Last November, the Dean Foods bankruptcy rocked the dairy world.
No one was certain what the outcome would be. After all, at that time, Dean was the largest U.S. dairy processor.
Dean operated plants in four Pennsylvania counties — Lebanon, Mercer, Montgomery and Schuylkill. These four plants employed close to 1,000 people and purchased milk from over 100 independent producers and several cooperatives, the largest being Dairy Farmers of America.
Board management and staff worked with Dean executives in Texas during the first few months of 2020 to secure payments to Pennsylvania producers, and Dean continued to pay producers during the bankruptcy proceedings. However, after the sale of Dean assets was completed on April 30, final payments for April milk were not paid on time. The late April payments were made to independent producers by the beginning of June, approximately two weeks late.
On June 5, Dean sent payments totaling over $2.3 million to independent producers in the commonwealth but were not able to pay Dairy Farmers of America for milk delivered to its Pennsylvania processing plants. Dean decided to pay DFA using bonds held by the board, required of nearly all our processors. The amount owed to DFA exceeded $9 million.
The process for bond claims and payments can be complex if there are multiple insurance companies involved, if those companies are large and with their own procedures in place, and if any one of them owes a substantial portion of funds.
For our part, board staff is aware when producer payments have not been made. The board acts on behalf of the person or company owed money. A hearing is held and, if money is owed based on staff review of accounts, the board issues an order (or orders) directing the insurance company to pay.
At the board’s July 8 Sunshine meeting, we approved consent orders, which were agreements between the three insurance companies and board staff regarding the amounts Dean owed DFA. Two of the bond claims have been paid and we anticipate that the third will be paid by mid-October.
One thing that must be addressed is that there are companies in Pennsylvania and across the United States that do not have the protection afforded by the Milk Producers Security Act, or the bonds required by the Milk Marketing Board. Those companies have no guarantee of receiving 100% of the amounts owed. There is, indeed, the possibility they will receive no payments at all.
The board and staff are committed to the support and protection of Pennsylvania’s dairy industry.
Doug Eberly is chief counsel for the Pennsylvania Milk Marketing Board.