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Dairy is reeling from oversupply, drop in foodservice demand and export challenges
TRAVIS AND KRISTA Klinkner of Genoa, Wis., are joined by their four children, from left, Alice, one, Hank, two, Brad, three, and Liam, four. Travis and Krista Klinkner of rural Viroqua were awarded the Young Farmer Achievement honor by the Wisconsin Farm Bureau in 2019. Klinkner works as an ‘agricultural educator’ with the Vernon County Farm Bureau. Travis Klinkner has a degree in agriculture education, and continue to use their passion for teaching in their respective fields. Photo: Courtesy of Travis Klinkner

WISCONSIN - On Wednesday April 1, it was reported that dairy producers were dumping milk. The Wisconsin Department of Natural Resources, as well as the Department of Agriculture, Trade and Consumer Protection offered guidelines for dairy producers on how to handle any milk they were dumping.

For both Confined Animal Feeding Operations and non-CAFO farms, the preferred method was to dump the milk into a manure storage facility and then land spread it later. If producers were unable to do this, then they were advised to work with the DNR to obtain an approved land-spreading plan.

The reasons that producers were being asked to dump their milk included a COVID 19-related plunge in demand for dairy products, shrink in export markets during the global pandemic and upheavals in the processing community.

A farmer from Wagner Farms in Oconto Falls, Wisc., explained in a video about why farmers are dumping milk.

“While there is a plentiful supply of milk, processors have been making single-serve or bulk products meant for use in foodservice,” the dairy owner said. “Demand in food service has plummeted by 90 percent, while demand in retail for cooking or eating at home has grown by 200 percent, and the processors are trying to retool their plants to respond to this shift in demand.”

Vernon County dairy producer Travis Klinkner explained the export situation.

“With the restrictions put in place in response to the COVID-19 pandemic, our exports to Mexico have taken a big hit,” Klinkner said. “Exports to Mexico are currently down by 80 percent, and that is further exacerbating the current oversupply situation in American dairy.”

While all factors seem to be in play, the news that Kansas City-based dairy processor Dairy Farmers of America (DFA) would acquire some of the assets of Dean Foods, seems to have been the most immediate source of the orders for some producers to begin dumping milk.

“My understanding from talking with people in the industry is that DFA is asking some larger producers to dump their milk,” said Robert Nigh of the Wisconsin Farm Bureau Board. Nigh is a dairy producer based in Vernon County. “I have been told that the order to dump will be on a rolling rotation, so that no one dairy producer will be required to bear the brunt of it alone.”

Nigh said that he has been told that this is just a “temporary rebalancing of supply” in the aftermath of the DFA acquisition of some of Dean Foods assets. Nigh said he has also been told that a government relief program will reimburse producers for the milk they were asked to dump.

CAFOs asked to dump

According to an article in Wisconsin Farmer, Chris Elbe of Golden E Dairy believes that his 2,400-head dairy was targeted for dumping because, as a CAFO, they produce a large volume of milk. CAFOs are regulated, and have the manure storage facilities available to receive that volume of milk.

"Because of the regulations and the measures that occur for the DNR when milk is dumped, it's a lot easier for them just pick a CAFO farm, in this instance several CAFO farms, and just begin dumping milk into their lagoons because they're already regulated," said Elbe. "All they (producers) have to do is tell them how much they did end up dumping and where."

Co-ops proactive

According to organic dairy producer Travis Klinkner, who produces organic milk for Westby Cooperative Creamery (WCC), the dairy cooperatives are being proactive in asking their producers to voluntarily cut back production. 

“WCC is in better shape than a lot of dairy processors because most of our milk is used to produce products for retail versus foodservice sales,” Klinkner said. “From what I hear, most of the producers that are being asked to dump milk are over on the east side of the state and are sending their milk to Dairy Farmers of America (DFA).”

Klinkner has been working in the farming community for the last several years to stimulate conversation about cooperation amongst producers around supply management. He recently led an event, sponsored by the Vernon County Farm Bureau, to get farmers talking about what they could do to try to better match up milk supply with demand. 

“When I attended a presentation by Canadian dairy farmers, sponsored by Wisconsin Farmers Union, in March of 2018 about their supply management system, it really got me thinking,” Klinkner said. “I don’t think the Canadian system will work in America, but I do think some modified version of it is necessary.”

Klinkner said he has been reading up on supply management proposals from the U.S. Holstein Association and the Vermont Milk Association’s Growth Management Plan. In particular, Klinkner has joined other dairy producers to support the ‘Milk Market Balancing Program.’

