Vermont's oldest, independent dairy cooperative may not last much longer. At the end of this month, members of the 100-year-old St. Albans Cooperative Creamery will vote on whether to become part of the nation's largest dairy co-op, Kansas-based Dairy Farmers of America.
The Vermont Senate Agriculture Committee will hold a hearing on the proposal Monday. While many consider the merger likely, it's clear farmers are being asked to vote without knowing the full financial impact of their decision.
The parking lot at McDermott's Trucking depot, in Irasburg, was jammed with pickup trucks Thursday. The co-op owns McDermott's, which hauls milk for its members, so it used this Northeast Kingdom location for one of five regional meetings to discuss the pending deal.
More from VPR — Milk Shake Up? St. Albans Cooperative Creamery May Merge With Dairy Farmers Of America [June 24]
Co-op officials closed Thursday's meeting to the media. But I caught up with Ted Taft, who milks about 340 cows in Charleston, on his way in.
"It's too bad the co-op's not making it, but it's just the way it goes," Taft said. "It's costing us money."
Like most St. Albans members, Taft had one overriding question about the deal: what happens to his equity, his ownership stake in the co-op, once it's absorbed by Dairy Farmers of America?
"It's just a matter of whether we're going to retain our equity or, you know, how much equity we might lose, that's all," Taft said.
The co-op mailed a thick information packet to members detailing the potential benefits and risk of the deal. VPR obtained a copy, and the packet says the amount of members' equity will be determined after the vote happens, when the co-op's books are audited and its book value determined.
Taft said it's tough to vote on something without knowing exactly how much it's worth to him.
"They've got to know basically what the deal is right now. They've gotta," Taft said. "If they want people to vote on something, they've got to have something fairly concrete."
Sarah Boutin, an organic farmer and St. Albans member from Newport Center, had similar concerns.
"And I want to know what's going to happen ... if they do the merger and becoming a DFA member and what that would do with my equity that I've been paying in," Boutin said, "and the benefits of the co-op so far and how that would go on."
Other questions concern DFA's own finances. The Kansas-based co-op is heavily leveraged. It's borrowed heavily in recent years to acquire other dairy and non-dairy companies.
In November, Moody's financial rating agency cited the growing debt — including new unsecured loans totaling over a billion dollars — when it slightly downgraded the co-op's credit rating. However, Moody's said DFA has plenty of cash on hand, and should reduce its debt load over the next 18 months.
Closer to the farmers' own pockets is DFA's plan to increase the amount it deducts from members' milk checks to add capital to the co-op. That requirement will also extend to St. Albans farmers if they join DFA.
"DFA sent out a letter to its members announcing that the members' equity requirements under the co-op's capital plan will be doubled," said Peter Hardin, the owner and editor of The Milkweed — a Wisconsin-based newspaper known for its investigative reporting of the dairy industry.
"Folks I talk with on that subject, who are knowledgeable about dairy co-op mergers, are incredulous that the St. Albans members would be expected to vote on the issue without having a pretty clear idea of what equities they will carry into DFA." — Paul Hardin, 'The Milkweed' editor
Hardin is also mystified that St. Albans management has asked farmers to vote on the deal without specifying how much of their equity will be preserved.
"Folks I talk with on that subject, who are knowledgeable about dairy co-op mergers, are incredulous that the St. Albans members would be expected to vote on the issue without having a pretty clear idea of what equities they will carry into DFA," Hardin said. "Basically, I'd say the St. Albans co-op members are voting with blinders on."
St. Albans Cooperative Creamery CEO Leon Berthiaume said there's a good reason that exact equity amount won't be known until after the vote. He says that will be based on the co-op's net book value — both its assets and its liabilities — at the time the deal is closed.
"And so until we finish, you know, what are [the] current year operating results, as well as what are the costs associated with this overall transaction, we won't really know the full net book value until such time," Berthiaume said. "But again, a majority of the memberships' equity will transfer."
Berthiaume said co-op farmers will also have to cover some losses from earlier years.
"That will need to be addressed prior to the close of this transaction, which will be allocated to all the members," Berthiaume said.
St. Albans' financial situation gets to a big reason why this merger seems inevitable to many farmers and experts. The co-op owns a processing plant that needs upgrading. Berthiaume said without a merger, the co-op would have to tap its farmers — already struggling with years of low milk prices — to pay for the investments.
In the financial packet mailed to farmers, DFA does not directly commit to invest in the St Albans plant, but it does say it will do so based on "business and operational needs at the discretion of DFA."
Andrew Novakovic, a dairy economist at Cornell University, said St. Albans succeeded for decades as a small, local co-op. But that may no longer work in today's era of low milk prices, declining demand for fluid milk and industry consolidation.
"St. Albans I think is now finding that a model that worked for them really very well for a long time is now feeling too confining," Novakovic said, "and that they have to be able to find capital from more places than just northern Vermont farms."
More from VPR's Vermont Edition — The St. Albans Co-Op Merger And How It Could Change Vermont's Dairy Industry [July 2]
After a few hours behind closed doors in Irasburg, farmers started to leave the St. Albans meeting. St. Johnsbury farmer Howard Bennett had a few terse words as he headed back to his truck.
"Basically it looks to me like you're getting a place to market your milk, and you're giving them a company," Bennett said. "That's my opinion."
But farmer Ted Taft was more upbeat. He thinks most of his hard-earned equity will be preserved after the deal is done.
"I think it's probably safer going forward with DFA than it would be staying in St. Albans. ... I guess I'm pretty confident they're doing the right thing," Taft said.
Taft and other St. Albans co-op members will vote on the deal at the end of July. A two-thirds vote of those attending the meeting is required for approval.
