No. 1 milk company declares bankruptcy amid drop in demand

Jugs of McArthur Dairy milk, a Dean Foods brand, are shown at a grocery store, Tuesday, Nov. 12, 2019, in Surfside, Fla. Dean Foods, America's biggest milk processor, filed for bankruptcy Tuesday amid a steep, decades-long drop-off in U.S. milk consumption blamed on soda, juices and, more recently, nondairy substitutes.

Dean Foods intends to keep paying farmers and employees while it reorganizes under Chapter 11 protection.

The major dairy processor filed the paperwork on Tuesday in U.S. Bankruptcy Court for the Southern District of Texas.

Dean also announced that it is in “advanced discussions” about selling its assets to Dairy Farmers of America.

In the meantime, Dallas-based Dean has received $850 million from existing lenders, led by Rabobank.

Such debtor-in-possession financing is often a critical factor in a company’s ability to continue operating during the bankruptcy process.

Dean intends to continue normal business operations and pay farmers in full, but suggested suppliers wait a few days after the Chapter 11 filing to process outstanding checks because the company’s accounts may be temporarily frozen.

Dean’s brands include DairyPure, TruMoo, Swiss Premium and Lehigh Valley Dairy Farms. The company owns Friendly’s ice cream manufacturing and retail business but not its restaurants.

Dean also licenses Land O’Lakes’ name for certain products.

Dean has faced financial and public relations challenges in recent years while dealing with a multiyear downturn in the dairy economy.

The company’s stock price has crumbled this year, and its trading has been stopped on the New York Stock Exchange.

Last year, the company terminated the contracts of more than 100 farms nationwide.

In Pennsylvania, where 42 farms were axed, industry and government leaders launched a frantic search that found new markets for all of the farms that chose to continue milking.

Dean also closed several plants in 2018, including Meadow Brook Dairy in Erie, Pennsylvania, and Garelick Farms in Lynn, Massachusetts.

Around this time Walmart, once a major customer of Dean, opened its own processing plant in Fort Wayne, Indiana.

In 2016, a former Dean board chairman pleaded guilty in an insider-trading scandal that involved a high-powered sports gambler, who got five years in prison, and pro golfer Phil Mickelson, who did not face criminal charges.

Dean made an unusually public break with the International Dairy Foods Association last month, saying that the trade group had not taken a strong enough stance against plant beverages being labeled as milk.

These novel drinks are giving competition to cow’s milk, but Dean’s claim was curious because the company is the majority shareholder in Good Karma, which produces a plant-based drink called Flaxmilk.

Dean previously held a majority stake in WhiteWave, which then owned Silk soy milk.

Other national dairy brands have faced PR setbacks this year as well.

Fairlife was embarrassed by undercover videos alleging animal abuse at the company’s flagship Fair Oaks Farms.

The farm fired four workers and requested a third-party audit, which Fairlife said found no evidence of animal cruelty.

An activist recently sued Ben & Jerry’s, arguing the company deceives customers about how much of its milk comes from “happy cows” that live on farms enrolled in an animal-welfare program.

The company, which touts its social-justice values, has been telling news organizations that it does not comment on pending litigation.

On Twitter, the Pennsylvania Milk Marketing Board said it is working under the expectation that the four Dean plants in the state, and those in neighboring states, will keep running.

The agency said it aims to maintain current audits of Dean plants to ensure that Pennsylvania farmers get paid, and to monitor the legal proceedings to make sure the company’s milk dealer bonds remain in effect.

Under state law, milk buyers must provide security equal to one month’s purchases from Pennsylvania farmers. The money is used to pay farmers if their buyer fails to pay.

The board recently made its first claim against a milk dealer bond in over 20 years when a Chambersburg creamery closed and was unable to compensate farmers for September milk.

Lancaster Farming