Aug. 22—LOWVILLE — With last-minute order cancellations from Kraft Heinz causing hundreds of thousands of pounds of milk to be dumped and string cheese manufacturing at the plant hanging in the balance, Lewis County farmers and the co-op that represents about 80% of them are considering building a value-added product manufacturing business of their own.

According to agribusiness specialist and Cort Consulting Group President Robert Cort, his team was hired by the county last year in support of the work being done by the Agriculture Sustainability Council to look at what dairy farmers and Lowville Producers Dairy Cooperative Inc. could do to stabilize the milk market that has been dependent on Kraft Heinz for years.

Mr. Cort characterized Kraft's relationship with farmers, the co-op and the community as "a good partnership" in which Kraft would buy extra milk when farmers had it and the company had a relatively high level of community engagement. But since the merger between Kraft and Heinz in 2015, a change in management style, "tremendous turnover in plant management almost yearly," long-term supply agreements that are now renegotiated annually and almost no participation in the community has changed the dynamics.

"I don't know that all of this was a conscious effort on the part of Kraft (Heinz), but this is the result," Mr. Cort said.

Last year, when the COVID-19 pandemic made production, efficiency and productivity issues in the Kraft Heinz plant more prominent and led to supplier milk shipment cancellations by the company with "only a couple of days notice ... causing hundreds of thousands of pounds of milk to be dumped because with only a day or two to relocate so much, you can't find homes for that," Mr. Cort said. His company was brought in to figure out how the farmers could create a secondary market for their milk to save them such losses and perhaps give them reason to grow their production.

The research proved that milk powder and cheese are the two most prominent dairy product growth areas that "require little to no branding and sales expertise" because of their sale as commodities.

The recommendation, therefore, is for local farmers to work together to build a non-fat dry milk powder plant that can use a "significant amount of regional milk" either on their own or through a partnership with a company or manufacturer that has a respected brand already with sales and growth potential in place to balance the local marketplace instead of allowing it to be impacted so heavily by Kraft Heinz's needs.

Kraft Heinz was, however, approached about being a partner in this business because farmers and the manufacturer benefit from their close proximity and a more balanced supply and demand in the county, but nothing concrete has moved forward since a change in plant management, Mr. Cort said.

The consultants provided a business plan for the farmers led by the co-op to build a non-fat dry milk powder facility that will be able to process a million pounds of milk daily with storage silos for 2 million pounds of raw milk. It will require about 41 full-time employees and cost about $48 million to build through a mixture of farmer investment, loans and public grants and other assistance.

Mr. Cort said he is about 85% certain the facility will at least break even and 100% sure if there are any losses, they will remain relatively low at around $100,000 in the first five years.

With the order cancellation-milk dumping cycle continuing this year resulting in more than $1 million in combined losses, according to Mr. Cort, and Kraft Heinz's November sale of its natural cheese division to the French family-owned cheese production company, Lactalis Group, the timing became even more important for this suggestion.

The string cheese business Kraft Heinz brought to Lowville from the Polly-O brand's Campbell plant in Steuben County was split when Lactalis was required by the U.S. Department of Justice to sell off a number of brands because otherwise, Lactalis would have controlled too much of the cheese market nationally.

One of those brands was Polly-O, which was purchased by the Wisconsin-based Italian cheese manufacturer, BelGioioso.

Although the equipment the string cheese is made on is owned by Lactalis and the people who make the string cheese work for that company, Lactalis has a contract with Kraft Heinz for the string cheese to continue being made at the Lowville plant and BelGioioso is, for now, still getting the Polly-O brand string cheese made for Lactalis at the plant.

That, however, will change within the next two years.

BelGioioso purchased the Upstate Farms Cheese plant in Stueben County from Upstate Niagara Cooperative in late June.

The plant was built by the Polly-O company in 1938.

In 2017, Kraft Heinz sold the plant to Upstate Niagara after the state brokered a deal to keep three of the company's other manufacturing plants open including Lowville, where Polly-O string cheese production was moved.

"In the deal (with Lactalis) was that Lowville would still produce for us for awhile but the price — it all depends on the price — they asked a ridiculously high price in the deal they were doing with us," BelGioioso President Errico Auricchio said in an interview Friday. "Since now we own the plant in Campbell we bought from Upstate Niagara Co-op, we will try eventually, I don't have the precise time, to move production into our plant."

He said that although supply chain issues could delay the move, he expects the transition to take place next year.

Lactalis, however, is not yet indicating what, if any, time frame was established in their sale agreement with Kraft Heinz to remove their new-to-them string cheese making equipment from the Lowville plant, although the industry standard is about two years.

"Lactalis will continue to manufacture Kraft Natural Cheese in Lowville, NY. We are not considering moving this operation elsewhere," Don Heins, communications manager for Lactalis, wrote in an email. "We look forward to continuing to work closely with Kraft Heinz and the people of Lewis County to produce our beloved and iconic string cheeses in Lowville."

The amount of milk that goes into the plant that is used for string cheese and the percentage of string cheese made that belongs to BelGioioso for Polly-O could not be verified. But Mr. Cort estimated about one-third of the milk supply is used to make string cheese and between half and two-thirds of the string cheese is for BelGioioso.

Although the Lewis County Board of Legislators is being asked to continue funding Cort Consulting to help the co-op and farmers with the project, the board's involvement otherwise will be limited.

"The county's role in this is to continue to lead. We've hired Cort Consulting. We've put everybody in the room together, but these large investment figures are not going to be a public investment. It's not going to be a county-owned facility," County Manager Ryan M. Piche told legislators in the room during a presentation from Mr. Cort. "We're just trying to facilitate this discussion."

Mr. Cort agreed.

"We expect the farmers to fund this. We expect some public assistance, be it federal or state, but we expect the equity to come from the farmers," he said.

Kraft Heinz and the Lowville Producers could not be reached for comment, but Mr. Cort gave the same presentation to the co-op on Tuesday night.