Last week, Dean Foods announced it was canceling its contracts with more than 100 independent, conventional dairy farmers. The farmers, located in Pennsylvania, Indiana, Kentucky, Tennessee, North Carolina, South Carolina, New York, and Ohio, will have until May 31 to find a new market for their milk. Meanwhile, dairy prices are plummeting across the country as a milk glut and consolidation in the sector threatens dairy farmers’ bottom lines.
Dean Foods, the second-largest dairy company in the United States, attributed its decision to a milk surplus as well as to changing consumer tastes that have reduced fluid milk consumption in recent years. But farmers are pointing to a new Walmart plant in Fort Wayne, Indiana, as another reason for the decision. Dean Foods had until recently processed Walmart’s private-label dairy products, but with its new plant, Walmart can do its own processing.
Dairy farmers generally have two options for bringing their milk to market: join a cooperative or contract directly with a dairy marketing or processing company. Farmers who choose to be independent of a cooperative have struggled in recent years as the milk industry has become increasingly concentrated and as large cooperatives have come to control a huge percentage of milk marketing and processing.
“When you’re an independent farmer, you can be picked off like a sitting duck,” says Lorraine Lewandrowski, a dairy farmer and lawyer in upstate New York. She says that joining or starting a small cooperative is one way that dairy farmers in her region try to “stick together.”
Dean Foods’ announcement is the latest in a series of decisions by the biggest cooperatives and processors to cut ties with independent producers. Last January, Dairy Marketing Services, the marketing arm of Dairy Farmers of America, the country’s largest dairy cooperative, announced it was cutting its contracts with about 900 independent farmers in the Northeast. The dairy farmers were presented with the option of joining DFA or finding another place to sell their milk.
And last April, Grassland Dairy Products cut its contracts with 75 independent dairy producers in Wisconsin. Many of the farmers were eventually picked up by DFA.
About 80 percent of fluid milk is now marketed through a cooperative, such as DFA or Land O’Lakes. Those cooperatives are increasingly expanding into processing and marketing through wholly owned bottling and processing plants, their own brands, and private-label products for retailers.
But many farmers have complained that cooperatives suppress the prices producers receive for their milk, and that a cooperative’s position as both a buyer and a processor of milk makes it impossible for the cooperative to bargain for the highest price for farmers.
Mike Eby, chairman of the National Dairy Producers Organization, says that today there’s “no good option” for dairy farmers seeking a market. He says that powerful dairy cooperatives and processors have been able to “work things in their favor,” leaving independents at risk. But farmers in cooperatives don’t necessarily fare better.
Milk prices peaked at around $24 per hundred pounds in 2014, but farmers are now facing a fourth consecutive year of prices below the cost of production. Prices were just $16 per hundred pounds in 2016 and $17 in 2017.
Dean Foods reported lower than expected returns in fiscal 2017. The company’s chief executive officer, Ralph P. Scozzafava, said in a conference call to discuss the results that the company “[expects] to consolidate our supply chain by a meaningful amount over the next 18 to 24 months.” The company had nearly $7.8 billion in sales in 2016.
In a statement, a Dean Foods representative said that the decision to end the farmers’ contracts was “incredibly difficult,” and that the company is “[providing] farmers with resources to help them connect with counselors if needed.” As dairy prices have fallen and farms shutter, advocates are concerned that dairy farmers face a growing risk of depression and suicide. Last month, one of the largest dairy cooperatives, Agri-Mark, delivered information about suicide hotlines to its farmers along with their milk checks.