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[M]embers of the St. Albans Cooperative Creamery voted 99-9 to merge with the larger, Kansas City-based Dairy Farmers of America this week. But behind that overwhelming majority was the feeling that farmers didn’t have a choice.
“We’re stuck having to be bailed out, pretty much, by DFA,” said co-op member James Normandin, who owns Cartersdale Farm in Ellenberg, New York. “I don’t believe the co-op could survive without it.”
Co-op leaders said the move will provide long-term financial security: DFA plans to invest in modernizing the St. Albans facility, and joining the national organization will open up larger markets for milk products from St. Albans Co-op farmers.
“I think it’s a great opportunity for the co-op to increase their market share,” said farmer Harold Howrigan III before Monday’s vote.
The push for access to larger markets largely stems from the broader downturn in the dairy industry. An unusually long run of low milk prices have put pressure on farmers nationally, but the trend here is particularly acute: the Vermont Agency of Agriculture estimates that 10% of the state’s dairy farms stopped operating in 2018.
Sen. Randy Brock, R-Franklin, who supported the merger after raising alarms about lawsuits against DFA over allegations of price manipulation, said the dairy farmers in his district still face an uncertain future.
“We certainly have seen the recent history,” Brock said, “and there’s not a whole lot there that would tell us that there’s a likelihood of major improvement.”
But Brock said, like many co-op members, that he believed the merger was the only path forward:
“There wasn’t a long line of financial institutions waiting at the door to give money to the St. Albans Co-op.”
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This week, the St. Albans Cooperative Creamery officially merged with Dairy Farmers of America. The move will keep the doors open at the Franklin County Co-op, but it’s not likely to ease the broader pressures on dairy farms.
Alexandre Silberman: So on Monday, I went up to the American Legion Post out in St. Albans, just on the outskirts of town, for a pretty significant vote for dairy farmers, not only in Vermont, but across the region.
VTDigger’s Alexandre Silberman covered the final merger vote.
Silberman: The St. Albans Cooperative Creamery was deciding to vote on whether or not they would merge with Dairy Farmers of America, which is a Kansas City-based cooperative, kind of like the St. Albans Co-op, but on a much larger nationwide scale.
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Silberman: With over 14,000 farmers, they have over 40 plants nationwide. And so the co-op was kind of weighing whether or not they wanted to join this much larger organization and reposition themselves for their future. This was being explained as something that was very much necessary given a lot of the pressures on the industry to be able to continue to survive going forward.
What exactly is this merger set to do to the St. Albans Co-op?
Silberman: So essentially, with this merger, the co-op will become a part of this larger organization. The co-op’s plant in St. Albans and their store, the hauling company which distributes and moves around the milk, will all become assumed by Dairy Farmers of America. So it’s going to come part of a much larger national organization.
Kevin Howrigan: We don’t want to be like these co-ops you read about that go bankrupt with nowhere to go with their milk.
Silberman: Do you feel it’s a positive decision if this does move forward or is it kind of sad given the state of the industry?
Howrigan: A little of both — positive, but it’s sad at the same time.
From your reporting, it sounded like the members, the people who own and operate dairy farms up there, kind of saw this as a foregone conclusion.
Silberman: That’s right. That’s absolutely what I heard. All the farmers I spoke with were all in support of the merger. I couldn’t find anybody out there in the parking lot who was opposed to this. But they were very much, I guess, a little upset or a little dismayed that the co-op is in a place where they have to move in this direction, and they can’t remain a local kind of Vermont-based organization, given the pressures that the dairy industry is facing with low milk prices. Many farmers were saying it’s kind of bittersweet.
I spoke with Kevin Howrigan, a Sheldon farmer, and he was saying he doesn’t want the St. Albans Cooperative Creamery to be one of those co-ops which goes bankrupt down the road. I mean, this co-op has been losing hundreds of members over the past few decades.
Another farmer, over from the New York Side of the state in Ellenberg, which is not too far from Plattsburgh, his name was James Normandin. He said he’s been part of the co-op for 30 years. And during that time he’s seen membership drop by a few hundred.
Normandin: I guess at this point we almost don’t have a choice, with the financial situation. This isn’t something that just came up. This is going back to 2015 is when this started. The money flow, the cash flow just wasn’t there. So they used money that we had, equity we had, to pay the bills. And here we are. We’re stuck having to be bailed out, pretty much, by DFA. I don’t really see much of a choice. I don’t believe the co-op could survive without it.
