by SUSAN MANN
A long-simmering, acrimonious dispute between Organic Meadow and Dairy Farmers of Ontario over organic milk supply has spilled into the public realm as Organic Meadow was granted a court-approved extension Wednesday to file a proposal for creditors.
The Ontario Superior Court of Justice, bankruptcy and insolvency section, in London approved an extension to June 16 for Organic Meadow to develop its proposal for creditors. Early in April, Organic Meadow Co-operative, Organic Meadow Inc. and Organic Meadow Ltd. each filed a Notice of Intention to make a proposal under the Bankruptcy and Insolvency Act so they could restructure their operations. MNP Ltd. was appointed trustee.
In its April 27 report, the trustee says it supported the companies’ request for an extension so that a potential purchaser, who has filed a Letter of Intent dated March 30, 2015, has time to complete its due diligence. The 45-day due diligence process is underway and expires May 14. The potential purchaser wasn’t identified in the report.
An Organic Meadow official also declined to comment on the potential purchaser’s identity. “As a privately-held organization, we do not publicly comment on such affairs,” marketing manager Michelle Schmidt says by email. “The continuation of the formalized restructuring process will allow the organization the opportunity to put forth a viable proposal and maximize value for all stakeholders.”
The trustee’s report says before Organic Meadow sought creditor protection it was in the process of finding a strategic partner or investor. “Given the nature of their business, the likelihood of a going concern sale or investment is enhanced while the companies remain in possession and control of and carry on their business,” the report says.
Dairy Farmers of Ontario did not oppose the request made by Organic Meadow in court April 29 for an extension, says Graham Lloyd, general counsel and communications director. “We reserve our rights to oppose at another date.”
Dairy Farmers is an unsecured creditor and is owed about $850,000 for unpaid milk deliveries made in March.
In an April 24 affidavit sworn in Guelph, Organic Meadow CEO Don Rees says each of the Organic Meadow entities have separate boards and maintain separate financial statements. The co-op is a holding company that holds controlling ownership in Organic Meadow Inc., which owns the Organic Meadow and Steen’s Dairy brands, the dairy processing plant in Guelph and has an ownership interest in Organic Meadow Ltd. On behalf of the co-op, Organic Meadow Inc. administers the relationship with organic farmers to expand the organic milk market in Ontario. The Organic Meadow Ltd. entity operates the processing plant.
Rees couldn’t be reached for comment.
Organic Meadow Ltd. sells more than 85 Organic Meadow and 10 Steen’s Dairy branded products to retailers and distributors across Canada. In 2015, Organic Meadow Ltd. has gross revenues of almost $30 million, he says in the affidavit.
Throughout his affidavit, Rees described the relationship between Dairy Farmers of Ontario and Organic Meadow as “not good” and “difficult.” He also portrayed a picture of the tremendous power Dairy Farmers of Ontario has over the processor.
“The ability of Organic Meadow to operate is entirely dependent on DFO,” he says. But “in many respects the viability of the organic milk market in Ontario is, in return, dependent on Organic Meadow continuing to operate.”
The co-op’s 60 dairy farmer members produce more than 70 per cent of Ontario’s organic milk supply and “the follow-on effects of the failure of Organic Meadow would, I believe, have a serious adverse impact on the organic milk market in Ontario,” he notes.
The trustee’s report says since filing for creditor protection, Organic Meadow, its lawyer and the trustee “have spend considerable effort and time stabilizing the companies’ relationships with key stakeholders,” mainly Dairy Farmers of Ontario and RBC, which provides operational funding and is Organic Meadow Ltd.’s senior, secured creditor.
Organic Meadow has blamed Dairy Farmers for its financial problems because throughout the late fall and winter period it provided Organic Meadow Ltd. with inadequate supplies of milk to make its yogurt, cream cheese, butter and other products. Organic Meadow began to experience supply problems in September 2013, but “the situation worsened in November 2014 through March 2015,” Rees says in the affidavit. The operation of the supply management system for milk “is the root cause of the financial situation” Organic Meadow faced in April 2015 that required it to file for creditor protection.
Organic Meadow’s inability to buy the organic milk from its own farmer co-op members from November 2014 to March 2015 “resulted in a 20 per cent reduction in sales and lost revenue of about $800,000,” Rees says.
