
America's Biggest Milk Producers Are Going Bankrupt - jelliclesfarm
https://www.foodandwine.com/news/borden-dairy-bankruptcy
======
sp332
A counterpoint: these companies were recently bought by private equity firm
KKR Co, the same company that loaded up Toys 'R Us with debt and then
liquidated it.
[https://mobile.twitter.com/rhinosoros/status/121424602712711...](https://mobile.twitter.com/rhinosoros/status/1214246027127119872)
This bankruptcy filling might just be negotiation in the courts to reduce
pension obligations.

~~~
_bxg1
I don't understand how bigger waves haven't yet been made about these locusts.
Where's the New York Times expose? Proposals by Congress on how to make this
vampirism illegal? Literally anything?

~~~
fennecfoxen
If you want to fix this going forward, make all new defined-benefit pensions
plans illegal, as we have amply demonstrated that they can't be trusted over
the course of a lifetime. Putting your future in the hands of an automaker was
bad enough; why do we expect someone to put their future in the hands of a
dairy?

A defined-contribution pension plan, where you end up actually owning the
assets in question, is the only way to be sure that no one will shrink your
pension in bankruptcy, or (for a public pension) reduce them by legislative
fiat.

~~~
LatteLazy
Sorry in advance, this is a bit of a rant...

The problem is not defined benefit vs defined contribution really, it's that
companies are not really required to _fund_ defined benefit.

There are 1001 third party companies (normally insurers) who will happily
underwrite a defined benefit scheme (so if the employer goes under the
pensions are fine). But that would mean employers actually making pensions
contributions that would actually fund the actual cost. Firms prefer to under
pay the schemes. Depending on the scheme/firm/local-laws, that might be by
just underpaying it, or by more cunning means like using the funds to buy
company stock (so it looks like its funded on paper but you're just as screwed
when the employer fails, Ironically this is what the federal government is
doing with social security too) or by making optimistic assumptions (if I
assume all workers die a week after retirement age and a 9% interest rate,
final salary pensions need only cost me 5cents a head today! Can you prove I'm
wrong?)

Unions (where they exist and have influence) also don't want to push this.
Admitting the employer is unlikely to pay is a serious accusation that won't
be proven for 20+ years. If you press hard and the employer DOES up their
(real) contributions then that means you'll lose out somewhere else in the
compensation package (so less health coverage or lower raises). Plus, If you
get someone 1000 dollars more in 20 years, but 10 dollars less now, they won't
thank you,they'll demand to know where there 10 dollars is!

This is also the reason politicians won't regulate harder: it would push firms
to declare bankruptcy sooner (and the electorate punishes that, better let the
problem worsen and hope its the next guys issue) and it would mean many firms
withdrawing or cutting back their schemes. And again, people would rather have
the promise of a good pension (that will likely never happen) than the
certainty of a mediocre pension.

The key issue here is a mix of costs and people being strongly incentivised to
lie about a cost now as the problem won't happen for decades.

The only advantage defined contribution has is that it is harder to cheat. But
actually, defined benefit schemes are less risky and far more appropriate for
the average dummy than defined contribution schemes.

~~~
eldavido
I take the status quo as my starting point.

McClatchy just had pension trouble. So does my home state of Illinois. So does
this company, apparently.

You seem to think it's possible to just magic a large-scale change in human
behavior into existence. It isn't. I think DC+social security is a pretty fair
compromise. You're never going to starve if you totally screw up. There's also
Medicare to help pay medical expenses. So the worst-case scenario isn't awful.
On the other hand, if you want a comfortable retirement with a nice house,
travel, etc., you need to be a good steward of a DC plan.

I also think having people with a little more skin in the game (the stock
market) will help to tamp down this tiresome class politics about how the 1%
is screwing everyone over. Pensions are big investors, it's not fair that some
investors (pensioners) get bailed out in a bad market environment, whereas
others (DC plan participants) don't. Don't forget, pensions don't magically
create money, they have to invest and rely on the whims of the market just
like DC plan participants.

