Farmers reel as organic dairy giant dumps them

 

Several dozen organic dairy farms in Vermont and upstate New York, including 17 in Washington County alone, are looking for new buyers for their milk after Danone, the multinational corporation that owns the Horizon Organic brand, announced it will stop buying from them next summer. Joan K. Lentini file photo

 

By CRAIG IDLEBROOK
Contributing writer

 

One area dairy farmer says he’s kicking himself for not seeing what was coming.
He recalls hearing a rumor several years ago that Horizon Organic was considering eliminating many New England farms from its milk truck route, but he didn’t believe it. Even after Horizon cut the price it paid him by 10 percent a few years back, he still felt confident enough to invest in increased acreage and an additional robot to automate milking.

But he did worry a bit when one of the drivers described having to dump milk that went bad in half-full trucks on hot days. He said the driver told him there weren’t enough farms on the route to keep the milk cold enough to make it to Horizon’s processing plant in western New York.
“When you start dumping your product, and you’ve got to pay the people for it, you’ve got to do something soon,” said the farmer, who didn’t want his name published because he fears that speaking out could prompt retribution from the company — and could perhaps cause other dairy processors to shun him.

In August, the farmer was one of 89 organic dairy producers in New England and New York who received notice from Danone, the multinational corporate owner of the Horizon Organic brand, that the company would be terminating their contracts. The company said it wants to consolidate its trucking routes to include only farms within 300 miles of its plant in Elma, N.Y., near Buffalo.
The farmers were given the option to sign a final one-year deal with Danone, but they must find another buyer for their milk by Sept. 1, 2022. Many farmers have shied away from discussing their situation publicly because their contract with Danone prohibits them from divulging details of their business relationship.

The change affects 28 dairy farms in Vermont and 46 in upstate New York, mainly near the state’s eastern border — including 17 in Washington County alone.

Most of the farmers are now scrambling to find other buyers for their organic milk – and say they can’t afford to shift back to producing conventional milk, which commands much lower prices. Some are also struggling to reduce their debt loads and are finding that banks are unwilling to lend them more cash because of Danone’s notification.

 

Distance, trucking costs at issue
In a statement, Danone said it made the decision to drop many of its dairy farmers in the Northeast largely because of the cost of trucking milk to its processing plants.

“We will be supporting new partners that better align with our manufacturing footprint,” the company said. “We are committed to continuing to support organic dairy in the east, and in the last 12 months alone, we have on boarded more than 50 producers new to Horizon Organic that better fit our manufacturing footprint. This decision will help us continue providing our consumers with the products they love.”

Danone’s decision took many dairy stakeholders in the region by surprise. Although dairy processors had cut off some New England farms in the past, no one can recall a single company shedding so many farms at once. The action was more startling because the organic milk industry has long been perceived as offering more economic stability than the conventional milk market for small farmers in the region.

In Vermont, 29 percent of the state’s estimated 189 dairy farms produce organic milk, according to a 2020 state report. State Secretary of Agriculture Anson Tebbetts quickly convened a task force of more than a dozen dairy stakeholders to help provide resources and possible solutions for the affected farmers.

When Tebbetts contacted Danone, the company advised him it would be willing to reconsider its decision if viable milk processing facilities could come online before the August 2022 deadline, according to the task force’s meeting minutes.

Stonyfield Farm, another major processor of organic milk, has agreed to sign contracts with a handful of the affected farms in the region, and the state task force is working to come up with other possible alternative buyers for the milk. The goal is have some concrete options for farmers to consider by February, said Diane Bothfeld, the state Department of Agriculture’s director of administrative services and dairy policy.

“We kind of want to make sure we’ve got options that are vetted, so they are not just exploratory,” Bothfeld said.

 

Final year’s price at issue
In New York, dairy industry stakeholders also are working to assess what resources and options are available for the affected farmers. The list of those being cut off by Horizon includes roughly 20 percent of the farms in Washington County alone.

The Northeast Organic Farming Association of New York says it has been reaching out to those farmers to help.

One of the first tasks is to help farmers verify the price Danone will pay for milk in the severance contract, said Katie Baildon, the group’s organic policy coordinator. She said it appears a cover letter the company sent to some farmers listed conventional milk prices without adding the premium for organic milk.

“What we’ve been communicating to the impacted farmers is that they need to reach out to Danone/Horizon Organic and make sure they are getting the correct price,” Baildon said.
U.S. Sen. Charles Schumer, D-N.Y., has written a letter to Danone posing a series of questions about the decision. Schumer asked Danone to detail what aid it will be offering the farmers -- and the exact number of farms affected. In a press release, the senator underscored the negative consequences Danone’s decisions will have on regional dairy farmers.

“For an industry that has razor-thin margins as it is and saw historic losses during the Covid crisis, for many family owned organic dairy farms, losing their contracts with Horizon Organics will be the final pull on the rug under them,” Schumer said. “Danone must do right by these farms and ensure their long-term economic viability.”

Advocates also are attempting to apply consumer pressure at the national level. Several organizations representing organic consumers have joined a coalition that so far collected nearly 13,000 signatures for a petition sent Oct. 26 to Greg Wolf, the chief executive of Danone North America. The petition reminds Wolf that Danone is a certified B corporation — and that such companies pledge to create value for non-shareholding stakeholders like local communities and the environment.

