Declining demand has pushed down prices of dairy products coming from cow’s milk, which in turn has put may farmers out of business.
Although 90 percent of American adults drink milk, outside of the U.S. only about 25 percent drink cows’ milk, for a variety of reasons in different parts of the world.
All of this has reduced demand for milk products coming from U.S. cows: Sales have declined by 13 percent over the past decade.
And during this same time period, the average price of milk in the U.S. has plummeted to its current 10-year-low of $3.23 per gallon.
And demand for dairy products is expected to continue to decline until 2020.
Already, more than half of the dairy farms in the United States have closed as demand for their products has dried up.
Dean Foods and Dairy Farms
In 2017, Dean Foods, a leading dairy and produce provider in the U.S., canceled more than 100 contracts with small dairy farmers across eight states.
Among them were Carilynn and Curtis Coombs. Like she told CNBC, “It was all about continuing the family business, doing continuous improvements to our facilities, growing our herd to include better genetics, better cows.”
She and her husband’s dream of continuing their family business were broken when they received a letter from Dean Foods, ending their contract. Unfortunately.Dean Foods had been the only buyer of the Coombs’ milk supply.
The Letter
The letter read, “While we greatly appreciate all your hard work and the milk you have provided to Dean Foods throughout the years, I regret to notify you we must cease purchasing milk from your dairy farm. Our agreement will end in 90 days.”
The company cited competition as one of the reasons it had to terminate their business.
“First and foremost, a retailer’s new class one fluid processing plant is coming online in the region, significantly decreasing our production as milk volume is moved from our facility to this new plant,” the letter from Dean Foods read.
The Walmart Effect
Although Dean Foods didn’t mention any names in its letter, CNBC speculated that the competitive pressure might be coming from Walmart.
The retail behemoth is opening a processing plant in Fort Wayne, Indiana — within the same general region as the 100-plus other farmers who had their contracts with Dean Foods terminated.
Walmart’s processing plant will bottle a store brand called Great Value — with milk sourced from independent farmers and three co-ops within 210 miles of the facility.
Complex Pressures
Apparently Dean Foods processes milk for Walmart stores in other parts of the country, in spite of losing some business within the Midwest.
And the competitive pressures appear likely to continue, if not intensify, as other large grocery chains like Kroger make moves like what Walmart is doing.
Following Dean Foods’ termination of business with the Coombs, they had to resort to selling 64 of their cows, and now have only 36 of them left.
Dean Foods’ cancellations of contracts included another 19 farms in the same state as the Coombs, Kentucky.
Six of them were forced to sell their farms altogether, while another 14 continue to look for buyers — whether for the milk, the cows or the businesses themselves.
Sadly, this trend hitting the milk industry isn’t likely to slow down.
Readers, how much milk and dairy products do you consume — and how has this changed over time for you?
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