Worried About Walmart?
As Walmart’s fluid milk processing plant continues to move toward operating at capacity, the vertically integrated retailer has experienced plenty of disdain from farmers across the country. While it’s true that the new plant played a role in a Dean Foods decision to close milk plants and therefore leave some dairy farmers without a processor, one farmer says the Walmart plant is benefiting producers.
In 2015, the Indiana State Department of Agriculture release a plan describing the state’s desire to grow a larger presence in the dairy industry. That report paired with Walmart’s desire to get closer to the dairy supply chain is how they chose to build the plant in Ft. Wayne, according to Walmart’s Molly Blakeman.
“We wanted to be able to do what Walmart does best: figure out how to leverage different pieces of the supply chain and ultimately be able to provide a better price for our customers,” she explains.
Once they determined the location of the plant, it was time to find dairy farmers to supply it.
“We’re working with more than 30 farms across Indiana and Michigan to provide milk to the plant,” Blakeman says. “We think it’s really important the farmers are able to keep their supply close. All of the farms [we work with] are within 210 miles of the plant, with the average distance from being just 140 miles.”
Brian Houin, is a dairy farmer and the president of the Indiana Dairy Producers Association. The Houins are one of two families who are independently shipping milk to Walmart. Additional milk from Prairie Farms, Foremost Farms USA and Great Lakes Milk Producers balances the plant’s supply. While they have to meet strict requirements to ship to the plant, including animal health and milk quality standards, the more than 30 farms Walmart works with receive a premium for their milk, an obvious benefit in a time of low prices. Beyond their own farms, Houin is quick to point out the milk plant benefits all producers.
“In my opinion for Indiana dairy, the Walmart plant is a benefit. Before that milk was being processed in a different market,” he says. “Yes, we’ve got farms going out of business, but it’s not any different than other areas. The challenge is the continued expansion of Michigan dairy. That milk has to go somewhere, so it’s coming into our area. That has nothing to do with Walmart.”
According to Mike North, president of Commodity Risk Management Group, there is simply too much milk on the market right now.
“There’s more than what the market can bear at this moment,” he says. “Demand grew, especially at the world level and our producers made the investment, put their best foot forward and they really rose to the occasion, and they really brought a lot more milk to the table.”
While overall demand has climbed, with appetites for items such as cheese and milk growing, consumers continue to drink less milk. That trend is adding to the oversupply pain. It’s a combination that’s been brutal to the dairy industry, hitting farmers in the form of suffering milk prices. As a result, long-term partnerships, like the one Houins have with Walmart, are more desirable.
“Initially it didn’t seem like a great deal, but the dynamics in our area have changed so much that it was a really smart decision,” Houin says.
Changing market dynamics, which include the loss of DFA’s Dairy Marketing Service, a reduction in premiums as well as the closing of the Dean Foods milk processing plant are all causing pain for Indiana producers.
“There is a little bit of jealousy, not toward us directly, but I know there were at least three other farms that were talking with Walmart initially, made the decision not to pursue it and are now regretting it,” he says.
According to Houin, all Indiana dairy producers will experience a better blend price for all of the milk they sell, to any processor.
“We ran some preliminary figures and it might only be like 5¢, so it’s not a huge factor, but more fluid milk being processed in our market, will benefit everybody, not just those who ship to Walmart,” he says.
Critics say the plant was built to push other suppliers out of business. However, Walmart plans to continue to work with private label processors.
“This milk is part of our Great Value brand. Other suppliers have been part of our Great Value brand and will continue to be,” Blakeman explains. “This isn’t about taking any other milk off of the shelf. It is simply about the source of some of that Great Value milk across the country.”
According to Blakeman, the goal isn’t to put farms out of business, but to create long-term stability for their farmer partners. Stability is a factor that hit home for the Houins.
“They want a long-term relationship, so that makes you feel good,” Houin says. “It feels personal. It’s not like we’re just one of 300 other farms where you feel like a cash cow.”
It’s unclear if Walmart plans to build additional processing plants in the future, but analysts agree, any additional processing capacity will be good processing capacity.