St. Thomas Dairies cuts production, blames 'ever-increasing utility costs'
Published: October 5, 2012
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ST. THOMAS - Another St. Thomas business is scaling back operations after the latest utility rate hike from the V.I. Water and Power Authority.
Starting Sunday, Trans-Caribbean Dairy Corp., better known as St. Thomas Dairies, will no longer produce or distribute milk in gallons or half-gallons. The shift will be accompanied by a reduction of its workforce, with eight of the company's 37 workers losing their jobs, according to company officials.
"It's disappointing," St. Thomas Dairies Manager Priscilla Hintz said. "We have a lot of good, loyal employees who have been with the dairy since we opened in the '60s. It was a hard decision to make, but it was the only recourse we had to keep at least a portion of our employees."
St. Thomas Dairies will continue to manufacture milk and juices to fulfill contracts with the V.I. Education and V.I. Human Services departments and will continue to produce ice cream and some fruit juices for general distribution, according to President Fred Hintz.
The milkshake stand in front of the dairy on the road to Magens Bay also will remain open.
"For now," Fred Hintz said.
In a press release announcing the "painful decision" to scale back the plant's operations, Fred Hintz blamed "ever-increasing utility costs" as the primary culprit. He also cited competition from imported milk and higher raw materials costs as other contributing factors.
"Milk is not profitable to manufacture and deliver here," Fred Hintz said.
Elaborating on these forces Thursday in Fred Hintz' office above the plant, the father-daughter business partners said the company has been struggling for months to pay its employees and its bills - most notably the $45,000 one that comes every month from WAPA. That bill alone equated to about a third of the company's gross sales in August.
Furthermore, Priscilla Hintz said, the prices of the raw materials they use to make milk products - things such as milk powder, butter and sugar - all have gone up in recent years, and even more sharply this year because of a drought in the U.S. Midwest.
Fred Hintz said the price of corn is also largely to blame for the higher prices. He said the rise of ethanol, which is produced using corn, took large amounts of corn out of the animal and human food chains, effectively driving up the price of a bushel of corn, which he said stayed around $2 between the 1950s and 1970s. The price remained below $3 a bushel as recently as 2006 but is now hovering around $8 per bushel.
"When they started taking these huge amounts of corn out of the system, the price of corn quadrupled, and there were not the surpluses of dairy products that there used to be," Fred Hintz said.
Priscilla Hintz also said that the public's tastes have changed. Consumers now are apt to choose dairy alternatives, such as soy, almond, hemp or coconut milk, she said.
"Ten years ago, you did not see that kind of variety," she said.
Meanwhile, larger dairy plants stateside are better equipped to deal with the rising prices because of their volume advantage, Fred Hintz said.
"Volume covers a multitude of sins," he said.
Off-island suppliers have an automatic 5 percent advantage when dealing with V.I. grocery stores, because suppliers that do not have a V.I. business license do not have to pay the territory's gross receipts tax, Fred Hintz said.
The Hintzes' operation ran into money trouble in 2010, when high utility costs and a $300,000 unpaid bill from the Education Department threatened to close the business. Fred Hintz said the government has been "very good" about paying its dairy bills since then. But the price of electricity has continued to rise - roughly 65 percent since 2010, according to records from the V.I. Public Services Commission.
Fred Hintz said the two main areas that will remain operational - milk for school lunches and ice cream production - have continued to pay their own way. He said it is easier to be competitive selling ice cream in grocery stores than it is to sell milk, and the company will continue to export its frozen flavors to St. Croix, the British Virgin Islands and St. Martin.
St. Thomas Dairies' announcement comes 10 months after Island Dairies on St. Croix closed last December, citing rising costs and declining sales as the main factors.
Though Fred Hintz said he may seek financing for a $5 million solar array that could provide relief from the plant's utility costs, when asked to assess the business environment in the territory, he used one word: "dismal."
- Contact reporter Lou Mattei at 714-9124 or email firstname.lastname@example.org.