Silberman: When this farmer joined the co-op 30 years ago, it was almost double in size. That shows the pressures on the industry right now.
I also spoke with a farmer by the name of Harold Howrigan III. There were quite a few Howrigains over at this co-op meeting. Quite a few of them are dairy farmers around the state, including one of them who’s on the board, who was saying it’s a great opportunity for the co-op.
Harold Howrigan III: To increase their market share — 300 members, you know, we’re looking at having 8,000 members now. It’s a good opportunity
Silberman: He was pretty optimistic that this would be a good move for the co-op.
Steve Dodd was another farmer that I met out in this pretty packed parking lot, who’s a Sheldon-based dairy farmer.
Silberman: How many cows do you have?
Dodd: About 300.
Silberman: And how do you feel heading into this vote?
Dodd: I don’t know.
Silberman: Are you in support?
Dodd: Yeah I guess. Yeah. We don’t have many other choices.
Silberman: And he said he’s seen this coming for quite a few years now, five or six years.
Dodd: The whole industry is pretty sad right now, so it’s just another thing to go, I guess.
Silberman: How do you feel about the fact that it’s necessary for the co-op to move in this direction?
Dodd: Oh, I don’t know. We’ve seen it coming.
Silberman: With the declining membership, the co-op simply can’t afford to make important upgrades investments in infrastructure. And there’s issues at the plant in St. Albans where often they don’t have enough storage capacity for milk. And they’ve had situations where they’ve had to dump some milk product. So there’s a need for infrastructure upgrades for changes for various areas where spending is needed. And with this declining membership, it’s not something that the members can necessarily afford because the cost just keeps going up and up and up for each member.
So Steve Dodd was saying it’s something he’s seen coming for the past few years now. And he doesn’t really feel the co-op has other options.
The reason these farmers are frustrated by the state of the industry is that milk prices have been unusually low for the last five years. More than 400 dairy farms in Vermont have closed in the last decade. And the Agency of Agriculture estimates that the state lost 10% of its remaining dairy farms in 2018 alone. That’s had a major impact in Franklin County, which is the biggest dairy county in the state.
Brock: The dairy economy almost is centered on the co-op, not just in Franklin County, but throughout many parts of Vermont.
Randy Brock is a state senator representing St. Albans and the surrounding area. He said these farmers were right to believe the merger was their only option.
Brock: There were a lot more co-op members a few years ago than there are now because we see the adverse effect of low milk pricing on the industry in general. But the co-op, it’s not solely the co-op, it’s all the things that are associated with dairy beyond the co-op, the people who are employed directly and indirectly are a significant part of the economy.
I did want to talk to you a little bit about that — some of these longer term pressures on the industry. What’s your understanding of how this merger is going to impact that in your area?
Brock: Well, from what I’ve seen, the most significant part of it is the bringing of additional stability that the co-op, financially, I think, was not going to be able to do. There’s a significant amount of investment that needs to be made in the plant in St. Albans. And the co-op was, I think, under financial pressure that would make it very difficult for them to make the kinds of investments that are needed.
DFA, on the other hand, is a much larger organization and does appear to have the financial capacity to invest in the plant. The investment in the plant, and also in additional equipment for McDermott’s, the dairy hauler, is going to be good for dairy in Vermont. And it also gives you more comfort that the plant and the jobs that come with the co-op are going to stay here in Franklin County, at least for the foreseeable future.
I mean, it seems like a vast majority of the folks who voted agreed with that: that they want to see that investment happen. At the same time, when talking to farmers up there on Monday, it sounded like there was sort of a tone of resignation about it. You know, this isn’t something that they’re necessarily excited about, per se, and even one person described it to us as a bailout. Do you think that’s a fair characterization of what’s happening here?
Brock: Yes.
Essentially, it’s not the kind of bailout that results from absolute desperation. That’s not what happened here. But I do believe that the folks who are in the leadership roles in the co-op, as well as individual farmers, are sophisticated enough to look down the road and to know that they’re going to need additional financial capacity to keep the co-op as we know it in business. And as you look around, there are very few sources for those kinds of funds, particularly for an industry that is financially struggling.
And so an acquisition like this, or a merger like this, is really sort of the only option that they have for sustainability?
Brock: Well, there wasn’t a long line of financial institutions waiting at the door to give money to the St. Albans Co-op.