Under Dairy Farmers policies, farmers sell their milk to Dairy Farmers of Ontario, which pools it and sells it to processors. Processors manufacturing drinking milk and cream get first crack at the milk supplies, along with those making yogurt and ice cream. Milk to make other products, such as cream cheese and butter “can only be purchased by processors if there is a surplus after the requirements of processors for drinkable milk and cream are satisfied,” he says.
Lloyd says “we don’t agree with his (Rees’) assessment.” Organic Meadow’s financial conditions “prior to us identifying that we would need to receive assurance for payment of milk gave us no confidence that they would be in a position to pay for milk on an ongoing basis.”
About Organic Meadow’s lost sales due to inadequate milk supplies, Lloyd says, “I don’t think their numbers support the assessment they have concluded. There was no shortage of milk prior to November. If you look at their business operations in the period prior to November of 2014, they were losing money on a regular basis.”
Lloyd notes, “to suggest that their financial troubles began in November 2014 is not consistent” with their actual operations.
Since Organic Meadow filed for creditor protection, there has been continued acrimony in the relationship between the two sides with Rees saying Organic Meadow plans to launch appeals of Dairy Farmers decisions on milk supply if things can’t be worked out through negotiations.
The situation has also given the public a peek into the fierce competitive pressures from multinational corporations Organic Meadow faces in the organic fluid milk market, which it developed and grew.
Rees says the drinkable organic milk and cream market is highly competitive with multinational companies recently entering the market and “taking advantage of Organic Meadow’s years of investment to grow the organic dairy market. They have taken market share away from Organic Meadow by submitting bids to grocery retailers and food service companies that combine large conventional milk sales with small, add-on organic milk sales.”
He adds that Organic Meadow is finding it increasingly difficult to compete in this market but continues to do well in specialty channels, but with relatively small volumes. Organic Meadow is able to be profitable in the market for organic dairy products, such as yogurt, cream cheese and butter, and is “increasing its focus on these markets.”
But milk supply problems plague the company. “Until the demand of Organic Meadow’s competitors for the available organic milk – milk produced by members of Organic Meadow co-op – is fully satisfied, Organic Meadow is unable to obtain organic milk to produce dairy products for sale to its customers.”
Rees says the milk supply dispute between Dairy Farmers and Organic Meadow is
“adversarial” and “resulted in a great deal of mistrust between Organic Meadow and DFO.”
Currently “there appears to be sufficient organic milk available to meet Organic Meadow’s needs,” Rees says. But the “hang-over from supply issues Organic Meadow Ltd. encountered in November 2014 through March 2015 is, however, still having effects on Organic Meadow and its financial performance.”
Dairy Farmers change in Organic Meadow’s payment terms to cash on delivery from previously giving it 22 days to pay for milk supplies made it impossible for the company to both pay the $850,000 it owed for March milk deliveries and meet the new terms. Dairy Farmers threatened to cut off Organic Meadow’s milk supplies if it didn’t comply with the new terms, Rees says, noting he considered Dairy Farmers would actually follow through with that threat and then Organic Meadow “would have had to immediately cease to carry on business.”
The board carefully considered the situation “but resolved to commence these proceedings with a view to staying the obligation to pay the $850,000 and with a view to ensuring a stable supply of organic and conventional milk,” Rees notes.
Organic Meadow makes some dairy products under the Steen’s Dairy brand using conventional milk. There isn’t a shortage in conventional milk supplies. BF
DFO had promised milk supply says Organic Meadow CEO
by SUSAN MANN
The crux of Organic Meadow’s milk supply dispute with Dairy Farmers of Ontario is it considered it had an arrangement with the marketing board that provided the dairy-processing arm of the company with enough milk to meet its needs, says CEO Don Rees.
In an April 24 sworn affidavit, Rees says “the root of the dispute between DFO and Organic Meadow involves the termination by DFO of that arrangement.”
Rees adds “DFO contends it had grounds to terminate the arrangement.” But Organic Meadow’s view is the marketing board did not have “proper grounds” to end the deal.
There were no details in the affidavit on the terms of the arrangement.
Graham Lloyd, DFO general counsel and communications director, says that even though Organic Meadow co-op members produce 70 per cent of the organic milk supply in Ontario that doesn't impact "how we treat processors with respect to milk supply." He said they treat all processors equally "with respect to milk allocation" and Dairy Farmers doesn't give any processors preferential treatment.
