by Cindy Sorensen/Founder, The Grocery Group
The dairy industry is in crisis as I write this month’s column. Currently, 95 percent of the U.S. population is under varying levels of “stay-at-home” orders. Most restaurants, coffee shops and schools have been shut down to help slow the spread of coronavirus; only essential businesses may remain open. This includes grocery stores and pharmacies.
As a result, shoppers have been flocking to grocery stores to stock up on many items, including canned fruits, vegetables and meats, pasta, cleaning products, toilet paper and dairy products—specifically, yogurt and fluid milk.
Food banks have been inundated with people whose incomes have been affected by this crisis. They are in need of food, especially nutrient-dense milk and other dairy products.
The good news—when consumers spend time at home, milk and other dairy products find their way on to the dining table.
The unfortunate news—retailers have been limiting milk purchases to two gallons per shopper.
Why is milk being rationed at retail? I found a disconnect between this action and what I knew was happening on dairy farms. There is no supply issue with milk. Dairy farmers continue to produce an abundance of it.
But during this pandemic, co-ops are asking dairy farmers to reduce the supply by dumping the milk their cows are producing. Farmers’ costs to operate have significantly risen. They can’t sell their milk; supply has increased; the on-farm price for milk has plummeted; and the cattle market for culling cows is drastically low.
This has put dairy farmers into a precarious financial position. Unfortunately, with the closing of foodservice and schools, the processors have lost a large share of volume.
Why can’t this lost foodservice volume be redirected to retail? The answer—there is a production line and capacity issue. The packaging used for foodservice and school milk is different from retail packaging and requires its own specific processing lines at a milk processing facility.
The current lines for fluid milk packaged for retail are running 24/7 to try to meet the demand in stores. There is no excess processing capability in the plants that are open. Therefore, retailers must limit their shoppers. I’ve heard but can’t confirm retailers have been put on quota by their processing partners, and deliveries have been limited as well.
For several years, milk consumption has been on a steady decline. As a result, the dairy industry has seen the closure of many processing plants. In 2019, two large milk processors, Dean Foods and Borden Dairy, filed for bankruptcy.
These bankruptcies have caused processing capability to decline, leaving the current availability unable to handle the increase in demand.
National dairy industry associations are working with the government to develop relief programs for dairy farmers.
In the meantime, could there be a short-term focus on reopening closed processing facilities to fulfill the increase in consumer demand and to financially help dairy farmers by paying them for the milk they are otherwise being asked to dump?
There are people in need all along the supply chain, especially farmers, consumers and food bank clients. What is the long-term industry plan if the current situation exists for an extended time? What is the industry’s contingency plan if a similar situation ever happens again?
Cindy Sorensen is the founder and CEO of The Grocery Group, which focuses on developing leadership in the grocery industry. The Grocery Group’s expertise is in developing innovation in merchandising, category management, distribution and promotion strategy, as well as digital and website development. The Group also is working with the industry and colleges and universities to attract, recruit and retain a talented workforce in a competitive employment market. Working with manufacturers and food startups to develop products to fulfill changing consumer demands also is of special interest to The Grocery Group. Reach Sorensen at [email protected]