The funds simply weren’t there from other sources. And so in many ways, DFA was the only logical option.
At the meeting on Monday, the co-op approved the merger with a vote of 99 to nine, with 108 members voting.
Silberman: So that’s about a third of the co-op’s membership. And the co-op’s leaders said that there were representatives there from every region where the co-op has members. And that’s in both Vermont, New York, and also some members in New Hampshire. So it was pretty widely supported from all areas of the membership base.
The leaders of the co-op had recommended that their members vote in favor of this merger a couple weeks ago. After the vote, what did we hear from them?
Silberman: After the vote, we heard the leaders address two principal concerns which had been brought up by some of the members, and many of them who ended up voting for this merger. And the first one of those concerns was that with the co-op joining this much larger organization, Dairy Farmers of America, that that local opportunity for Vermont voice and for these farmers to be heard, and have their concerns addressed would be gone, and that it would be difficult to maintain that representation in this larger nationwide organization.
Leon Berthiaume, St. Albans Co-op: Even though we were a member cooperative of DFA, we were autonomous. And basically we still had full financial responsibilities for our plant operation, store operations and McDermott’s operations.
Silberman: And we heard from leadership that with the merger of Dairy Farmers of America, and the board of directors of the St. Albans Cooperative Creamery, will be merged into DFA’s Northeast Area Council. So that representation will continue with the currently existing DFA Council. And there’s also a St. Albans Co-op member who will be serving on the corporate board. So based on that explanation, they were pretty convinced that members have been assured, and were confident going forward that they’d be represented.
Harold Howrigan, St. Albans Co-op: Farmers still will have a voice and a very strong grassroots system within the organization. So we will not lose our local voice within their network.
Silberman: The other thing that we heard from leadership was that they felt pretty confident that DFA is committed to and willing to invest in the assets and in the plant going forward, and that should be happening pretty soon that we’re seeing some pretty significant infrastructure investments at the St. Albans Co-op plant.
Brad Keating, DFA: I think some of the investments you’re going to start to see could happen almost immediately as we start to work with the plant engineers to modernize and refit the facility.
Silberman: But where there is some uncertainty is how this will affect how farmers are compensated for their milk.
Leon Berthiaume, St. Albans Co-op: When you look at the overall milk price, this has been a question that’s been going on for decades, you know, in terms of the price that farmers receive versus the cost of production, and they’re still isn’t, again, the perfect model as it relates to that.
Silberman: The recurring, I guess, explanation or answer to that question from officials after the vote was, well the prices are really tied to global market prices, milk prices are regulated by USDA, so that won’t change these global market forces won’t change necessarily by the merger.
Berthiaume: We are part of a global dairy industry and it’s the commodity prices for various dairy products that really direct the overall price of milk under our current system. And so that is the challenge in terms of what market prices are versus cost of production.
Silberman: But it’s kind of unclear what exactly that’ll mean for the farmers’ paychecks, for their income, with this new merger with DFA.
We asked Senator Brock if there were any reason to believe that five or 10 years down the road, that uncertainty in milk pricing might be resolved.
Brock: If I were to look forward with any degree of certainty as to what is going to happen, I could be an extremely wealthy person. Either way, buying long or short, I don’t know what’s going to happen. And I don’t think any of us do, but we certainly have seen the recent history. And there’s not a whole lot there that will tell us that there’s a likelihood of major improvement.
I do believe that as we look at developing more value-added products, as we look at better efficiencies and these plant investments may help along those lines, I believe that as we explore other markets, as we explore value-added products, as we look more to things like the dried milk powder that the St. Albans Co-op produces, there are other opportunities to increase profitability, but the financial pressures are going to continue for the foreseeable future.
Silberman: This is something that farmers were telling me was a long time coming. And this kind of serves a concrete indicator and signal of where the dairy industry is at, that something that was so strong and so significant and so important, as a critical piece, the backbone of Vermont’s economy, has kind of moved to the wayside. Where this local cooperative creamery, which was a very strong business in the region — you look at St. Albans and the co-op’s store and plant is right in the center of that town — this is something that’s moved to the wayside for Vermont’s economy in many ways.
I think there’s a lot of uncertainty on what the future for dairy farming looks like both here in Vermont, and also across the country because a lot of these challenges with the lower milk prices are things that farmers not only in Vermont are facing, but also in other places around the country.
Thanks.
Silberman: Thank you, Mike.
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