• Market Crumbs

It Is Not A Good Time To Be In The Milk Business

Image via Megumi Nachev on Unsplash

Borden Dairy Co., known for its Elsie the Cow cartoon, traces its roots all the way back to 1857. Borden began selling processed milk in 1875 and even pioneered the use of glass milk bottles in 1885.

Despite being one of America's oldest and largest dairy companies, Borden filed for bankruptcy this week. In doing so, Borden became the second major U.S. milk producer to file for bankruptcy in as many months. America's largest milk producer, Dean Foods, filed for bankruptcy in November.

Borden filed for bankruptcy because it can't afford its current debt load and can't meet its employee pension obligations. Borden produces nearly 500 million gallons of milk per year and employs 3,300 people. As was the case with Dean Foods, Borden says it will be "business as usual" during the "voluntary reorganization proceedings."

"Despite our numerous achievements during the past 18 months, the Company continues to be impacted by the rising cost of raw milk and market challenges facing the dairy industry," Tony Sarsam, CEO of Borden said in a statement. "These challenges have contributed to making our current level of debt unsustainable."

Sarsam said the company held talks with lenders to discuss "a range of potential strategic plans," but couldn't reach an agreement on what to do next. All the company said in its filing was it intends to use the bankruptcy process to prepare itself for "long-term success."

Not everyone was pleased with Borden's decision to file for bankruptcy, though. One of their lenders, KKR & Co.’s credit arm, criticized the company's "irrational" bankruptcy filing. They said Borden has "no discernible path through bankruptcy" and was "a surprise and value-destructive bankruptcy" intended to benefit private-equity backer Acon Investments.

However, the bankruptcy filing shouldn't come as a complete surprise. Consumers have been ditching milk in droves for alternatives such as almond milk, soy milk and oat milk. Americans’ per capita consumption of fluid milk has plummeted by 26% over the last two decades and by 40% since 1975, according to data from the U.S. Department of Agriculture. Highlighting the increasing popularity of milk alternatives, U.S. sales of oat milk grew by 636% over the last year.

The declining consumption of milk has been catastrophic for the U.S. dairy industry. 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, with Borden noting that 94,000 dairy farms have stopped producing milk since 1992. 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.

With Borden and Dean Foods having both filed for bankruptcy within the last couple of months, it appears the U.S. milk industry is in a state of crisis. The question is, if two of the largest milk producers in the U.S. can't survive, how will the nearly 40,000 other dairy farms throughout the U.S.?  

Leftover Crumbs

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