Plus, there are good DC plans. The better ones opt you into a target date
retirement fund and automatically invest in a reasonable basket of securities
so you don't have to figure it out yourself. Human Interest is a great example
of a simple, no-frills plan I've seen. My wife's Schwab account is too
complicated.

I get that DB might be better in theory but I fail to see how, given the
constraints of reality, and human nature, and politics, we aren't going to get
a repeat of the current DB fiasco over and over again. Just look at the
incentives.

~~~
LatteLazy
I strongly agree about the "mix of the two". Though social security is just a
defined benefit scheme that's bankrupt and replying on a political bailout so
I'm not sure I'd include it.

The big issue here though is how to make either work for the average person? A
defined benefit scheme where the employer is fiddling the books will fail. A
defined contribution scheme where the management company is charging fat fees
and pushing risky investments will fail. Can we really trust the majority of
people with no financial acumen to tell the difference?

I feel like both require the user to swim with sharks right now...

~~~
eldavido
I think DC is about 85% of the way there. All we need are slightly better
defaults in how money is invested. Fidelity already does this, I remember
signing a big stack of forms to "take the safeties off" to be able to trade it
as a raw brokerage account. 401(k) custodians are fiduciaries, btw.

Whereas DB, it seems like every place and in every time, there are always
incentives to underfund, to cheat, to push liabilities around, to misrepresent
them, to dump them on taxpayers. These things are closer to immutable human
nature and won't change, IMO.

The bigger issue that is NOBODY can really afford to retire given how long
people are living, escalating medical costs, and low rates of return. The DC
people are just ahead of the DB folks in realizing this, because they're
relying on bailouts there isn't enough money _anywhere_ to fund. Illinois is a
case in point.

~~~
LatteLazy
I think there is a more fundamental question here with DC models: human
nature.

If you tell people to shut up and pay and we'll assure the outcome, they can
do that. Thats DB.

If you give people an "account" (even with good default investments), people
have to manage that. They have to fill it up when they have a bad year, with
actual cash from their current accounts. They have to ignore their brother in
laws who put all the money in enron and made a bomb and tells you you're an
idiot for sticking low fees. They have to pay attention and watch out for
changes to fees or laws. And they have to start moving the money to lower risk
items and plan 5+ years ahead to retire. And even then, that's just getting
the index fund strategy right. The strategy may fail. They have to put money
in when a market goes down and take it out when a market goes up.

I doubt very much that people will succeed at that. That's the core flaw in
the DC model.

Personally I think that sort of work is better done centrally.

------
cowpig
The title of the article states that milk _producers_ are "going bankrupt,"
but then cites the rising costs of raw milk, which seems like a good thing for
a milk producer.

So I look up the company on wikipedia and Borden Dairy is a processor &
distributor, not a producer.

Furthermore, "employee pension obligations" being cited as a primary cause of
bankruptcy without any more details raises a red flag for me. This article
sounds more like they're reporting on the press release of some kind of
corporate raiders than journalism.

~~~
koboll
If you can't discharge student loans in bankruptcy, you damn well shouldn't be
able to discharge pensions you've promised your employees for decades.

~~~
gruez
How would this work? If the company goes bankrupt and sold all its assets, who
will you take the money from?

~~~
hamstercat
The money is supposed to be invested in part by the employee and the employer
at the time of payroll. This money is then moved to a fund, impossible to be
touched by the company forever and ever. The fund invests the money, it grows,
and then you can get an income in retirement after many years. The same could
be done by the employee itself by just saving part of his paycheck and
investing in a mutual fund, but most people don't have the discipline to do
that so a defined-benefit pension protect the employee from itself.

That's how it works in other countries like Canada. It's relatively easy and
failsafe if well implemented, I really don't understand how it can be legal
for a company to access the fund like in the story.

