Time to Break DFA/DMS Stranglehold Supplying Milk to Chobani Yogurt in NY
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Time to Break DFA/DMS Stranglehold Supplying Milk to Chobani Yogurt in NY by Pete Hardin DMS Service Fee to Chobani: About $1.50/Cwt.? New yogurt plant constructions and expansions are morphing the North - east into a milk-deficit region. Recently Class II (cultured products) demand for The Northeast dairy industry’s biggest secret: what “service fee” does farm milk has eclipsed Class III (cheese) milk use in the Northeast federal milk Agro Farma (Chobani’s parent firm) pay to Dairy Marketing Services, atop order. Yogurt plants are emerging as THE new driver of farm milk demand in monthly federal milk order prices for Class II milk? New York and the Northeast. That fact is critical, in view of sky-high marketing charges that DMS The Northeast is overbuilding yogurt plant capacity, relative to available assesses producers whose milk goes into the Chobani yogurt plant in east-cen - future milk supplies. Mega-trends at work in the Northeast dairy industry tral New York. Obviously, DMS is not recovering its marketing costs from include a shifting raw milk supply-demand dynamic. Future realities will see the service fee assessed Chobani. dairy plants chasing scarce milk supplies – a factor that should benefit dairy pro - Our sources’ “best guess” is that Chobani pays DMS a “service fee” of ducers’ net milk checks. But notions that tighter milk supply-demand “ should ” around $1.50 per cwt. Meanwhile, many producers are paying around that benefit dairy farmers don’t follow normal logic in New York State. Milk marketing amount (and often more), in the form of hauling costs, stop charges, co-op dues, in New York State has historically spilled red ink onto dairy farmers’ balance sheets. reblends, etc. The “spread” between Chobani service fee to DMS and market - That state’s dairy history of littered with the carcasses of failed dairy co-ops like ing costs assessed to dairy producers whose milk goes into Chobani yogurt is (NEDCO) and massive deductions from farmers’ milk checks by many others. more than $3.00/cwt., The Milkweed estimates. That’s absurdly inefficient and Secrecy surrounds many raw milk supply relationships. Example: how much inequitable. Part of the problem is DMS’ bloated cost structure. yogurt industry giant Agro Farma – which produces and markets Chobani yogurt – pays Dairy Marketing Services (DMS) for raw milk is the biggest secret in the legislator passed – with a single joint hearing – a quickie law that eliminated region’s dairy industry. Dairy farmers living within a few miles of the Chobani plant local zoning authority for approving Concentrated Animal Feeding Operations in east-central New York are paying extortionate milk hauling charges – well over (CAFOs) from townships and counties. That law created a committee under the $1.00 per hundredweight – for trucking their milk to the giant yogurt facility. state agriculture department to oversee permits to build CAFOs. Chobani’s yogurt plant at South Edmeston, New York currently takes in Impetus for these changes came from a dire shortage of farm milk in Wis - from six to seven dozen trailers of farm milk daily. Word is that Chobani wants consin to fuel the state’s cheese plants. Around 2004-2005, Wisconsin cheese and needs more milk: probably another two to four dozen long trailers’ worth plants were at about a “17% protein deficit” – according to a study conducted most days. Thus, even before even more yogurt plants come on line in New by Mike Brown, a respected dairy industry consultant. York State and the Northeast … farm milk supplies are T-I-G-H-T. Despite bet - In other words, back then, Wisconsin cheese plants had to rely on “for - ter crops in 2012 (than 2011), many New York dairy farmers have taken much eign” (i.e., out-of-state and out-of-country) sources for 17% of the proteins that the same financial “red ink bath” as their fellow producers in other states this ended up in cheese vats. (Note: Wisconsin’s “protein deficit” for cheese plants year. Without a dramatic improvement in net profits for milking cows, the is estimated still in the low double-digits.) Northeast faces a serious erosion of dairy farmers in coming months. USDA prices yogurt plant’s milk as Class II When done, PepsiCo-Mueller plant to be bigger than Chobani Farm milk processed into yogurt is regulated as a “Class II” product by A joint venture yogurt plant now under construction in Genesee County, USDA’s federal milk order program. Other Class II products include: cottage New York, is hailed as the “biggest yogurt plant in North America” when com - cheese, sour cream, and ice cream. Class II products are priced at about 65 cents pleted. That joint venture involves PepsiCo and Mueller (a German dairy firm). per pound above the prevailing month’s Class IV (butter-powder) price. In