In a footnote to the main affidavit, Organic Meadow says it has triggered its appeal rights regarding Dairy Farmers’ decision to terminate the milk supply arrangement and “if there is no negotiated resolution with DFO we will have to proceed with that appeal,” Rees explains.
He adds that Dairy Farmers is preparing an organic milk policy that Organic Meadow “hopes will address” milk supply matters. But so far Dairy Farmers hasn’t released a draft of the policy for comments.
“All current and future investors will find a clear organic milk policy to be of benefit to their investments in Organic Meadow,” he says.
The company may also be heading to court over milk supply. “If DFO and Organic Meadow cannot come to terms on going forward supply, further attendance before the court to determine the terms DFO can impose on Organic Meadow Ltd. may be required,” Rees says. BF
Comments
The issue, although Mr. Rees carefully avoids coming right out and saying so, is a battle between DFO-style communism and free enterprise.
The other major point Mr. Rees made, but didn't make clearly enough, was that there wouldn't be an organic milk supply for DFO to bully if it wasn't for the farmer members of this particular co-op.
Therefore the organic dairy farmer members of this co-op should go "on strike" and refuse to deliver milk at all - or, in other words, take the position that "if we can't get access to our own milk, nobody will" and then let DFO try to explain to:
(A) irate Minister(s) of Agriculture
(B) even-more irate CEOs of the major dairy processing companies who suddenly won't have a supply of organic milk
(C) gleefully-chortling reporters from the Globe & Mail and the National Post
just exactly how DFO's bullying tactics serve anyone but DFO's need for control.
If going "on-strike" doesn't appeal to organic farmers, civil disobedience in the form of a well-televised pouring of organic milk on the lawn of DFO headquarters and Queens Park should produce exactly the same results.
Stephen Thompson, Clinton ON
I think this adds some clarity, to the situation, there was only 4 months with a milk shortage, not years of shortages.
OM in this story even says they are increasingly having difficulties being competitive in this market place, against conventional dairies with a large offering of products.
They didn't built on their product offering soon enough, when they purchased Steens they should have really put a big focus on co marketing rather then letting the brand fade.
Good businesses should survive and poorly run ones should fade away regardless if there a coop or not.
Sean McGivern
In a business based on constantly flowing inventory and tight margins, even a week of incoming inventory shortages can be fatal and four months even for a business with 100% equity can be, and often is, just as bad.
It's like this, in exactly the same way that many dairy farms are highly-leveraged to the point where even a small drop in production can render the farm unable to pay its bills, any similarly-leveraged processing business can experience the same problems when it can't get enough inventory to keep its production up to point where the cost/volume/profit equation becomes positive.
Or, to look at it another way, what DFO did to this co-op is exactly the same thing as if DFO told dairy farmers that for the next four months they're going to be able to ship only 75% of the milk they have quota for, and not just that, they're going to have to wait 90 days longer than normal for their money.
The situation had nothing to do with "product offering" and/or "brand fade" but had everything to do with not being able to get, thanks to DFO, enough product to offer.
Stephen Thompson, Clinton ON
Glad you now see the light and also would say you now agree that that subsidies paid to pork and beef farmers hurt other farmers . Also the pork buy out hurt the industry and processors as well .
Anonymous comment modified by editor.
any subsidies paid to Canadian pork and beef farmers over the past 40 years are little more than:
(A) supply management injury assistance programs
(B) ethanol injury assistance programs
(C) both (A) and (B) above
Why is it impossible for anonymous supply management supporters to see that supply management is the "ground-zero" or "epicentre of evil" which caused:
(1) the demise of Organic Meadows?
(2) most of the stratospheric price/earnings multiples for land crippling the entire non-supply managed sector of agriculture?
Stephen Thompson, Clinton ON
Inventory turnover ratios measure how quickly your inventory sells. For example, if Organic Meadows had $200,000 worth of milk on hand at any given time and sold $200,000 worth of milk each week, their inventory would turn over once a week or 52 times a year.
Contrast this to a business which might have $200,000 worth of inventory on hand at any time, but which sells only $200,000 worth of product per month - this business would have a yearly inventory turnover of 12 times.
Therefore, a business which has a weekly inventory turnover, and experiences inventory shortages for four months has 16 separate occasions to lose money because of inventory shortages, whereas a business with a monthly inventory turnover experiencing inventory shortages for four months has only 4 separate occasions to lose money because of inventory shortages.
