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New Plant in Fort Wayne to Start Up Later This Year


by Sherry Bunting

Published: Friday, May 18, 2018

Bottling operations at Walmart's first-of-its-kind milk processing plant in Fort Wayne will be delayed.

"We'll begin bottling later this summer and will kick in to full production later this year," said Walmart spokesperson Molly Blakeman in an email response to questions late last week.

Until production begins, she said, "we have a plan in place to ensure there are no disruptions in the supply chain for customers."

Described earlier as a 250,000-square-foot plant to bottle Great Value and Member's Mark white and chocolate milk for an estimated 600 stores, Blakeman confirmed: "Once it becomes operational and once fully utilized, it will be one of the largest fluid milk plants in the U.S."

The Walmart plant's full production capacity was not disclosed, but Blakeman did discuss milk sourcing.

"We are working with three milk cooperatives and a number of independent farmers. Each farm that is supplying milk to our facility is within 180 miles of the plant," she reported. "By operating our own plant and working directly with the dairy supply chain in the Midwest, we will further reduce our operating costs and pass these savings on to our customers, so they can save money."

Noting that many of the farms terminated by Dean Foods "were far outside of the service area of our plant, a number of them closer to Fort Wayne have signed contracts with the cooperatives to work with Walmart," added Blakeman, explaining the plant will serve stores "throughout most of Indiana, Michigan, Ohio and parts of Illinois and Kentucky."

Beyond that, she confirmed: "Dean Foods remains a very large fluid milk supplier to many (Walmart) stores."

When questioned about reports that Walmart is already eyeing potential sites for future milk plants, Blakeman said the company wants to be successful with the Fort Wayne plant before seeing if other opportunities exist.

"Walmart's goal is to produce the highest quality and freshest-tasting fluid white milk and chocolate milk possible—and deliver a great value on that purchase," Blakeman related.

Meanwhile, the milk price wars between top grocery discounters and big box stores have reached new lows of 67 to 99 cents per gallon throughout states that do not have loss-leader protection—such as Indiana, Kentucky, Michigan, Ohio and Illinois—the states to be served by the new Walmart plant.

When asked whether Walmart foresees passing the below-cost retail prices back through the supply chain, or if the company accepts these price reductions as a cost of customer-acquisition and loyalty, Blakeman cited the Federal Milk Marketing Orders (FMMO).

"Any loss Walmart takes on milk cannot be passed on to the producer because of how our milk payments are regulated by the FMMO," she responded. "We, as a non-coop processor, have a minimum milk price that is set by the government that we have to pay our producers and cooperatives."

Furthermore, noted Blakeman, "Walmart will not do well in this plant if our dairy producers do not do well. We will provide a dedicated market for their milk, so they can focus on milk quality and animal care."

Because quality impacts the shelf life and taste of fluid milk more than any other dairy product, Blakeman said Walmart understands the role of quality and wants to provide an excellent product for the end consumer.

"We have strict policies in place in regard to animal welfare," Blakeman explained, noting that Walmart is fully supportive of the National Dairy Farmers Assuring Responsible Management (FARM) program initiated by National Milk Producers Federation, a milk cooperative membership organization, and Dairy Management Inc., an organization funded by the mandatory milk promotion checkoff.

At a link provided by Blakeman (https://corporate.walmart.com/policies),

Walmart states that it is "committed to continuous improvement and aspire to achieve the globally-recognized Five Freedoms of animal welfare for farm animals in our supply chain."

When asked how Walmart's milk-sourcing affects consumer desires for locally-produced milk, Blakeman put the focus on the plant.

"The farms and co-ops we are sourcing from are local and family-owned producers," she said. "Milk being supplied to our plant comes from no further than 180 miles away."

Walmart's efforts to work more directly with the milk supply chain go beyond the area served by the Fort Wayne plant.

In 2013, Walmart acquired a Pennsylvania milk dealer license from the Pennsylvania Milk Marketing Board, and this license is listed for six fluid milk bottling plants owned by Dean Foods—one in New Jersey and five in Pennsylvania, including the Lebanon and Sharpsville plants that will end contracts May 31 with half of their current dairy farm suppliers, 42 in Pennsylvania, four in Ohio and one in New York.

In Pennsylvania, an 80-year-old state milk marketing law authorizes the Pennsylvania Milk Marketing Board (PMMB) to set retail and wholesale milk prices at levels that cover retailer and processor cost-recovery plus a 2.5 percent to 3.5 percent profit margin. The PMMB also sets a producer-over-order premium that is only followed back to the farm level on milk that is produced and bottled in Pennsylvania and delivered to stores or warehouses within Pennsylvania's borders. That premium was reduced from $1.60 per hundredweight of milk to 75 cents in January due to pressure from out-of-state milk sourcing that allows retailers and processors to keep those premiums.

Tennessee also has a loss-leader law for milk. While not as robust or lawyered-up as Pennsylvania's complex system, the provision does keep retail prices from falling too far below cost at the retail consumer level.

In addition, both Pennsylvania and Tennessee have a state seal that companies can use to qualify milk for advertising as produced on farms in those states.

Producers who received Dean letters in both Pennsylvania and Tennessee were largely able to find new milk contracts with smaller bottlers that source and advertise their milk using a state seal.

The exception is seven farms in western Pennsylvania—where the Dean plant in Sharpsville serves retailers in multiple states. These farms are still seeking a new milk buyer, along with three in Ohio, 14 in central Kentucky (5 sold their cows), and an unspecified number in southern Indiana.

As reported last week, of the 25 Indiana farms facing Dean contract terminations on May 31, those in northern Indiana have largely been resolved, while the southern Indiana farms are having more difficulty finding a market, according to Indiana Dairy Producers Executive Director Doug Leman.

The dairy farms seeking new milk buyers on the southern and eastern ends of the area to be served by the Fort Wayne plant are on the fringes of the Southeast and Northeast regions that are considered milk-deficit regions. This was noted recently by University of Wisconsin dairy economist Mark Stephenson in a "changing landscapes" presentation at the Heartland Dairy Expo in Springfield, Mo., where he said the Southeast is 41 billion pounds deficit and the Northeast 8 billion pounds deficit in relation to population, making the challenge of getting milk from surplus regions to deficit regions a challenge.

Most of the farms still seeking new milk buyers in western Pennsylvania, Ohio, central Kentucky and southern Indiana are not large enough to be "single-source-truckloads," and they are outside of the 180-mile sourcing distance for the Fort Wayne Walmart plant, despite knowing the Walmart store brand in their area will be supplied by the new plant instead of the regional Dean plants these farms had long supplied.

According to officials from these states, the options are slim.

In Kentucky, for example, two cooperatives are the gatekeepers to available plants, and those cooperatives have indicated they will not accept new members.

Kentucky Dairy Development Council Executive Director Maury Cox is concerned that the potential loss of these farms will also damage the dairy infrastructure and contribute to the unraveling of the state's significant dairy industry. Both Leman in Indiana and Cox in Kentucky share concerns that losing these farms makes other farms in the region—both independent and cooperative—more vulnerable in terms of future milk markets and milk transportation costs.

Phone calls are made daily and government officials are being asked to intervene with a plea for temporary contracts to buy these farms a little more time. Time that will run out on—of all days—the first day of June Dairy Month.

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