Area dairy farmers fear the fallout from scandal

The financial scandal of Italian milk conglomerate Parmalat has reached around the world, threatening hundreds of dairy farms in Pennsylvania and New Jersey.

Millions of dollars in milk payments could be lost by the farmers if the financially troubled food company defaults on payments to suppliers.

Fallout from Parmalat's woes comes as dairy farms in the two states already are disappearing at an alarming rate, in part because of two years of record-low milk prices.

Pennsylvania farmers could lose as much as $5 million a month in milk payments and New Jersey about $1 million a month, according to officials in each state.

"We are, of course, closely monitoring the situation week by week, and making sure the payments are happening on time," Pennsylvania Agriculture Secretary Dennis Wolff said. "It was extremely big last week, but by the end of the week, payments were made on time."

Parmalat's collapse has sent 11 people to jail in Italy, including chief executive officer Calisto Tanzi, who admitted diverting up to $620 million to his family's tourism businesses.

An audit conducted by PricewaterhouseCoopers this month, and released on Monday, showed Parmalat, which operates in 30 countries, grossly misrepresented its finances. Parmalat's actual debt stood at $17.9 billion - nearly eight times more than the company reported last fall.

In a statement about the latest audit, a Parmalat official said "the group is in a condition to make ongoing payments, although there have been a few exceptions."

From his 700-acre farm in Lititz, Lancaster County, Good sells about 12 million pounds of milk each year to Farmland Dairies, a Parmalat subsidiary. Trucks deliver the milk from his farm to a plant in North Jersey, where it is processed, bottled and sold in New York City.

Good was feeling the anxiety from the scandal a world away when his milk check - the final payment for December's milk production - was late.

"I was thinking about calling my bank and borrowing some money to pay my bills," said Good, who owns 280 cows. "It's very tense when there's no cash to pay the bills and to pay labor."

Milk checks arrive twice a month, but there is at least a two-week lag between production and payment, which makes receiving checks on time critical to pay for feed and other labor costs.

Good's check finally arrived a week late, and he received another check - this one on time for the first half of January - last Monday.

Despite Parmalat's problems, Good said he would stay with Farmland Dairies since it pays more than cooperatives. Farmland Dairies also is bonded, giving producers protection from potential losses.

Wolff said about that 600 dairy farms in the state ship their milk to Parmalat. Pennsylvania has 9,000 dairy farms, down from 15,147 two decades ago.

Most northeastern Pennsylvania counties that hug the New York border sell to Parmalat subsidiaries. Parmalat supplies 70 percent of New York City's milk.

Wolff said Pennsylvania farmers could lose between $4 million and $5 million each month - about half of the conglomerate's monthly purchases. The other half is covered by a bond.

"Our producers are concerned, and rightfully so," Pennsylvania State Farm Bureau president Guy Donaldson said. "Whenever a parent company goes belly up and files bankruptcy, it always puts tremors throughout the whole industry."

In New Jersey, the scheduled Parmalat payments to dairy farmers have been on time, said state Agriculture Secretary Charles M. Kuperus. "Still, there is some anxiety in the dairy community."

New Jersey farmers have asked the state to increase the bond amount that Parmalat pays the state to protect them from potential financial losses if the company defaults.

Wally Eachus, a dairy farmer in Mullica Hill, Gloucester County, was undecided whether to stay with a Parmalat subsidiary.

"We gave our 28-day notice to leave on Jan. 4," Eachus said. "By Feb. 3, we'll be free.

"But we don't know yet," he said. "As long as they keep paying us we're going to stay."

Eachus, the state's largest milk producer, ships 39,000 pounds of milk - about 5,000 gallons - each day to Sunnydale Farms, another Parmalat subsidiary, which has a plant in Brooklyn.

A decade ago, there were 450 dairy farms in New Jersey. Only 130 remain today. Of those, more than half sell their milk to Parmalat, including Wellacrest Farms Inc., with 500 cows that Eachus owns with his brother, Virgil.

"It's a big deal if they're not paying," Wally Eachus said of Parmalat. "There are going to be a lot more [farms] disappearing. There are some right on the edge."

Eachus, a second-generation dairy farmer, said he stands to lose about $100,000 each month if Parmalat defaults on payments - which is equivalent to the amount of New Jersey's entire bond.

"A $100,000 bond for the whole state is nothing," he said. "That won't even cover me. I blame the state. If it had a good bond, I wouldn't be worried."

Kuperus, the agriculture secretary, said efforts started this week to increase the bond amount.

Wolff said Pennsylvania farmers had not requested a higher bond amount, and that would only happen if Parmalat defaulted on payments.

Eachus, like Good in Pennsylvania, was anxious about getting his next milk check on time. He has invested heavily in his farm. Two years ago, he installed a milk parlor and stalls - taking out millions of dollars in debt.

"I don't sleep much anymore, especially when it gets near the 20th of the month - when the biggest check comes," Eachus said. "That's when you have the most on the line."

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Contact staff writer Suzette Parmley at 856-779-3818 or sparmley@phillynews.com.

Holy Cow!

Despite Parmalat's problems, Good said he would stay with Farmland Dairies since it pays more than cooperatives.

You are a greedy fool and deserve what you will get...

Parmalat supplies 70 percent of New York City's milk.

Holy cow! How did this monopoly happen?

You are a greedy fool and deserve what you will get...

Know anything about the profit margin for dairy farming? I'm pretty sure greed is not the operative concept here.

Know anything about the profit margin for dairy farming? I'm pretty sure greed is not the operative concept here.

If you were a small business owner and had just found out that a major customer of yours is involved with a massive fraud and securities scandal and could go bankrupt - would you look to find other customers (even at lower payments) or just hope for the best because the criminals pay a little more (at least until they stiff you)?

Sometimes people and companies default on loans. Maybe these farmers need to pay more attention to what is really happening in their contracts especially when working with a foreign company. They essentially loaned the company milk with the promise that they would be paid later...

Maybe dairy farmers could form a pact amongst themselves to work along the lines of a gas station. A truck pulls in and drains 1600 gallons from the bulk tank then the driver pays the farmer with the company checkbook.

Dont think I dont care about the farmers, I do. I follow whats going on in ag and cant help but to notice how far American farmers, especially the large agribusinissmen, are willing to go to screw themselves and then they always turn to the rest of us asking for more subsidies.

Stop subsidies all together and tell them all to run like a responsible business or sell the farm to someone who will.

How did Parmalat get such a big stake in the US Milk business?

Ping.

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