To go one step further, a grains farmer and beef cow farmer have only one inventory turn per year meaning that they have only one occasion per year to lose money because of inventory shortages.
Now, if as I suspect, the inventory of a dairy processing plant turns over daily, a four month shortage of milk would have given this plant 120 different occasions to lose money - thereby making Mr. McGivern's inference as well as DFO's Graham Lloyd's inference that a four month shortage of milk would have been a relatively insignificant contributor to the financial woes of this company, ludicrous to the utmost.
While I'm prepared to forgive Mr. McGivern for not understanding the significance of rapid inventory turnover, I'm not prepared to forgive Mr. Lloyd because, as a lawyer by training, and with a staff where there should be at least one person who has taken a course in Business Finance at even the high school level, there is no excuse for him to gloss over, or be dismissive about, the absolutely-vital importance of adequate inventory supplies in a business with a high inventory turnover ratio.
Stephen Thompson, Clinton ON
Stephen, My point is that it's not new news that they have had decades of financial troubles, it's not as if they were a profitable company for 25 years then DFO pulled the rug out from under them and this financial issue arose.
They have had financial issues and had different investors get on board and then get off again when they realized these people aren't willing to run the coop like a sound business.
The last big investor they had was Investco and they bailed, they didn't bail because it was such a well run profitable business.
Sean McGivern
Mr. McGivern doesn't have the educational and/or experiential qualifications to make credible assessments or statements about the financial and/or managerial capabilities of any professionally-managed, quasi-public business, even one on whose Board he might serve as a Director.
Therefore, Mr. McGivern's claims that the cancer of "decades of financial troubles" was more to blame for the abrupt end of Organic Meadows than the sudden impact of getting hit by the bus of DFO's decision to not give them enough product to survive, is little more than uneducated and unqualified speculation, not to mention the sort of self-serving "blame the victim" rhetoric proffered by DFO as a convenient means of deflecting blame away from themselves and their "everything for DFO, nothing for anyone else" policies.
Not just that, but Mr. McGivern's claims that the Board(s) of Directors of Organic Meadows weren't/aren't "willing to run the co-op like a sound business" are nothing but scurrilous ad-hominem attacks on the character of and integrity of those who chose to serve on the Board of Directors of Organic Meadows.
Finally, Mr. McGivern is offering hearsay evidence about the decision making processes made by various investors - if he can point us towards any statement made by Investco explaining why they sold their shares in Organic Meadows, I would invite him to do so - if he can't, I suggest he keep his unfounded and unsubstantiated opinions about Organic Meadows'
(A) Investors
(B) staff
(C) members of the Board of Directors
to himself.
Stephen Thompson, Clinton ON
Thank you Mr Thompson for expressing my thoughts and experiences in better words than I could have without me publicly defaming Sean McGivern
G Kimble
Kimble you, keep pretending like you've got some dirty on me, nonsense, I have spent my whole life volunteering and supporting the farming community any way I can, and one who knows me knows that I am passionate about food system and want to make it better. I also farm and run an organic grain business that works with dozens of farmers each year and they are all long time growers for my company, so your suggests that aim to try and paint me in a poor light have zero basis and are totally foolish.
I find it ironic that no one I have spoke t has ever heard of any one named G Kimble, I suspect that this isn't our real name ....
Sean McGivern
Mr.Thompson's hate for supply management seems to blur his sense of reality on every several issues, as he tries to link them all to SM.
Although I am by no means a supporter of supply management, I can not agree with his suggestions that supply management is ruining organic meadow.
He neglects to see that there is another independently organic milk seller in Ontario who operated in the same system that is hugely successful.
I talk to several organic farmer members who I am friends with who have a direct knowledge of the situation at the coop and I believe their information to line up with the state of affairs were all reading about in the farm papers.
Sean McGivern
Ps I worked for them over a decade ago but was not on their board as you have suggested
Mr. McGivern would have us believe his un-named "friends" happen to have the qualifications and/or experience he lacks in the matters at hand - it simply doesn't matter how many real or imagined "friends" Mr. McGivern conjures up and how much unprovable knowledge he attributes to them, the fact of the matter is that even a cancer patient can, and in this case did, die of asphyxiation thanks to DFO not allowing them to have access to the milk produced by their members.
It's like this - when Ted Minten and Tony McQuail lay the blame on DFO for shorting the Co-op's milk supply, they are all the "friends" anyone needs to cite when attaching blame.