The group’s petition asks Danone to revisit its decision to cut off many farmers in the Northeast, give farmers an additional six months before termination — and to offer a severance package or contract retirement package.

 

Organic refuge under pressure
Danone’s exit may seem like deja vu for many dairy farmers who shifted to organic production methods to avoid some of the turbulence of the conventional milk market. As New England’s smaller conventional dairy farmers faced lower prices and increased competition from larger farms in the past few decades, many opted to seek organic certification as a way to stay in business. The result is that many enjoyed stable pricing for their milk as consumption of organic milk grew.

But some say that period of stability might be nearing an end for many small dairies, as organic milk companies have consolidated. Horizon Organic, one of the earliest large-scale organic dairy processors, was first bought by Dean Foods in 2004, then was spun off as a subsidiary of Dean and became part of WhiteWave Foods in 2012. WhiteWave, in turn, was sold to Danone in 2017, but only after agreeing to sell off another dairy brand, Stonyfield, because of concerns raised by federal antitrust regulators that the WhiteWave acquisition would cause lack of competition in the dairy market.

As organic dairy brands consolidate, there has been increased pressure to make sure that dairy delivery routes are as economically efficient as possible. Although Danone’s decision is stunning because of its scope, other milk companies have opted to terminate contracts with some of the region’s more remote farms in recent years, Baildon said.

“We’ve been seeing processors cancel contracts with organic dairy producers over the years,” she said. “This is more of like an inflection point and not, maybe, a change.”

As the organic milk market was growing over the past five to 15 years, large-scale organic dairies in the West have brought more cows online, Baildon said.

But organic milk consumption in the United States went flat from 2016 to 2018, before decreasing in 2019 and then rebounding in 2020, according to USDA statistics. The milk from all those extra cows out West has created downward pressure on pricing for dairy farms in the Northeast.

“That milk is sort of flooding other markets, and some of the processors are turning to that cheaper milk,” Baildon said.

 

Loophole benefits larger farms
The U.S. Department of Agriculture rules for organic dairy farming also may be creating a competitive imbalance for smaller dairies in New England, said Ed Maltby, executive director of Northeast Organic Dairy Producers Alliance. Maltby contends large-scale farmers are taking advantage of several longstanding loopholes in USDA regulations.

Maltby and others have long advocated closing one of these loopholes, known as the “origin of livestock” rule. The rule originally was created as an exception to organic standards – an exception intended to give conventional farmers an easier pathway to transitioning their existing herds to organic standards.

“The farms and the farm families invested ten, 20, 30 years in breeding these animals,” Maltby explained.

But the rule, which was meant to be a one-time exception, has been unevenly enforced by some state regulators, Maltby said. Large-scale dairies have used the ambiguity to continually bring in conventional cows to “transition” to organic, a move that can save large-scale milk producers hundreds and in some cases several thousand dollars per cow, according to estimates by Cornell University’s Organic Dairy Initiative.

In 2018, the co-op behind the Organic Valley brand wrote to the USDA to complain that Idaho regulators were allowing calves born of organically raised cows to be reared conventionally and then transitioned back to organic standards. Such liberal interpretations of the rule are too common, Maltby said.

“Where there’s money, there’s capacity to bend the rules,” he said.
Although previous attempts to close this loophole in 2015 and 2019 have foundered, Maltby and other advocates say they hope a new rule change proposed by the USDA will close fix the problem by 2022.

But Maltby said he worries rule change may come too late for smaller farms.
“The damage is done,” he said. “The price of organic milk has dropped, and the larger organic dairies are in control.”

 

Long- and short-term help
New England dairy advocates are recognizing they likely will need to work across state lines to help the region’s farmers, and the Vermont and Maine task forces created because of the Danone announcement are sharing information.

To ensure the viability of organic milk farming in New England, Baildon said stakeholders are attempting to find ways to ensure that there is more capacity for milk processing in the region.
“Having more processing access for smaller, more spread-out farms is going to be one of the needs that needs to be addressed,” she said.

Advocates often are simultaneously working on short-term and long-term solutions to help stabilize the affected farms and their families. They say the short-term help needed goes far beyond ensuring access to credit lines.

A notice like the one sent by Danone can cause high levels of anxiety among farmers, farming families and their communities, said Kevin Channell, a coordinator with Farm First, a program set up by the Vermont Agency of Agriculture, Food and Markets to support the emotional health of farm families.

“For them to have their one buyer disappear is catastrophic to their bottom line,” Channell said. “They quickly go into damage control. They’ve got to find a near-term solution, and the long-term stress of that, and the vulnerability they have felt ... begins to emerge.”

Farm First was created after a several Vermont farmers died by suicide in the midst of an earlier milk-pricing crisis more than a decade ago, Channell said.

He said he is working to encourage farmers and their family members who are affected by the Danone decision to seek help in shouldering the resulting stress.

“If mentally you are having trouble with coping and reckoning with your future, reach out now rather than later,” he said.

Farmers and their family members seeking mental health support in Vermont can reach Farm First at its toll-free hotline at 877-493-6216 or at www.farmfirst.org/get-our-help.

Farmers and farm family members seeking mental health support in New York can reach FarmNet at 800-547-3276 or www.nyfarmnet.org.

For additional resources for farmers and their families to seek mental health support, call FarmAid at 1-800-FARM-AID.

Anyone facing an immediate mental health emergency should call 911 or contact the National Suicide Prevention Lifeline at 800-273-8255.