the If the PepsiCo-Muller plant eclipses Chobani’s facility in eastern New York, Northeast, Class II prices lag behind Class I (fluid) prices by about $2.00 per hun - then it’s easy to project daily needs for an additional 100-150 trailers of farm dredweight. milk per day. That expanded volume equals the average daily milk production Recently, expanded demand for Northeast farm milk in yogurt production has for roughly 85 ,000-120 ,000 Holstein cows. And the PepsiCo-Muller yogurt pushed the percentage of Class II utilization above the region’s historically higher plant now under construction in western New York is only one of several new Class III (cheese) milk needs. This change in recent months – to greater demand constructions/expansions of yogurt facilities in the region. for Class II milk than Class III – will be future reality. According to November How will future milk supplies meet needs for the expanding yogurt facilities? 2012 data from the Northeast Federal Milk Marketing Order (Order #1), Class II And how will regional dairy farmers financially benefit? (cultured products) demand required 25% of all milk pooled in the region. In November 2012, regional cheese plants used 23% of all milk pooled on Order New York State politicians hail yogurt plants’ new jobs 1. (Note: Unlike numerous other federal milk orders, the Northeast did not appear to This past summer, New York Governor Andrew Cuomo (D) summoned a experience widespread de-pooling of Class III milk during November 2012 .) special conference in Albany to explore how to grow milk supplies to meet future needs for yogurt plants. New York State politicians hail the new con - “Yogurt milk price equity” essential for producers’ survival structions and expansions of yogurt plants as employment boons for rural New In the midst of Northeast dairy leaders’ and politicians flapping their gums York. Trouble is: those jobs won’t happen without milk supplies to fill those about all the increased raw milk demand and new jobs to be created by dramat - new plants. The single greatest factor that correlates with dairy plant profitabil - ic expansion of yogurt plants, farm milk prices are scarcely mentioned. The “Big ity is how close to full capacity an individual plant operates. Boys” – the yogurt manufacturers, their subservient politicians, and New York At that August 2012 “yogurt summit” in Albany, political considerations State dairy co-op officials – are silent need for improved milk prices to spur state tightly controlled the agenda. Virtually zero comments focused on raising farm farm milk production. In five years, it’s likely that farm milk processed into milk prices to meet expanded needs for local milk production. The notion of yogurt could exceed volumes processed into Class I in the Northeast. paying dairy farmers more money for their milk to boost the region’s overall Achieving “price equity” for dairy farmers to sustain New York State’s yogurt milk output is a subject generally avoided . boom is absolutely essential to provide adequate farm milk supplies to fill envi - New York State’s dairy politics have always been dirty, weighted in favor sioned yogurt plant capacities (and jobs) in the near and medium-term future. of Dairylea Cooperative’s undue political influence, which continues to this day. Without a big boost in regional milk output, the yogurt plants will struggle. The major player behind the scenes at last summer’s Albany “yogurt” was one To summarize: yogurt is the fastest-growing major dairy product category. of Gov. Cuomo’s most trusted insiders: Larry Schwartz. Schwartz engineered From January-November 2012, U.S. yogurt production totaled 4.1 BILLION the yogurt summit last August. Schwartz is related, by marriage, to Dairylea pounds – a 3.9% gain compared to 2011’s first 11 months. Yogurt is the most Co-op CEO Greg Wickham. Dairylea is a partial owner of and operates Dairy profitable dairy product, when measuring the growth of value from farm milk Marketing Services, LLC. DMS is the raw milk marketer holding an exclusive prices to retail prices. U.S. yogurt growth is poised to grow – for several rea - contract to supply Chobani’s massive plant at South Edmeston . sons, including perceived health benefits, tastes and convenience. The U.S. per- Chobani has New York politicians well-lubricated. Why not? Chobani is the capita yogurt consumption fall several times below western Europe’s figure – greatest success story in the history of dairy product marketing in the past 100 years, demonstrating room for possible dramatic growth as the American public in the analysis of The Milkweed . Chobani has grown from zero sales in 2006 to becomes further attuned to the health and wellness benefits of yogurt. That’s presently command a 19% market share of total U.S. yogurt retail sales. Chobani has why soft drink giant PepsiCo has selected yogurt as its first dairy investment.