This week, Dean Foods, America’s largest dairy producer, filed for bankruptcy.
Based in Texas, Dean Foods distributes many brands such as Land O’Lakes, Mayfield Dairy, and Purity Dairies. It’s a massive dairy company that produces the Friendly’s brand of ice cream and distributes in all 50 states. Despite the press release describing the recent action as a “voluntary reorganization,” we can call it what it is: Chapter 11 bankruptcy.
The dairy industry, despite an uptick in milk powder sales in China, is desperately struggling. Thousands of established dairy farms have already shuttered in the past few years, the victim of oversupply, steadily reduced demand, trade wars, and milk alternatives. Nobody, not even the largest of milk distributors, is safe from those kinds of forces.
The obvious issue here, aside from the lost jobs and effects of closing Dean Foods plants, is that Dean Foods is one of the largest buyers of milk in the country, purchasing directly from small and medium-sized farms. Those farms are technically independent, but as with chicken farmers, many dairy farmers have only one client to whom they sell milk. That’s already a bad situation, as it grants a company like Dean Foods incredible leveraging power over small farmers; but the only thing worse than having a single client might be having no clients.
Dean Foods also said in its announcement that it would be looking for buyers to take over the business, saying they’re in “advanced discussions” with one buyer in particular: Dairy Farmers of America, or DFA, which is the biggest dairy cooperative in the United States. Jessica Fu at New Food Economy dove into the possible repercussions of such a purchase. A DFA-Dean combination could create a severe monopoly in the liquid milk industry, and even worse, because it’s a cooperative, DFA isn’t required to pay the minimum dairy prices set by the federal government.
DFA and Dean Foods have both run afoul of labor violations in the past; DFA was investigated for price manipulation in 2007, having set artificially low milk prices in exchange for exclusive contracts. That exclusive contract was with…Dean Foods. Both organizations settled for more than $100 million, without admitting guilt.
The slow collapse of the dairy industry is complex, but it’s difficult to see much good coming from this bankruptcy filing.