(4434)#foodfodie | Dairy farmers forced to dump milk because of coronavirus-related closures

Dive Brief:

  • Wisconsin dairy farmers are being asked to dump tens of thousands of gallons of surplus milk, according to the Milwaukee Journal Sentinel. The coronavirus pandemic, which has shuttered restaurants and foodservice facilities nationwide, has closed milk processing plants or forced them to curb production. About one-third of the dairy products produced in Wisconsin are sold to foodservice.
  • The Dairy Farmers of America cooperative has agreed to pay farmers for the milk that is being dumped, but there is no timeline for how long the co-op will provide financial relief.
  • Anticipating most farmers will receive a call to dispose of their raw milk, seven of Wisconsin’s largest farm groups have asked USDA to step in and purchase the dairy products that would have gone to the foodservice industry under normal circumstances.  

Dive Insight:

The dairy industry has experienced a rough couple of years, and is taking yet another hit.

Despite the increase in shoppers stockpiling across the United States, it is not enough to make up for the drop in foodservice, so the demand for milk from Wisconsin overall is still shrinking. This loss only compounds the woes of an industry where the two of the largest milk processors in the U.S. recently filed for bankruptcy. 

Although reports in early March indicated the dairy industry was thriving as consumers hoarded milk, retail demand in the last two weeks has not been sufficient to offset losses sustained by the industry from the reduction of foodservice buyers, according to the National Milk Producers Federation.

"Over the last five weeks, the [USDA’s] estimate of 2020 milk prices reflect a drop of about $2.85 billion at the farm level,” Jim Mulhern, president and CEO of the policy group, wrote in a letter to Agriculture Secretary Sonny Perdue. 

In normal economic times, sales in the segment have been dropping. ​Overall sales of dairy milk dropped 15% from about $18.9 billion in 2012 to $16.12 billion in 2017, according to Mintel. At the same time, non-dairy milk sales in the U.S. increased 61% from 2013 to 2017. In fact, non-dairy milk has once again proved to be a winner during the COVID-19 crisis. In the first week of March, oat milk sales were up 347.3%, according to Nielsen data.

This increase in non-dairy, shelf-stable milk sales will be temporary, according to analysts at Bernstein. However, the impacts of COVID-19 on the traditional dairy industry may be further reaching. The Journal Sentinel reported in recent years, Wisconsin dairy farmers have lost money daily due to an oversupply of milk on the market pusihng prices down. Now, the market no longer has the capacity to even absorb the supply of raw milk from farmers.

While the Dairy Farmers of America has agreed to foot the bill for a period, its cash reserves are not infinite. This week, the cooperative was named the winning bidder in the bankruptcy sale of a substantial portion of Dean Foods’ business for $433 million. If the pressure from milk alternatives, innovative startups and deeply discounted private label dairy continues, the cooperative may not be able to hold all the pieces together and farms across America may have to continue shuttering operations. More than 800 Wisconsin dairies closed in 2019. 

Farmers and Mulhern are calling on government to step in and alleviate some of the unrelenting pressure. Both parties asked USDA to make additional dairy product purchases, and Mulhern suggested donating products to food banks. Mulhern additionally asked for the government to reopen signups for participation in the Dairy Margin Coverage program — which subsidizes farmers if their sales fall to a certain level relative to feed costs — to provide a safety net for small and medium-sized dairy producers.

Dairy is not the only portion of the agricultural economy to suffer in the wake of the COVID-19 pandemic. Beef and pork producers are also at the mercy of the virus, which has led to labor shortages and resulted in lagging demand both domestically and abroad. The Wall Street Journal reported the result has been falling U.S. cattle prices, which have gone down 19% so far this year.

But the milk industry has been hit particularly hard and will have a long road ahead in order to reestablish demand and recover from the financial onslaught. Producers that do survive may need to rethink their strategies.

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