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The Dairy Industry in Crisis

By Rep. Frank Ryan (R-Lebanon)
In early March dozens of local dairy farmers received word from Dean Foods, Swiss Premium, that their milk will no longer be purchased by the local processor.


Our estimate is that over 100 farmers statewide will receive such letters from Dean Foods and other processors. The problem is a worldwide glut of milk.  The causes of the glut though are fairly complex.


This crisis will affect everyone. Our food supply and the plight of those who provide for us so well are a delicate balance.  The concern about our dairy farmers, who have always provided for us, should be foremost in our minds.


Once capacity in the food industry is lost, it is lost forever. One only needs to look at what happened with Whole Foods recently when a new distribution software system, Order to Shelf (OTS), was allegedly causing stocking problems to see how delicate the food distribution systems can be.


While an accurate number of days of food available in the United States is not easily available, it is a delicate balance numbered in weeks, certainly not months.


The letters of termination to our dairy farmers is just the beginning of the crisis.  The industries who depend upon dairy are numerous and the cascade effect in agriculture of this dairy crisis should not be underestimated.


Recently, our Financial Rescue Caucus of the Pennsylvania House of Representatives met to examine the problems and possible immediate solutions that may be offered to alleviate the problem. In my years as a CPA and helping companies avoid bankruptcy, it was important to examine those immediate actions that can be taken to soften the blow of such devastating news.


Our caucus agreed that we would provide information as well to the executive branch as well as to the agricultural committee of the House of Representatives for short-term and longer-term fixes to our farmers’ problems.


Providing information to us were a distinguished panel of experts to include Mike Firestine, Senior Vice President, Fulton Bank and responsible for agricultural lending; Betsy Albright, Chief Financial Officer of Harrisburg Dairies; and Carl Herbein, principal of Herbein Associates, dairy industry consulting expert.  


Congressman G. T. Thompson provided background information and research and articles from Sherry Bunting and George Wolff were used as well.  All three are recognized experts in the field.


A recurring theme from everyone who presented was that this problem of oversupply was not going to go away. Extensive increases in production in Arizona, Texas, New Zealand, and Europe have all contributed to the oversupply.


Additionally, it was noted that there has been a reduction in demand among younger people which exacerbates the problem.


The constancy of the oversupply and concurrent demand reduction are important to accept so that a dairy farmer’s responses can be well informed and timely. In my years of helping companies avoid bankruptcy the unwillingness to accept reality of the marketplace can be fatal.


Our group concluded and the advice we received was that the Center for Dairy Excellence should provide transition team expertise to those farmers affected.  In other words, the group concluded that unless the transition to other sources of agriculture are completed timely, the farm family risks losing all its equity and the probability of bankruptcy increases exponentially.


Please keep in mind that when a dairy farmer loses their primary customer not only is their business at stake but so is their home since they live where they work.


Additionally our group noted that the use of the “Pennsylvania preferred” designation on our foods to show Pennsylvania’s sourced food was critically important. I was surprised to note how difficult it is to determine where our food is coming from.


There was an extensive discussion as well about the Pennsylvania Milk Marketing Board as well as the federal orders, the systems under which dairy pricing are established. The consensus of the testifiers was that the PMMB was helpful in regulating the market but that opinion with not unanimously shared.


We were fortunate that one processor agreed to pick up two or three of the affected dairy farmers. We will be reaching out as well to other consumers to see what options may be available.


Finally, the group noted that regulatory approval of new cheese production facilities was inordinately long, in one case over seven years, so we will be asking DEP for assistance and advice. This is a longer-term solution and will not help the current crisis.


To use the words of my dear friend George Wolff, “understanding this industry is like understanding the tentacles of an octopus and if you do not understand it all you should be extremely careful of the actions you take because of unintended consequences.”


The one consequence though that is certain is that dozens of dairy farmers have lost their primary customer and we may lose a very valued member of our community unless we all work together.

Frank Ryan, CPA, USMCR (Ret) represents the 101st District in the PA House of Representatives.  He is a retired Marine Reserve Colonel, a CPA and specializes in corporate restructuring.  He has served on numerous boards of publicly traded and non-profit organizations.