It's a shame so many of them are so badly managed/corrupted though. As usual,
most stories about pension failing are about gross mismanagement (not paying
into the plan as required) or corruption (drawing into the plan
innapropriatly).

~~~
bregma
So, what happened at Nortel?

~~~
hamstercat
Unfortunately I don't know enough about it to offer an opinion on this
specific case. I only know it will pay only part of the promised benefits. But
from other pension plans I've seen, this happens because the plan is
undercapitalized. This usually happens because of:

a) missing employer contribution to the fund on every paycheck b)
mismanagement of the fund

The second point can be very varied and only limited by imagination, from
embezzlement to government action. I've seen laws passed in the past passed
about being able to take a loan on certain public pension funds without
interest, which shows the complete lack of understanding about how these
pensions are supposed to work and the actuarial math behind it.

------
JohnJamesRambo
I’m constantly amazed at how cheap milk is in the grocery store. A gallon of
Great Value 1% milk is $2.77 now. That seems low for what you are getting (a
gallon of protein rich fluid milked from a cow and transported to you). How
much profit could be left? I’ve heard that grocery stores sell milk for less
than they buy it for just to get you into the store, because they know you
will buy other things. I haven’t checked the truthfulness of that statement
though.

[http://www.fmpc.uconn.edu/research/milk/conference/Criner.pd...](http://www.fmpc.uconn.edu/research/milk/conference/Criner.pdf)

A link about the margins implies that may be technically untrue but I don’t
know enough about the grocery business to say.

~~~
Zelphyr
> I’ve heard that grocery stores sell milk for less than they buy it for just
> to get you into the store, because they know you will buy other things.

I wonder if this is why they always put it in the back of the store? That way
you have to walk through a vast array of higher margin things that you might
suddenly decide you need on the way to and from picking up a gallon of milk.

~~~
TacticalTable
Yes. Same deal with Eggs, and why they have all the candy at the registers.
And why they rearrange the store occasionally.

~~~
Zelphyr
OMG that rearranging of the store makes me so angry. Just when I get a system
down for getting in, getting what I need to get off my list, and getting out
and they throw that monkey wrench in.

That and using stacks of items as road blocks in the aisles to slow me down in
front of higher-margin items. They don't need roadblocks with my pokey-
shopping neighbors who stand in the middle of the aisle and stare at the two
boxes of white-label pasta in each hand, attempting to calculate in their
heads which one is the cheapest per noodle (my dad and grandmother being chief
offenders here) all the while completely oblivious to my nasty glares because
I just want to get past them so I can get to the sauce and move on.

~~~
nguoi
I used to be weekend staff at a clothing store that changed layouts every
week. Every weekend, I'd have to relearn where everything was.

------
code4tee
Milk as a beverage is in decline, but milk as a product has been steadily
growing as a raw material (cheese, yoghurt, etc.) The companies in trouble are
those that were too concentrated in beverage milk and failed to diversify
their business models to stay relevant.

Some of these companies troubles also smell badly of PE shenanigans with over
leveraged debt deals and other PE card tricks.

~~~
asdf21
100% this. All that being said, it's also the market working as it should in a
way... poorly (in this case, borderline sociopathically) managed companies
going out of business.

As someone else said, the unwinding of large consolidated food companies is
largely a good thing.

------
poulsbohemian
The concept of perverse incentives pops up regularly on HN, and the dairy
industry is a great example. You get paid by the gallon, but Bessy produces a
limited number of gallons. So what do you do, you breed Bessy to the point
that her milk is little more than white water, unrecognizable to previous
generations of milk drinkers, and in doing so your supply outpaces demand.

The point is, the struggles of the dairy industry are entirely their own
making. They ignored the potential for diversification, with loads of family
farms going out of business because they wouldn't move beyond fluid milk --
same concepts of value-add and vertical integration exist in dairy just like
in other businesses. Before Chobani, good luck finding "greek" yogurt. After
Chobani, good luck finding anything not "greek" yogurt. But where's the Quark?
Where's the Creme Fraiche? Where's the "real" greek yogurt made with _sheep_
milk? Dairies thought they could keep producing sub-standard Holstein water
and didn't need to actually think like competitive businesses.

------
matheweis
There are a handful of local milk producers and distributors in multiple
states that by most appearances are doing well, for example:

AZ: [https://www.danzeisendairy.com/](https://www.danzeisendairy.com/) WA:
[https://www.twinbrookcreamery.com/](https://www.twinbrookcreamery.com/)

To me, this (the unwinding of the large consolidated food companies) is
largely a good thing.

