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Does Dean Foods' Bankruptcy Filing Signal More Pain For Dairy Farmers?

Image via Angelina Litvin on Unsplash

Dean Foods was founded by Samuel E. Dean, Sr. in 1925. Dean bought an evaporated milk processing facility and began buying other dairy plants to build a diversified food company. Dean Foods ended up becoming America's largest milk producer, five times the size of its next largest competitor, with more than 15,000 employees. 

Dean Foods is proof that dominating a market doesn't insulate you from business challenges, as the company announced it has filed for Chapter 11 bankruptcy protection. The company, which secured $850 million in debtor-in-possession (DIP) financing, will still run the business during the Chapter 11 proceedings with customer deliveries uninterrupted. Dean Foods has discussed selling "substantially" all of its assets to the Dairy Farmers of America.

"Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption," said Eric Beringause, CEO of Dean Foods.

Americans’ per capita consumption of fluid milk has plummeted 26% over the last two decades, according to data from the U.S. Department of Agriculture. Plant-based milks such as almond milk, soy milk, rice milk and coconut milk are becoming increasingly popular. According to data from The Good Food Institute and Plant Based Foods Association, plant-based milk now makes up 13% of total retail milk sales. Sales of plant-based milk grew 6% over the last year, compared to a 3% decline in sales of cow’s milk.

The decline in milk consumption is spilling over to other popular dairy products as well. Over the same period, sales of plant-based yogurt increased by 39% compared to a 3% decline for regular yogurt. Sales of plant-based cheese increased by 19% compared to flat growth for conventional cheese. Finally, even ice cream trends are changing as sales of plant-based ice cream increased by 27% compared to only a 1% increase for dairy ice cream.

U.S. dairy farmers are feeling the pain. According to the U.S. Department of Agriculture, the U.S. lost 2,731 licensed dairy farms from 2017 to 2018, a decline of 6.5%. The total number of dairy farms now stands at 37,468. The reason? They're not making money. According to data reported by the National Farmers Union (NFU), the average dairy farm has reported positive net income only once over the last decade, in 2014.

2014 was a record year for dairy farmers. To take advantage of higher milk prices, they began adding cows to increase production. In a classic case of supply and demand, supply increased as demand didn't, which caused milk prices to subsequently fall. Milk prices are finally inching up as the U.S. dairy herd shrank last year due to farm closures and culling cows as a result of high beef prices.   

With consumers' tastes evolving and dairy farmers trying to weather the storm, the bankruptcy filing of Dean Foods serves as a reminder that if the country's largest milk producer is struggling, then the smaller dairy farmers may continue to face tough times as well.

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