BINGHAMTON — The former landmark H.P. Hood dairy manufacturing facility on the south side of Binghamton is poised to reopen under the corporate name Mountain Fresh Dairy LLC (MFD).
The plant, which had been shuttered for two years, will operate as a 100 percent Cholov Yisroel facility. The designation of Cholov Yisroel meets the highest standards of kosher supervision, including watching the dairy herds to ensure that no milk from non-kosher animals is mixed with the milk from kosher animals.
Why are the principals investing now in an industry that is highly competitive, when Americans drink nearly 40 percent less milk per-capita today than in 1970, and at a time when there is an overabundant global supply and falling prices?
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For MFD, the answer is simple — rising demand in a niche market and consumer complaints about the freshness of Cholov Yisroel milk. The primary consumers of Cholov Yisroel products are ultra-Orthodox Jews concentrated in major cities along the Eastern Seaboard. A new analysis by the Pew Research Center found that 27 percent of all Jews in America who are younger than 18 live in orthodox households. Of those classified as orthodox, 70 percent designated themselves ultra-orthodox. A separate study in 2012 by the United Jewish Appeal–Federation of New York reported that 60 percent of Jewish children in the five boroughs of New York City live in orthodox homes. CNYBJ estimates that the Orthodox Jewish community in America today numbers 500,000 to 600,000 people.
A growing population
The Pew study also cited exceptionally high birth rates for Orthodox Jews. While the general U.S. population delivers 2.2 births per family, Orthodox Jewish parents average between 7 and 8 children per family. The compounded birth rate of Orthodox Jews is best exemplified by an Israeli rabbinic leader — Yosef Shalom Elyashiv — who, at his death in 2012, was reported to have more than 1,000 living descendants. The community’s explosive birth rate, coupled with only a small percentage of Orthodox Jews who leave the faith, suggests a growing population and continued demand for Cholov Yisroel products, which carry a premium price. Consumers in major cities can expect to pay 50 cents more per gallon for Cholov Yisroel than for Cholov stam, kosher milk that does not require supervision at the dairy farm. (On Dec. 28, 2014, a quart of stam-kosher milk cost $1.09 at Wegmans in Syracuse; a quart of Cholov Yisroel in New York City kosher supermarkets sold for $1.59.)
“Assuming that we receive all of our permitting and labeling certifications, MFD plans to begin operations in January 2015,” says Gary A. Bensley, the plant manager for the facility. “We’ll start production with liquid milk and water, and over time, add hard cheeses, Greek yogurt, cottage cheese, and sour cream. Longer-term, we’re considering producing ice cream, juice drinks, and yogurt drinks. I expect to start production of milk at 3,500 gallons per-hour and grow from there. In anticipation of expanding production, we have already purchased a larger pasteurizer … The principals chose this plant because it was designed for milk production, was reasonably priced, and located close to a number of local farms to ensure both a steady supply and quality control of the product. There are a number of dairy-farm options within a one-hour drive which maintain high [quality] standards.”
Bensley escorted the author of this article on a tour of the manufacturing facility. “The building has four floors and contains about 70,000 square feet,” notes the plant manager. “When Hood closed the plant in 2012, everything was sold at auction, which meant we had to rebuild all of the pipes, tubing, electrical wiring and fixtures, and purchase the machinery necessary to operate. When the facility ramps up to full production in 2½ to 3 years, we should employ between 85 and 90 people.”
According to a 2013 application for gap-financing filed by MFD with the Binghamton Local Development Corp. (BLDC), the total cost of the project was estimated at $3.5 million. The applicant requested a $200,000 loan from the BLDC to buy machinery and equipment and planned to request another $200,000 from the Broome County Industrial Development Agency (BCIDA). The principals had already expended $150,000 in April 2013 to buy the plant at auction and committed the balance in personal equity to buy new and used equipment. Bank of America had agreed in 2013 to provide $1 million for equipment leasing as part of the financing package.
The BLDC granted a 7-year amortization at the Wall Street Journal prime rate in effect upon board approval, but not less than 4 percent. Two of the three principals issued unlimited, personal guarantees for the loan plus $200,000 life-insurance policies for the term of the loan. The furniture, fixtures, equipment, and all remaining assets funded through the two public agencies were also pledged with the BLDC and the BCIDA sharing first interest through an inter-creditor agreement.
The BLDC loan also required MFD to create a few jobs for individuals in the U.S. Housing and Urban Development defined low-moderate income categories. In addition to the low-cost loans, the principals were recipients of New York State Excelsior tax credits over a 10-year period. (The Excelsior program grants tax credits for job creation, investments, research and development, and real-property.)
The three principals of MFD are the president, Ze’ev Rothschild, Nathan Hassan, and Norman Rausman. “Ze’ev knows this market best,” affirms Hassan. “He owns three kosher supermarkets (NPGS, known locally as the Co-op) in the Lakewood [New Jersey] area, so he is [both] close to the consumers and very aware of the pricing and problems of Cholov Yisroel products.
“We are still reviewing our distribution channel, which includes conversations with DMS (Dairy Marketing Services) in Syracuse and with other milk distributors who have expressed a strong interest in purchasing our dairy products. Our customers are located primarily in the New York [City metropolitan] region and in cities such as Boston, Philadelphia, Baltimore, Atlanta, and Miami. The Binghamton plant will produce only Cholov Yisroel products, which gives MFD a competitive edge in supervision over those competitors who run both Cholov Yisroel and stam milk.” Hassan added that, at the time of our interview, MFD had not yet selected the organizations which would offer supervision of the process.
Other milk producers have already staked out the Cholov Yisroel market. Golden Flow Dairy Farms, Inc., located in Brooklyn, was founded in 1948 and currently has a 55 percent share. Fresh and Tasty has a 22 percent share; Pride of the Farms in Baltimore, a nonprofit corp. which sells its milk mainly to yeshivas around the country, a 12 percent share; and Devash Dairy Farms, Inc., also of Brooklyn, an 11 percent share.
Bensley earned his bachelor’s degree in business administration at Alfred State College. He has decades of experience in the dairy and food industry managing multi-million dollar operations. Bensley has acquired experience in production, sales, distribution, mergers, and acquisitions, human resources, quality control, supply-chain management, construction, labor relations, and administration. Formerly, he was the vice president and general manager of Crowley Foods & National Dairy Holdings in Lancaster, Pa., with responsibility for operations and distribution for five dairy plants.
The MFD manufacturing plant was built in 1915, when J.K. Crowley moved his company from Poughkeepsie to Binghamton. In 1983, Crowley Foods sold the operation for $16.4 million to a Dutch–based firm. In 2001, National Dairy Holdings bought the company for $400 million and turned around three years later to transfer the title to the H.P. Hood Company. The terms of the deal were not released. MFD incorporated on March 4, 2013.
The principals of MFD understand that they are entering a highly competitive niche market, which has limited demographic and geographic distribution potential. The principals also understand that there are a limited number of distributors and that plant operations will take several years to reach peak production. Any concerns about a start-up operation, however, are offset by the selection of experienced personnel to run the plant, a strong financial position, a keen understanding of the retail marketplace for Cholov Yisroel products, and the strong, long-term-growth trend line of the niche market.