Under this program, dairies who sign up for the program must reduce production based on the milk volume base from October 2019 to February 2020. Any dairy that achieves a 10 percent reduction will receive a $4.00-per-cwt payout for milk produced on the program. The proposed tart date for the program would be May 2020, and it would end six months later on October 31. It is proposed that the dairy cooperatives would administer the program. 

In answer to the question “where would the money come from?” program advocates point out that there is money set aside from the two-trillion-dollar CARES ACT.

“I like those proposals because they don’t advocate for the kind of large up front investments in purchasing quotas that the Canadian system uses,” Klinkner said. “Instead, they advocate for a ‘market access fee’ for producers who want to scale up production. Those fees would then be used to reward producers who choose to maintain their production levels.”

Klinkner says what he likes best about all three systems is that they are ‘farmer-driven.’ He says “there’s got to be a better way of doing things,” and “in America we have a government-driven system that doesn’t give the farmers enough voice in the process.” He said that the proposals from the Holstein Association and the Vermont Milk Commission offer “flexibility and forward thinking.”

“We need to foster more of a “we’re all in this together” thought process among dairy producers,” Klinkner said. “We need a situation where dairy producers can get a good return on their investments while being able to avoid additional investments in their production systems.”

Dean Foods sale

According to an article in Food Businsess News, Dairy Farmers of America (DFA), Kansas City, was the winning bidder to acquire most of Dean Foods’ assets as part of Dean Foods’s Chapter 11 auction process. With a bid of $433 million, DFA will acquire 44 of Dean Foods’ fluid and frozen manufacturing facilities.

Prairie Farms Dairy, Carlinville, Ill., will acquire eight processing plants, two of Dean’s distribution branches and other assets for $75 million. Mana Saves McArthur and Producers Dairy Foods, Inc., Fresno, California, will acquire plants in Miami, Florida, and Reno, Nevada, respectively. Harmoni, Inc. acquired the Uncle Matt’s juice business for $7.25 million.

Farm Bureau responds

The following statement came from Wisconsin Farm Bureau President Joe Bragger:

 “It’s with a heavy heart I make this statement. The slight optimism that was floating around at the beginning of the year for our dairy farmers has been buried.

“We have entered unprecedented times as a society. Our farmers, especially our dairy farmers, are being served a big dose of the sad reality we are living in with the COVID-19 pandemic. With depressed prices the last five years, our farmers were already stressed financially. The confirmed reports of milk dumping and processors asking farmers to cut back their production has only amplified the pressure.

“As a dairy farmer myself, I am living and breathing this tough time along with our members throughout the state. During this time the best thing we can do is communicate with those around us. I encourage you to reach out to your vendors, processors, suppliers and other stakeholders to have conversations about what plans are in place for the near future and how business will be impacted. Don’t forget to check in with your fellow farmers too.

“Dumping milk is not an easy thing to wrap your head around. However, if asked to dump milk I urge you to report it to Wisconsin Department of Agriculture, Trade and Consumer Protection so they can track the magnitude of this situation. Farmers should comply with the standards that DATCP and the Department of Natural Resources has laid out. Whether you have been asked to dump product or cut back on production, please ensure that you are keeping adequate records so there is an accurate accounting of your milk.

“I assure you that Wisconsin Farm Bureau is working with stakeholders on all levels to communicate our members’ needs. As an example, we joined a group of other Wisconsin dairy groups in urging immediate action by the U.S. Department of Agriculture to use the extensive purchasing power afforded it via the Coronavirus Aid, Relief, and Economic Security (CARES) Act to bring much-needed relief to the dairy industry. We will continue to work as hard as we can for our members during this unfortunate and unique time.”

Organic Valley

In November of 2016, Organic Valley and Dean Foods formed a joint venture to make Organic Valley dairy products available to more Americans. At the end of March of 2017, that venture opened for business, meaning Organic Valley Fresh milk brand (HTST) would be available to more than 140,000 retail locations serviced by Dean Foods’ distribution network. 

As the sale of Dean Foods assets unfolds, the relationship between Organic Valley and Dean Foods is also evolving.

“In anticipation of the sale of facilities, and as Dean Foods moves through the bankruptcy process, Dean Foods and CROPP Cooperative [Organic Valley] have been working together to unwind the parties’ joint venture, OV Fresh, and negotiate the continuation of contractual relationships thereafter the sale,” said Organic Valley media team member Elizabeth McMullen. “Our cooperative does not expect any material disruption to our OV Fresh HTST business, and anticipates engaging in a smooth transition for all customers seeking Organic Valley branded HTST products.”

McMullen explained that during this transitional period, Organic Valley HTST milk will continue to be delivered without interruption. The product is currently branded as OV Fresh. McMullen said that over time, the company will transition to the Organic Valley label. In the meantime, she explained, Organic Valley is negotiating contractual relationships for services by specific facilities.