Dairy has a tangled Legacy

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BY ART HOVEY / Lincoln Journal Star

FAIRBURY — It began as a happy story.

The little guys carving out a little bit of dairying space in the land of the big guys. Milk in returnable glass bottles and in chocolate, strawberry and even rootbeer flavors in Lincoln and area stores. A caricature of Bessy T. Cow saying no to growth hormones.

Now, in less than two years, the story has taken a grimmer turn.

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Legacy Dairy has closed its doors in Hallam. Owners Rex and Debbie DeFrain are looking for a buyer. (Robert Becker)

Locked doors at the Hallam processing plant. Weeds growing up around Rex and Debbie DeFrain’s empty milking barn. An exhausted husband and wife huddled around their kitchen table trying to explain what went wrong at Legacy Dairy.

Rex DeFrain, 55 and raised in a cow-milking family, considers carefully when asked if this is an example of somebody trying to buck the system and having the system break them.

It’s not that simple, he said.

“I said when we started we were rolling the dice.”

In fact, in a 90-minute interview with the DeFrains and in follow-ups with other sources, this sounds more like an example of the many things that aren’t so simple.

Legacy Dairy began as a mutual quest for Rex DeFrain of Fairbury and Jerry Bond of Avoca to make their families the masters of their own fate, from their cows right on through to other people’s milk mustaches.

Lancaster County commissioners were impressed enough with their spin on the slogan to “buy fresh, buy local” to offer up to $300,000 as a partially forgivable loan in 2006. The federal Small Business Administration came through with a loan of about $500,000.

Hallam Postmaster Kelly Peterson knows about the more recent and more sobering scene down the street. The trays full of empty milk bottles inside the door. The parked trucks. The sign that says, “Monday, Aug. 4. Still no milk for processing.”

“They had a great product,” Peterson said. “A great product. I thought the milk was much better coming out of bottles. It stayed colder longer.”

While Rex DeFrain says no to simple explanation, he says yes to a wide range of contributing factors.

The strain of rushing 40 miles back and forth between 100 cows and building a marketing scheme from scratch. The $400,000 cost overrun in converting a building into a refrigerated headquarters.

The DeFrains don’t deny some issues with milk quality.

And Dan Borer, dairy division manager for the Nebraska Department of Agriculture, said those problems persisted even as business operations ceased.

“The state did not close them,” he said, “but there were milk quality problems.”

Returnable glass bottles may have added to the size of the sanitation challenge, he said.

“People are supposed to rinse them out and clean them up at home, but they don’t sometimes.”

Rex DeFrain cites what he sees as another inescapable conclusion: that the Kansas City-based Dairy Farmers of America cooperative had their Southeast Nebraska trade territory so locked up that he couldn’t persuade enough small producers in the Hallam area to sell their milk to Legacy —  even at a higher price.

“If we had been able to purchase milk from small dairies around Hallam, or even from the co-op itself, I think we’d still be in business.”

Right to the end, said Debbie DeFrain, new orders for the finished product were coming in.

Right to the end — and to this day — she believes they did their best to reward the faith Lancaster County commissioners placed in them and to meet the goal of 16 full-time employees after two years.

“We spent that grant money exactly as we would have spent it as our money,” she said.

Lancaster County board member Bernie Heier said he and his peers don’t know much about the details of the plant’s demise.

“It’s our $300,000, I know that,” Heier said.

Is he worried about getting it back?

“Any time any business closes and they have your money, you’re always concerned about that — particularly in these unstable economic times for everyone.”

Rex DeFrain pointed to an upcoming meeting with lenders and possibilities for selling the plant.

In looking back to his failure to attract more outside interest from milk suppliers, DeFrain acknowledged his checkered history with Dairy Farmers of America.

He resigned from one of its boards of directors in 2002 even as he switched his own supply allegiance to a competitor.

“I was raising questions down there that they didn’t like,” he said.

Much more recently, as he fought to keep the doors open in Hallam, he approached cooperative members about sending milk his way even though they were signed up to sell all their production to the cooperative.

Eventually he got a letter from a cooperative attorney advising him to stop his “torturous interference.”

Randy McGinnis, the cooperative’s chief operating officer for a grouping of 10 Midwestern states, confirmed the thrust of the letter and also a decision to reject a request to sell cooperative-owned milk to Legacy Dairy.

There were no payback sentiments involved, McGinnis said.

“We gave it due consideration and we declined the opportunity for business reasons.”

McGinnis disputed DeFrain’s contention that the cooperative has a virtual monopoly grip on the milk supply in Southeast Nebraska.

But Max Kimmerling, 81 and a life-long dairyman at Beatrice, said DeFrain is not far off.

When DeFrain started in the dairy business in 1974, there were about 3,500 dairy farmers in Nebraska. The federal count of the average number of licensed dairy operations in 2007 is closer to 350.

The loss suffered by two families and by a town pounded by a 2004 tornado is not about a poor work ethic, said Hallam Postmaster Peterson.

“It seems like they worked 24 hours a day. It’s a sad thing. I’m going to miss them.”

Reach Art Hovey at 473-7223 or at ahovey@journalstar.com.