Dairy Co-op Investing in Processing Plants

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New Delhi, February 03, 2019:  Processing plants are a key link in the dairy supply chain, the place where raw milk from the farm becomes the pasteurized, labeled and packaged products that consumers pick up at the store.

It only makes sense, then, that a major cooperative has been buying up dairy plants to shore up markets for its members.

“One of the things that’s going to be important to everyone down the road is that farmers have more places to take their milk,” said Brad Keating, chief operating officer for Dairy Farmers of America’s Northeast Area Council.

Keating spoke at the Mount Joy Farmers Cooperative Association’s annual meeting on Wednesday at the Martindale Reception Center.

Mount Joy, with 316 members in southeastern Pennsylvania and a few counties in Maryland, is a member cooperative of DFA.

In roughly the past six years, DFA has bought and upgraded four fluid plants in the Northeast — Cumberland Dairy in New Jersey, Dairy Maid Dairy in Maryland, Guida’s Dairy in Connecticut, and Oakhurst Dairy in Maine.

Though fluid milk production has been declining for years, Keating believes the product still has a future based on quality, localness and smart marketing.

“We’re not ready to give up on Class I,” or fluid milk, he said.

The co-op has also invested millions in its plant in Middlebury Center, Pennsylvania, increasing capacity there by 40 percent.

Adding processing capacity might not seem like an obvious move after four years of pain in the dairy industry.

Dean Foods closed fluid plants in Erie and Massachusetts last year. By Keating’s estimate, that move idled 50-60 million pounds of capacity.

But doubling down on fluid milk has paid off with DFA’s four newest Northeastern plants.

Before the purchase, the plants took almost none of the co-op’s milk. Now they process 60-70 million pounds of milk per month.

DFA also bought a failed dairy plant in western New York and flipped it to HP Hood.

That company is bringing the plant online to produce extended shelf life milk, a Class I product.

DFA is making a major investment of its own in extended shelf life products, which Keating said meet consumers’ interest in buying smaller packages.

Of course, DFA isn’t placing all its hope in fluid milk.

The co-op recently launched the Craigs Creamery brand to market milk from a plant it built in western New York.

“Any place that we can look to figure out how to spend money wisely to re-invest, we’re going to do it,” Keating said.

DFA delivers milk to a number of yogurt, cheese and balancing plants.

It certainly doesn’t own all of those plants, but co-op investment and ownership in processing gives co-op farmers an added degree of certainty in those markets, Keating said.

Getting milk to those plants will be increasingly costly this year.

Mount Joy saw increases in fuel and insurance costs, driver wages, and turnpike tolls last year, said Kurtis Groff, a partner at accounting firm Simon Lever.

Given those rising costs, “the closest milk to the market will have a natural advantage, in my view,” Keating said according to lancasterfarming.com.

On occasion, though, some co-ops have been desperate enough to avoid dumping milk that transportation costs fall to secondary importance, he said.

DFA is also considering changing driver responsibilities.

“We’re finding some drivers like picking up milk and some drivers like delivering. Some don’t like doing both,” Keating said.

The co-op is also looking at ways to make milk sampling on trucks more efficient and perhaps more accurate.

Fortunately, after a string of bad years, milk production is finally leveling off industrywide, and cow numbers are falling.

That should take some pressure off the market, Keating said.

Milk prices may increase this year, but not as much as producers would like.

“There does seem to be some light at the end of the tunnel,” said Don Risser, the Mount Joy co-op president.

Mount Joy members’ 13th-month checks, distributed at the annual meeting, more than doubled this year, in large part because the co-op was receiving a patronage payment from DFA for the first time, Groff said.

Also at the annual meeting, Stover Farms of Carlisle received Mount Joy’s Superior Management Award.

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