By Ed Maltby, NODPA Executive Director
CROPP Cooperative/Organic Valley has opened their cooperative to 90 farmers that have lost their contracts in the last year. This generous action that will enable these farmers to have a home for their milk has only happened once before, in 2009, when HP Hood dropped all their organic contracts, and once again, CROPP stepped in to pick up those contracts. With HP Hood, CROPP also took over the Stonyfield fluid brand to market their milk in a growing market. In 2022, the CROPP Board and member owners have taken on the risk of marketing the milk in a market with slow growth and at a time when its members were just ending restrictive quotas.
Against a background of mixed information from the media, Travis Forgues, Executive Vice President of Membership for CROPP, reports that they have given approximately 90 Letters of Intent’s (LOI) to organic dairy farmers in the Northeast. Of those 90, any farmers joining the cooperative under the 100% grassmilk program enter with full membership. This is because demand for CROPP’s grassmilk is outpacing supply in a very strong growth market in this category.
This action of offering so many farms LOI’s is a transformation from the slow and steady approach that CROPP had previously adopted and is a remarkable action that none of the other existing brands or companies have shown the courage to do. For all these farmers, the fact that they have a possible home for their milk into the future gives them the stability that they crave and a buyer they understand.
For those not familiar with the supply side of the organic dairy market, this commitment goes along with many different challenges for the company. First, CROPP needs to be able to move the segregated organic milk from the farm to the processor, which is becoming ever more difficult and expensive. Second, finding the processing time in a market that has limited manufacturing space for organic segregated product without having to ship the milk long distances, adds to the problem. Third, there is also the increased time to service these new farms by the CROPP field representative, and being able to balance supply with increased volume to maximize the return to the coop.
The LOI is a short and very clear document that is the start in the process of full membership of the coop. It does not directly mention any Pay Price. Farms that do not qualify for the grassmilk program are being offered a reserve pool agreement. The LOI for those farms is an agreement that the farm’s intention is to ship milk through CROPP, conditionally on them meeting all the terms and conditions of the cooperative's reserve supply group agreement, membership agreement, bylaws, policies, and on meeting CROPP's membership qualifications (Page 4-5, Policy 1.2). They have to sign the agreement within 30 days and they will start shipping milk to CROPP between June 2022 and February 2023. There are other conditions the farms have to reach about informing their certifier, giving notice to their existing buyer and ensuring their handler is a CROPP cooperative partner.
Travis Forgues confirmed that they will be paid full organic premium for the first 95% of their milk, with the remaining 5% having a deduction that is used in CROPP’s supply management program. These farmers will not have to pay equity until they become full members, so the cost of this 5% deduction does not affect the farmers’ net income significantly. The CROPP quality program is not a tiered, all or nothing approach, like Danone’s, so the payment for this program should increase the return to producers that they were not receiving from Danone. CROPP’s stated reason for the utilization rate is that there is a risk in taking on milk that doesn’t come with any markets at all. It is a risk the member/owners are taking, and it makes sense that the company has a small buffer for utilization costs of this type of supply. Also, CROPP’s national utilization of their supply in organic sales is very close to 95%, so the number closely links to what their supply demand balance is. CROPP hopes to move these producers out of the reserve pool agreements as fast as possible. Once signed up, any producer wanting to leave CROPP has to give 180 days’ notice.
Maple Hill reports that they made a decision to increase their price to retailers to cover increased costs of trucking which has put them in a position to extend the contracts of 22 of the farms that were going to be dropped in June 2022, until the end of the year. Despite the fact that Byrne Dairy has stopped processing yoghurt, Maple Hill has stabilized its other processing partners and has a positive attitude moving forward and sees a great future in the Grass Fed market.
Danone has been very quiet recently and have not kept their current and former farmer suppliers informed about their next steps. What is worrying producers is that lack of communication linked to the most recent media report that Danone, during an investor day presentation on Tuesday, March 8, 2022, told their investors that there are "no sacred cows" and that the dairy giant will "keep pruning" its portfolio as it aims to boost growth and distance itself from recent underperformance.
The France-based company said it would improve performance in “troubled offerings such as Horizon Organic” and traditional dairy; invest more in winning products such as yogurt brand Oikos; and create value by selling existing brands or buying new ones. Under its "Renew Danone" platform, the company aims to restore its "competitiveness" in core categories and geographies and expand its presence in segments, channels and geographies.
Producers report that those who have ended their contracts with Danone have not been paid the $2 per hundred transition payment as promised. Producers have been told the payments will be sent automatically once the producer stops shipping milk. Apparently, there may be the usual delay in settling out the protein and quality components and then a check will be mailed along with a letter confirming the mutual termination of the agreement. For some of these producers, it has been over 6 months. Even the most inefficient company that had been paying producers for their milk does not take this long. Apparently, Danone still has not got the message. Perhaps this will at last make the B Corp folks sit up and take notice. Apparently, Danone is certifying its businesses in Australia and New Zealand as B Corporations, thus joining the B Corp movement in Oceania.
A suggestion for Danone that would be a win-win for them: As some of these producers are now looking at new contracts moving forward and having to meet conditions which might involve improving their operations, it would be useful to the producers, and perhaps simpler for Danone, if they paid the transition payment now to all their farmers whose contracts they have cancelled. If Danone were to make all the transition payment now, it would make it easier than paying when individual farms leave, all with different end dates to their contracts, and could end confusion over which months of production they will be paying for. If all the farms were paid for the six months prior to September 2021 there would be consistency, equality and transparency.
When the Horizon brand is put up for sale, I would hope that any new owner has to honor the promises that were made to producers and the Northeast community on the transition payments and significant capital investment in the Northeast dairy infrastructure. When we spoke with Danone, they would not put any dollar amount on their investment. As a guide, they should match the $20 million that USDA has invested in the dairy industry in the region.
