As Americans Sour on Milk, Could Famous Dairy Brands Disappear?

As Americans Sour on Milk, Could Famous Dairy Brands Disappear?

ABI Bankruptcy Brief

February 6, 2020

ABI Bankruptcy Brief

As Americans Sour on Milk, Could Famous Dairy Brands Disappear?

As consumers increasingly turn to milk alternatives and thousands of dairy farms are collapsing, milk producers are now faltering, too, putting thousands of jobs at risk and threatening their brands, USA Today reported. The recent chapter 11 bankruptcies of two major milk producers, Dean Foods and Borden Dairy, have shown how a sharp decline in milk sales poses an existential threat to leading dairy brands like Land O' Lakes and TruMoo. Consumption of dairy milk fell about 41 percent from 1975 to 2018, dropping from 247 pounds per person annually to 146 pounds, or about 17 gallons, according to the Department of Agriculture’s National Agricultural Statistics Service. The trends have contributed to a financial crisis for dairy farms for years. More than 94,000 family dairy farms shut down from 1992 to 2018, according to the National Farmers Union. Part of the problem is that even as dairy farms disappear, overall milk production has increased — in part due to improved techniques for cow milking — which has flooded the market with milk. Now, after several years of price drops due to excess supply, farmers have boosted milk prices to try to make up for their own losses. In November, the most recent month in which data was available, the price of raw milk was $21 per 100 pounds, up 22 percent from November 2018, according to the USDA.

CFPB Director Assailed Over Restricting Power to Police ‘Abusive’ Conduct

The Consumer Financial Protection Bureau’s leader came under criticism Thursday from U.S. House Democrats over recent enforcement guidance that some critics said would undercut the regulator’s ability to crack down on abusive industry practices, the National Law Journal reported. Appearing before the House Financial Services Committee, CFPB Director Kathy Kraninger was scolded by Democratic lawmakers over the guidance, in which the bureau said that it was aiming to bring clarity to an enforcement area that financial industry advocates have described as poorly defined. Indeed, in the decade since the Dodd-Frank Act created the CFPB, the financial industry has broadly bemoaned the agency’s power to police “abusive” practices, authority that came in addition to long-established standards for pursuing “unfair or deceptive” conduct. U.S. Rep. Maxine Waters (D-Calif.), chairwoman of the House financial services committee, described Kraninger’s leadership of the bureau as “misguided” and said the new guidance “undercuts” its enforcement abilities. Kraninger’s appearance came two weeks after the CFPB released the guidance. The new policy said the agency would only challenge conduct as “abusive” if the harm to consumers outweighed the benefit. The CFPB also said it would generally avoid labeling conduct “abusive” in addition to “deceptive” or “unfair,” instead bringing standalone cases that would more clearly demonstrate how the agency defines “abusive.” The bureau said it would impose fines only in cases where there has been a “lack of a good-faith effort to comply with the law,” although the agency plans to continue seeking restitution for harmed consumers. 

In related news, Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), said today that she asked the Supreme Court to strip her immunity from President Trump to settle “uncertainty” lingering over the agency, The Hill reported. Kraninger said that she is supporting a legal challenge to the bureau before the Supreme Court in order to resolve questions about the agency’s structure. The Supreme Court is set to hear arguments in March on Seila Law vs. CFPB, a lawsuit that accuses the bureau of being unconstitutional because it infringes upon the president's authority. Kraninger and the Trump administration filed a brief in September asking the Supreme Court to strip a provision from the Dodd-Frank Act, which created the CFPB, that protects her from being fired at will by the president. Under Dodd-Frank, the president may only fire the CFPB director “for cause,” which is generally understood to be misconduct or incompetence. “Congress obviously provided a clear mission for this agency, but there are some questions around this and I want the uncertainty to be resolved,” Kraninger said in testimony before the House Financial Services Committee. “I would very much like to see a resolution on this question because it has hampered the CFPB and its ability to carry out its mission virtually since its inception.”

