Via Financial Times

The biggest milk processor in the US, Dean Foods, filed for bankruptcy on Tuesday, succumbing to nearly $1bn in debt, changing consumer tastes and tough competition in the latest sign of pressure in the agricultural economy.

The company, which produces Tuscan and TruMoo milk as well as Land O’Lakes butter and Organic Valley milk under license, said it was in talks to sell most of the business to a farmers’ co-operative.

“Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption,” Eric Beringause, the company’s newly installed chief executive said in a statement.

Line chart of Pounds of milk per person, per year showing Souring: US per capita consumption of milk has declined 40% since 1975

The Dallas-based group, which traces its roots back 1925 when its founder Samuel Dean purchased an evaporated milk processing plant in Illinois, said it was in advanced discussions to sell substantially all its assets to Dairy Farmers of America, a national milk marketing co-operative that counts more than 14,000 dairy farmers as members.

A deal, if agreed, would be subject to regulatory approval and could still be trumped by the receipt of a better offer during bankruptcy.

The company said it had received a commitment of about $850m in financing from its existing lenders that will help it continue operating as normal as it goes through Chapter 11 bankruptcy proceedings.

The decision to reorganise comes at a tough time for the US dairy industry. Milk production has risen about 12 per cent over the past five years, helped by higher yields from cows and subsidies that have kept some farmers producing, but prices have fallen by about one-quarter over the same period.

READ ALSO  Digital first-timers fuel Black Friday ecommerce surge

Moves by large retailers including Walmart to open their own dairy plants have also heaped pressure on dairies and family-owned farms.

The broader agricultural industry is also suffering. The number of farms in Chapter 12 bankruptcy protection, under which family-owned agricultural businesses can restructure their debts, is up 24 per cent this year, according to the American Farm Bureau Federation, to the highest level since 2011.

A change in consumer habits has hit Dean Foods particularly hard. Per capita consumption of milk in the US has been in retreat owing to competition from alternatives such as almond and soy milk, as well as a declining share of children in the population, according to the US Department of Agriculture.

Rising cheese consumption “has been one of the most important forces shaping the US dairy industry”, according to the USDA, and there has also been a substantial increase in sales of yoghurt, boosted by the popularity of Greek yoghurt.

Line chart of Pounds of dairy product per person, per year showing US consumers have increased their intake of cheese and yoghurt

Milk accounted for two-thirds of Dean Foods’ $7.8bn in net sales last year, more than four times its next biggest product, ice cream. Consumers have also been picking healthier alternatives to ice cream.

At the end of June, Dean Foods had long-term debt of $985m and $21m cash on hand. Trading of the company’s shares was halted on Tuesday. Its market capitalisation of $73.5m on Monday was a sliver of the $6.2bn it reached at its peak in 2007.