Dean Foods, one of nation's largest dairy processors, files for bankruptcy

Rick Barrett | Milwaukee Journal Sentinel

Dean Foods, one of the nation’s largest dairy companies, has filed for bankruptcy protection, saying that its business has suffered from continued declines in consumer milk consumption.

The Dallas-based company also said it’s in advanced discussions with Dairy Farmers of America about selling “substantially” all of its assets to the cooperative.

Dairy Farmers of America buys milk from Wisconsin farmers and sells some of it to Dean Foods, which has a processing plant in De Pere and plants in Illinois.

In a statement, Dean said it expects to continue providing its customers, including retailers, with an uninterrupted supply of dairy products.

Dean filed for Chapter 11 bankruptcy protection in federal court in the Southern District of Texas. The company said it plans to use the Chapter 11 proceedings to keep the business going and that it has secured commitments for $850 million in debtor-in-possession financing, a type of funding for companies under financial distress.

Dean, known for its Milk Chugs product line, has lost money in eight of its last 10 fiscal quarters and has struggled as more consumers have turned to plant-based beverages. The company also lost business when Walmart opened a milk bottling plant in Indiana that now provides milk to Walmart stores in five states.

"I think that certainly was a blow for them, but it was only one of many they've had," said Mark Stephenson, director of dairy policy analysis at University of Wisconsin-Madison.

Dean Foods has about 15,000 employees nationwide.

"The actions we are announcing today are designed to enable us to continue serving our customers and operating as normal as we work toward the sale of our business," Eric Beringause, president and chief executive officer, said in a statement.

"Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption," Beringause said.

Sales of milk as a beverage have barely risen once ince 1985, according to U.S. Department of Agriculture data.

Beverage companies, seeking to please a multitude of palates, flooded the market with sports drinks, energy drinks, plant-based sodas, fruit juices and designer coffees. A typical snack bar today might carry watermelon antioxidant infusion alongside mango and hibiscus herbal tea.

Just in the last half-dozen years, the average grocery store has added nearly 600 new beverage options to its coolers and shelves, according to Paul Ziemnisky, an executive vice president at Dairy Management Inc., a nonprofit funded by government-mandated payments from dairy farmers to promote milk products.

Soy. Almond. Cashew. Coconut. Rice. Flax. Even hemp. Sales of those plant-based drinks grew 61% from 2012 to 2017.

In March, U.S. Sen. Tammy Baldwin, D-Wis., reintroduced legislation to prevent plant-based drinks from being labeled as milk. The Dairy Pride Act would require the FDA to issue guidance for nationwide enforcement of mislabeled imitation dairy products and report to Congress in two years on its progress.

“Imitation products have gotten away with using dairy’s good name for their own benefit,” Baldwin said. “Mislabeling of plant-based products as milk hurts our dairy farmers.”

Supporters of the Dairy Pride Act say some consumers mistakenly equate the nutritional value of flaxseed milk or almond milk with cow's milk. They say crushed nuts or seeds mixed in water are no substitute for genuine milk. They also say the issue has significant public health implications because imitation dairy products lack consistent nutritional standards.

Critics of the proposed law say it's more about propping up the dairy industry than looking out for consumers.

"Tragically, the dairy lobby is avoiding their industry's real economic troubles of overproduction, consolidation ... and a lack of innovation," said Michele Simon, executive director of the Plant Based Foods Association, which represents more than 130 companies. "It may be easier to blame their troubles on the plant-based foods industry, but it's a disingenuous distraction from real issues and a disservice to dairy farmers."

The milk from Wisconsin farms is mostly used to make cheese, but farmers have still been caught in a five-year downturn in prices fueled by overproduction and collapsed export markets.

In the first half of the year, 449 dairy farms were lost in Wisconsin, nearly 25% more than during the first six months of 2018 — a year that saw the loss of two farms a day.

Some of the blame has been placed on trade wars that have soured export markets.

Dean’s bankruptcy is “another sign of the issues that we are facing here in the dairy industry. Farmers and processors are all in the same boat,” said Darin Von Ruden, president of the trade group Wisconsin Farmers Union and a dairy farmer from Westby.

Fortunately, 2019 is ending on a better note for dairy farmers as milk prices have been on the mend. Prices should continue to rise in 2020, according to Stephenson.

"The problem is we have had such badly damaged balance sheets on dairy farms over the last couple of years, they need some extra special good years to catch their breath again," he said.