Analysis: How the Risk Profiles of Large U.S. Bank Holding Companies Changed After the Global Financial Crisis

After the global financial crisis, regulatory changes were implemented to support financial stability, with some changes directly addressing capital and liquidity in bank holding companies (BHCs) and others targeting BHC size and complexity. Although the overall size of the largest U.S. BHCs has not decreased since the crisis, the organizational complexity of these same organizations has declined, with less notable changes being observed in their range of businesses and geographic scope, according to an analysis by the Federal Reserve Bank of New York's "Liberty Street Economics" blog. The analysis explores how different types of BHC risks — risks that can influence the probability that a BHC is stressed, as well as the chance of systemic implications — have changed over time. The results are mixed: Levels of most BHC risks tend to be higher than in the years immediately preceding the crisis, but are markedly lower than the levels seen during and immediately following the crisis.

Commentary: Reforms May Be the Downfall of Pension Funds

The shock of U.S. state and local pension fund losses in 2008 led to a flurry of reforms. These may not have actually improved aggregate funding ratios, but they did stop the decline, according to a Bloomberg commentary. In the next potential recession, the reforms of 2008-16 may prove to be the undoing of a system that has staggered along for decades. The next recession could be mild, or perhaps the current system will prove resilient, according to the commentary. It would still be very painful, of course, to public sector workers, government creditors and taxpayers, but alternative ways of resolving underfunded pension funds might be more painful. Much of the focus has been on the funding ratio of pensions, which is the ratio between the value of assets in a fund to the present value of its liabilities. But this is a theoretical calculation that depends on several hard-to-estimate parameters. Moreover, it only tells us that at some point in the future either someone will have to kick in more funds or promised benefits cannot be paid. It doesn’t tell us when that will happen. Funds can survive for decades — perhaps forever — without full funding. Looking at aggregate numbers is misleading, as a crisis will be triggered by the funds in the worst financial shape, not the average fund, according to the commentary. It is possible for an optimist to hope that aggregate pension assets could cover aggregate benefit obligations with perhaps a few only mildly painful adjustments. But even if that’s true in the aggregate, if enough of the 6,300 state and local pension plans fail, it will cause legal and political changes that will likely end the current system of partially funded defined-benefit plans for public sector employees.

Upcoming ABI Webinar and New Website Will Help Practitioners Navigate the Small Business Reorganization Act Before It Takes Effect on Feb. 19

As the Small Business Reorganization Act of 2019 (SBRA) takes effect on February 19, ABI is holding a special webinar next Tuesday with a panel of experts to identify key provisions to be aware of within the new law. ABI also launched the "SBRA Resources" website to help practitioners and struggling small businesses learn about the new law and stay updated on SBRA developments. To register for free for the "What's the Last Word on SBRA?" Webinar on February 11 at 1 p.m. EDT, please click here.

To visit ABI's SBRA Resources site, please click here.

Duberstein Bankruptcy Moot Court Competition – Call for Preliminary Round Judges

Each year, the American Bankruptcy Institute and St. John’s University School of Law co-sponsor the Duberstein Bankruptcy Moot Court Competition, which brings teams from law schools throughout the country to New York to argue two sophisticated bankruptcy issues. This year, 60 teams are participating in the competition in New York, which will be held from Saturday, February 29, through Monday, March 2, 2020. More than a dozen bankruptcy, district and court of appeals judges will judge the advanced oral rounds and attend the Gala Awards Reception at Gotham Hall on March 2. This year’s hypothetical addresses §§ 365(c)(1) and 1129(a)(10) as tied together by a compelling business bankruptcy fact pattern. The hypothetical can be viewed here.

The Duberstein Competition is looking for volunteers to serve as judges for the preliminary rounds of the competition on Saturday, February 29, and/or Sunday, March 1, at St. John’s University’s Queens campus. We have a particular need for judges on Sunday morning. CLE credit is available, and the commitment is only for one half-day (unless you are interested in participating in multiple sessions). To register to serve as a judge for one or more sessions of the preliminary rounds, please complete this Preliminary Judge Form.

If you have any questions about the Duberstein Competition or serving as a preliminary round judge, please do not hesitate to contact Paul R. Hage, co-director of the Duberstein Competition, at (248) 840-9079 or [email protected].

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New on ABI’s Bankruptcy Blog Exchange: CFPB Settlement Would Bar Lender from Doing Business in 17 States

Think Finance, which had teamed with tribal lenders to offer high-interest installment loans, could no longer make or collect on loans in states that have caps on interest rates, under terms of a proposed settlement with the Consumer Financial Protection Bureau (CFPB), according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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