation for consolidating the dairy industry and was accused in antitrust suits of conspiring with DFA’s leadership to limit competition, pushing down prices paid to farmers, and increasing prices paid by retailers. Hardin says some in the dairy industry wondered if New Borden would eventually sell the plants back to DFA, though the co-op has not shown any interest in buying the Chemung plant.
Borden will shut down the Chemung plant and switch only to sour cream production at the De Pere plant on July 9th. The Chemung plant is one of the largest milk processors serving the Chicago metro area, and the sudden loss leaves grocery stores and school districts with few options. Retailers and schools can’t afford to ship in milk from far away, limiting them to regional providers. Smaller processors don’t have the volumes and capabilities to compete for large retail and school district contracts. Previously, Dean, DFA, and Prairie Farms were the only “three significant fluid milk processors” in Northern Illinois and Wisconsin, according to the DOJ.
After the closures, Hardin estimates that northern Illinois, Wisconsin, Michigan, Minnesota, as well as parts of Iowa, the Dakotas, and even Missouri would now only have two major milk processors, DFA and Prairie Farms. Such a lack of competition will give DFA and Prairie Farms more market power to raise prices for shoppers and school districts at a time of rampant food inflation, soaring corporate profits, and allegations of corporate price gouging.
“As any farmer will tell you if you only have two bidders in a cattle auction the prices are never maximized,” said Hardin. “There is simply not adequate fluid milk processing capacity within the extended Chicago region … some of the schools aren’t getting bids,” he added.
A spokesperson for the Wisconsin Department of Public Instruction confirmed that “schools have been impacted by the closures.” In a list of known regional milk vendors that the DPI provided school food service managers, 9 out of the 11 listed distributors either specialized in or primarily carried DFA, Dean, or Prairie Farms products.
Closing the Chemung plant will also leave nearly 200 unionized workers without a job, and 70 more will lose their job when the De Pere plant stops milk processing. Tom Strickland, president of Teamsters Local 662 which represents De Pere plant workers, said laid-off workers are finding jobs at other plants or outside the industry. He criticized Dean’s past mismanagement, which he felt contributed to the bankruptcy that put the plants up for sale in the first place.
The plant closures also add insult to injury for small dairy farmers struggling to stay afloat. Milk prices paid to farmers have, on average, been below most farmers’ break-even point since 2014. There are half as many dairy farms today as there were two decades ago, with more than 2,500 dairy farms closing in 2020 alone.
A group of 90 farm, labor, and environmental groups led by the National Family Farm Coalition is calling for greater antitrust enforcement alongside reforms to federal dairy policies. “Our members, particularly dairy producers in the Midwest … see the closure of these plants not as a surprise [but as a] symptom of deeper structural challenges,” says Jordan Treakle, NFFC’s policy coordinator. NFFC has a proposal to implement supply management policies that match milk supply with profitable demand and establish a fair base price based on farm size.
What We’re Reading
Two weeks ago, the Senate Ag Committee passed bills that would establish a public contract library for cattle producers and create an investigatory office within USDA to better enforce the Packers & Stockyards Act. (American Ag Network)
Last Thursday the Iowa Supreme Court overturned precedent that allowed landowners to seek damages for water and air pollution coming off large hog farms. (Washington Post)
Smithfield will pay $42 million to settle a price-fixing suit alleging that the company conspired to raise pork prices. (Associated Press)