‘Traumatic and devastating’: Organic farmers cope with fallout from Danone exit

Some have sold out, some have turned to conventional production and most have joined local organic dairy co-ops. This is the outcome of a year-long search for alternative buyers that 89 organic dairies from the US northeast embarked on as they learned that Danone North America would stop buying their milk.

But oversupply in the region, combined with spiralling producer and infrastructure costs, has made the journey less than straightforward, with some farmers having to make costly upgrades to their farm infrastructure and others yet to find new buyers for their produce.

And it’s a very tight market. Ed Maltby, executive director of the Northeast Organic Dairy Producers Alliance (NODPA), told DairyReporter: “For the past four years, organic dairy farmers have been paid an average of $31/cwt with production costs averaging $35-$37/cwt. This has led to cost-cutting and lack of investment in farm infrastructure.”​

Danone-owned Horizon Organic is the largest supplier of organic dairy milk in North America, making the effects of the termination ‘potentially disastrous’ for some farmers’ revenues. And Maltby thinks there are limited buyer options, as the region is dominated by larger co-ops that compete on price, leaving little leverage room for farmers.

“The effect on the farms that had their contract cancelled was traumatic and devastating, not only to them but to the regional community,”​ he continued. “The decision was made purely on the logistics of transporting milk from farm to the processor that could package UHT milk. Danone, despite the pledges of supporting [the] environment and the local community, did not take into account the effect on the farms.”​

He thinks the company, which is B-Corp-certified, must do more to protect farming in the region. At the start of 2022, a group of 27 farmer representatives set up the Northeast Dairy Task Force, which made recommendations to the US Department of Agriculture over market development, processing expansion, distribution logistics, farm business viability and the implementation and enforcement of organic standard rules. Maltby said the lobbying also secured $20m of funding from the USDA, which he is hoping Danone would consider matching.

“An investment of $20m to match the USDA contribution would make a huge impact towards repairing the damage Danone has caused in the region,”​ he said. “The most recent economic downturn coupled with drought conditions have turned a crisis into a near emergency and Danone has the resources to live up to their commitment to invest in the region. It’s time they embody their social mission and do right by the Northeast rural communities they have impacted, giving these farmers a future.”​

So far, Organic Valley has welcomed 65 of the affected dairies. Those joining before July 1 were initially part of the reserve supply group - a status that has since been removed. "The farmers in the reserve supply group were paid full organic premium for the first 95% of their milk, with the remaining 5% having a deduction that is used in our supply management program," a spokesperson for Organic Valley clarified. "These farmers also did not have to pay equity while in the reserve supply group status. Farms that joined earlier in the year - beginning with milk produced on July 1, 2022 - received the applicable regional CROPP dairy pool pay price. The new members that joined August received full pay price when they started shipping."

As for the others, four farms have signed on with Lactalis Group, and at least one has returned to conventional production. Of the 89, 15 have folded.

In addition to the six-month contract extensions, Danone had also agreed to provide a severance support package to farmers it decided to part with, but DairyReporter understands that farmers and NODPA are currently seeking clarity from the company how that payment is being provided. “NODPA and other farm groups [have] asked for proof of payment, as none of the farmers that we have contacted have said they have received payment,”​ Maltby said. “Danone blames the co-operative payment system that they say they are tied to for payments.”​

Danone North America has not responded to the allegations when contacted for comment.

‘No sacred cows’

While the news of Danone’s decision to cut ties with so many organic dairies at once caused a ripple effect across farm communities and the industry at large, the company’s leadership has been open about its desire to streamline its portfolio.

In March 2022, CEO Antoine de Saint-Affrique announced that there would be ‘no sacred cows’ and ‘no taboos’ as he unveiled ‘Renew Danone’, a strategy that’s “all about creating the conditions for sustainable and competitive growth and then delivering consistently in a way that creates value for all”.​ Danone estimated 25% of sales come from businesses that were underperforming, with the CEO warning that ‘we will fix them or sell them’.

Explaining its decision to lay off 89 farms last year, Danone said in a statement: “We will be supporting new partners that better align with our manufacturing footprint. We are committed to continuing to support organic dairy in the east, and in the last 12 months alone, we have onboarded more than 50 producers new to Horizon Organic that better fit our manufacturing footprint. This decision will help us continue providing our consumers with the products they love.”​

Danone North America has not responded to a new request for comment.

Farmer-owned label

To ensure the future of independent producer in the northeast, NODPA says it’s working to establish a new milk plant and a regional label owned and controlled directly by producers. “With a milk plant partly owned and controlled by organic dairy farmers, it will be possible to secure independent processing,”​ he said. “That is the only way to secure long-term processing in the northeast region.”​

“With a consumer facing brand that has integrity, all the milk comes from the region and the profit is returned to the farmers rather than to highly-paid executives, organic dairy farmers will have increased opportunity to control their pay price,”​ Maltby concluded.

The article has been edited on September 20, 2022 to clarify Organic Valley's pricing structure and the removal of the reserve supply group status.​