Got milk? Consumers may see their dairy options shrinking as two of the biggest players in America’s milk industry declare bankruptcy within the last two months.
Borden’s Chapter 11 declaration follows that of Dean Foods, America’s largest milk producer. After over 160 in business, Borden plans to reorganize, whereas Dean Foods plans to sell its assets.
Video Spotlight: Dairy giant Borden files for bankruptcy
This post is based on the CNN article, One of America’s oldest and largest milk producers files for bankruptcy, by Chris Isidore, January 6, 2020; the CBS News article, Borden is latest big milk producer to go bust, by Kate Gibson, January 6, 2020; and the YouTube video, Dairy giant Borden files for bankruptcy, by Newsy, January 6, 2020. Image source: Shutterstock/Andrey_Popov.
1. What factors caused Borden’s bankruptcy?
Guidance: Changing consumer preferences, part of the socio-cultural environment, have played a major role in Borden’s bankruptcy. Dairy milk consumption has been on a decreasing trend, dropping six percent in the last five years or so, as more Americans opt for nut-based or soy-based milk. In addition, 2019 saw 2,700 family dairies close, following a trend of 94,000 that have gone out of business since 1992. Fewer suppliers pose challenges in the supply chain. Wholesale prices for raw milk went up almost 30 percent last year at the same time that retail prices dropped due to weaker demand. Borden saw its margins shrink, while debt and pension obligations further exacerbated its problems.
2. How much capacity does Borden have?
Guidance: Borden processes milk at 13 plants and has nearly 100 branches, 3,300 employees, and can produce almost 500 million gallons of milk each year.
3. How did Dean Foods’ problems differ from Borden’s?
Guidance: Milk producers like Borden and Dean Foods have seen more retailers offering their own lower-priced store branded milk to attract customers, thus cutting into their business. Dean Foods’ troubles worsened, however, when Walmart, its biggest customer, began to produce milk itself. This is an important risk associated with becoming a supplier for a huge player like Walmart. When a significant portion of capacity goes to supply a powerful buyer like Walmart, there is a great danger that a change in terms or cancelling of the contract can take a serious toll. Whereas Borden hopes to emerge stronger from its Chapter 11 bankruptcy, Dean Foods plans to sell off its assets and close its doors.