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Dean Foods ordered to pay $29 million in FMMO obligations

Progressive Dairy Editor Dave Natzke Published on 21 January 2021

Dean Foods must pay more than $29 million it owes to Federal Milk Marketing Orders (FMMOs) for milk procurred last spring prior to the company’s bankruptcy sale, according to the USDA’s Agricultural Marketing Service (AMS). The amount represents about 90% of Dean’s delinquent payments for milk marketed through FMMOs from April 1-May 4, 2020.

On Jan. 15, 2021, Judge David Jones, in the U.S. Bankruptcy Court for the Southern District of Texas, ordered the payment amount agreed to between Dean Foods and the U.S. Department of Justice (DOJ), which is serving as legal counsel for the USDA. The order (docket #3366) requires Dean Foods to make the $29.1 million payment within 30 days.

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On Nov. 12, 2019, Southern Foods Group LLC, et al., (Dean Foods) filed for Chapter 11 bankruptcy. Among several “first day motions,” the company sought and received access to debtor-in-possession (DIP) financing to continue operations and pay “critical vendors,” including dairy farmers supplying milk. At that time, Dean Foods had 43 plants regulated by the FMMO system.

In May 2020, however, several FMMO administrators sent letters to milk handlers indicating Dean had failed to make producer settlement fund payments for milk marketed from April 1-May 4, 2020.

According to the USDA Ag Marketing Service, Dean Foods was fully regulated on nine FMMOs – all except Arizona and the Pacific Northwest. The office confirmed producer settlement fund payments were not made in any of those nine orders.

In addition, Dean Foods owed monies to the FMMOs for producer marketing services, transportation credits and administrative services, as well as the National Dairy Research and Promotion Program and the National Fluid Milk Processor Promotion Program.

According to court documents, the total owed was more than $32.3 million.

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Milk payments reduced

When producer settlement fund payments are not made, FMMO regulations stipulate that distribution of available money is prorated uniformly to all milk handlers, including co-ops, in the FMMO, who then distribute the money to producers. Handlers were notified of the nonpayment and the pro-ration of available producer settlement monies. That resulted in lower milk payments to all dairy farmers pooling in each affected FMMO.

Upon receipt of the payment, the USDA will remit monies owed to FMMO-regulated handlers and the dairy and fluid milk promotion boards. Once handlers receive payments from the USDA, FMMO regulations require that the money be promptly remitted to producers. Procedures for handler payments to producers will be communicated through the respective FMMO market administrators, according to the USDA.

Dean Foods’ $16 million pre-petition debt owed to the USDA is not covered by order. The USDA will continue to pursue payment of those claims through the bankruptcy proceeding, according to a USDA AMS press release.  end mark

Dave Natzke
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