Stephen Thompson, Clinton ON
I can't believe you made that statement, Sean
If you look in a mirror you should see some of your own past ventures
taking yourself and other guys down with you
G Kimble
G Kimble, please enlighten me as what past ventures and what guys I took down with me ?
You come on here making comments time and time again with little or no truth them and then you vanish, your comments are always distorted and false as far I can recall.
Sean McGivern
As I recall Practical Farmers of Ontario was going to be the "next big thing" vying for the designation of Registered Farm Organization. I was on their website and there has been nothing new added ...last newsletter in 2013....Have all the issues that you were "fighting against" been resolved??
G Kimble
Wrong again PFO was never opting to be a registered farm organization and this year we did 2 very large events which were highly successful, I guess you just haven't been keeping up the farm news..
Sean Mcgivern
I did see the event with Joel and Greg ...but you are correct I haven't seen any thing about 2 successful events planned for this year?...I certainly keep up with farm news but haven't seen any news from PFO or Sean McGivern...even when I used "search engines"
G Kimble is always rapid to run the efforts of others down?, Kimble what organizations do you volunteer for because I've never seen your name related with any organizations are you even a farmer? All that I hear from you is you running other people down and you never have any suggestions to improve the ag sector you only want to runother people's ideas downsean
Sean McGivern
I too recall the PFO claiming to become a registered accredited farm organization . Think it was at the time when there was a riff between Sean and NFU . Maybe some one has conveniently forgotten .
This issue was voted on at the first PFO AGM. This is noted in the first newsletter as well:
http://practicalfarmersontario.ca/wp-content/uploads/2014/02/PFO-newslet...
Some in attendance were in favour of accreditation. However, this was for all members to openly vote on and as noted "58% said they would support the PFO without accreditation".
A straw poll ? You have to be kidding me ! Right ?
Oh well I know other much larger accreditated organizations who make decisions by straw polls also . Maybe PFO is closer than they think or know !
Well people from both sides got to voice their opinion publicly at the AGM and a vote was taken. It was a transparent process for all.
I remember several times reading the were going to get registered.
From day one the PFO voted at the first agm held to not be an accredited farm organization.
Sean McGivern
This was discussed at the first AGM. However, Sean is correct that accreditation was not part of the PFO agenda after the first AGM and this is noted in the first PFO newsletter available online.
http://practicalfarmersontario.ca/wp-content/uploads/2014/02/PFO-newslet...
It's not a good sign to be remembering things that did not happen!
The newsletter proves that PFO never did pursue registration.
Is that three people that remember something that didn't happen...or is it the same person three times?
Kimble you still haven't answered my questions, since your so critical of the work of others and their organizations, please tell me what roles you hold and with what organizations,
You are always bashing the work of others, but yet I have never heard or seen anything you have done to try and make farming better for those who farm, are you even a farmer your self?
Sean McGivern
Oh dear Sean ...I'm sorry I haven't gotten back to you as soon as you thought I should have. I have been taking advantage of the good May planting weather we have been getting. Just hoping for a little more moisture.
My argument with you started when you had so much to say about the Organic Meadow's business. Then I remembered your Speciality Grain Company, your Organic Status and the PFO organization. There are plenty of farmers working within communities that don't have to have their "names in lights"
G.K
Sean, this province is becoming more urbanized every year. Agriculture has influence on the provincial economy and government every year. I don't agree with everything you say on here. However, if you want to continue advocating what you believe in - I think your efforts will be more appreciated outside Ontario.
- JT
So clearly you don't volunteer and your one of those people in the cheap seats who just yells cheap shots I guess,
Sean McGivern
as I said earlier , there are plenty of farmers who work for the farming community without "grandstanding". You have no idea what my volunteering life involves. Stop worrying so much about an individual poster and debate the issues and facts
GK
I love how you try to belittle the work of others and then when your called out you dance around the question, are you a politician ?
No need for you to grand stand, to answer my question, it's a simple question, what farm organizations do you give your time to freely?
Sean McGivern
The DFO should not be the only way to sell milk in ontario
If there is any truth to the talk in the farm community it looks like Organic Meadow might be bought out by Agri Foods International and that would likely leave unsecured creditors lucky to get 10 cents on the dollars at best,
I think I guessed this one time before but was mocked by others on here for it, lets who is right in the coming days .....
Sean McGivern
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