~~~
md2be
Yep - Walmart the largest buyer of milk now owns their own farms and uses milk
as a loss leader. Dean Foods former CEO was an alleged crook. Their packaging
and advertising looks like it came out of the 1970s. Here we are in the Keto /
Intermittent fasting era - and they failed to provide a cream. These folks
gave up long ago. Expect a nice bounce back.

------
fmakunbound
I always thought it was weird to be drinking the breast milk of another
species.

~~~
JTon
More or less weird than eating the flesh of another species?

~~~
fmakunbound
Definately more weird.

Apart from humans, do any other species drink milk from another species?

~~~
JTon
A house cat has no qualms drinking cows milk when given the opportunity. I
think the answer to your question reveals more about capabilities than it does
about specific tastes.

------
t0ddbonzalez
> "Despite our numerous achievements during the past 18 months, the Company
> continues to be impacted by the rising cost of raw milk..."

Out of curiosity, how much is a US dairy farmer paid for a gallon of milk?

~~~
t0ddbonzalez
Never mind, found this Guardian article from 2018:
[https://www.theguardian.com/world/commentisfree/2018/jun/09/...](https://www.theguardian.com/world/commentisfree/2018/jun/09/milk-
canada-us-trade-war)

> "In 2016, Canadian farmers received an average price of C$0.79 a litre for
> milk, compared with C$0.49 on average for US farmers."

So it appears that US farmers are paid roughly the same or slightly more than
their European counterparts.

------
burundi_coffee
Time for government cheese again I guess?

~~~
criddell
I have relatives who run dairy farms in Ontario and they have a quota system.
It stabilizes the market tremendously and as a result, they can make pretty
big investments on their family farm. The downside, of course, is that
consumers pay more.

~~~
specialist
_"... consumers pay more."_

I wonder about that. Has anyone studied this? In general, I mean.

Sure, the retail sticker price is higher. But in my tax payer role, I also
pay. If the government impairs the Freedom Markets™ with quotas and price
supports, is society paying more or less over the long term? Factoring in
bankruptcies, asset bubbles, crashes, unemployment, and so forth.

(Asked as someone who despises how the USA does ag subsidies.)

It's a tough thing arguing the overall a system is cheaper when my apparent
cost is going up. Like the single payer debate in the USA. It seems like a no
brainer to prefer a tax burden which is lower than my (and my employer's)
health insurance premium.

But the optics suck, right? People will go out of their way to avoid taxes.

------
lalos
The invisible hand at play, specially if it is true that plant based milk are
taking away market share from the milk industry. Hope the government doesn't
bail out or protect the industry against what the free market demands.

~~~
m463
There's lots of evidence milk isn't as good for you as the dairy industry
advertises.

~~~
t0ddbonzalez
> " There's lots of evidence milk isn't as good for you as the dairy industry
> advertises."

lol at this ridiculous comment. Present the evidence please.

How many millions of years do you think mammals have been drinking milk for?

~~~
nerevarthelame
You're right that they should present the evidence, but "How many millions of
years" isn't an especially convincing counterargument either. For most of
those millions of years, mammals have been drinking strictly the milk from
their species only during their infancy.

~~~
bluGill
About 1/3rd of adult humans have genetic mutations to make drinking milk safe.
(by coincidence most of those adults speak English). Because of that
adaptation the other species argument is invalid.

------
dreen
Their mistake was not buying milk.com

