Understanding the milk carton shortage

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The half-pint milk carton is an important part of the meal tray at every school across America. More than 30 million children participate in school meals daily, including breakfast and lunch. School programs encompass about 8% of all fluid milk sales in the country, which equates to 427 million gallons of milk, or 6.5 billion cartons.

When a disruption in carton packaging occurred last fall, certain schools were unable to offer milk in its traditional form. California, the Pacific Northwest and central New York — and particularly urban areas in those regions — were hit the hardest.

“Before Thanksgiving, national media was reporting this as a national shortage of cartons, but that is not what we saw then or today,” said Matt Herrick, senior vice president of public affairs and communications, International Dairy Foods Association. “The problem was sporadic and localized.”

IDFA works closely with a group of 40 school milk processors throughout the country, but not every processor experienced this issue. A couple processors provide the majority of the volume, Herrick said, while smaller ones provide milk to their locality or region.

“Larger processors can make adjustments quickly,” Herrick said. “It also depends on where they get their packaging from. Not all suppliers had an issue.”

Pactiv Evergreen Inc. is the primary source for half-pint milk cartons, supplying more than two-thirds of the market. According to a Nov. 10, 2023, article in Packaging Gateway, the May 2023 closure of Pactiv Evergreen’s paper mill in Canton, North Carolina, impacted output, and the company had trouble keeping up with demand.

Last fall, Pactiv Evergreen began offering generic cartons to help ease the supply chain challenge. Rather than branding each carton with the individual processor brand, Pactiv Evergreen is offering three varieties of milk: nonfat white milk, nonfat flavored and 1% flavored.

“That has helped build up additional carton stock,” Herrick said. “Processors went from being very concerned to now having a few weeks of surplus. Initially, they didn’t have a surplus, and it was a day-by-day issue.”

Processors with extra stock released inventory to other processors to help them weather short-term rough patches, and offering fewer varieties of milk helped processors build up stock over the holidays.

“There are abundant supplies of milk in the country,” Herrick said. “This is not a dairy farmer or milk supply issue. It is not a milk processor issue or a school issue or a (U.S. Department of Agriculture) issue. This is strictly a packaging issue, a carton stock issue, and we’re encouraging schools to do everything they can to keep milk on the tray.”

On Oct. 25, 2023, the USDA issued a memo stating that schools experiencing milk supply shortages could serve meals with an alternate form of fluid milk or without fluid milk. Herrick said the memo extended flexibilities not previously available and removed constraints on schools and processors alike, allowing them to serve any type of milk in any size container. This was helpful in meeting milk demand.

“Milk program requirements are very constraining, and this memo took those constraints away,” Herrick said. “Under the memo, you can serve milk in any form and in any variety. It could be whole, 2%, flavored or unflavored.”

Some schools offered the beverage through a milk dispenser, while other schools offered milk in different-sized containers or cut back on the varieties of milk offered. Processors worked with schools to provide milk in different packaging such as 12-ounce plastic bottles as well as 1-gallon and half-gallon jugs which were poured into a cup.

Provided by Diversified Foods and Gossner Foods, some schools switched to shelf-stable milk for a period of time. The milk arrived in aseptic packaging and was refrigerated that day. At other schools, milk was offered on fewer occasions and not available at every meal. Juice and water were offered instead, such as in upstate New York.

“There is plenty of dairy production and school milk processors in this area, but the packaging shortage issue came suddenly for some of them, and they didn’t have as much time to prepare,” Herrick said. “When we heard about these situations, we tried to address it immediately. We tried to get milk on the tray every day to avoid going to juice, which is high in sugar, or water, which offers no nutrients.”

The memo is in effect and will likely remain that way until the end of the school year, Herrick said.

“School meal professionals don’t want kids just drinking water,” Herrick said. “They want kids drinking milk, and the schools want kids drinking milk. For many kids, these are the healthiest meals they’re going to get all day. Milk is seen as very important, and they did everything they could to ensure milk was on the tray.”

Eric McGuire, business manager at Lamers Dairy near Appleton, Wisconsin, said consolidation in the industry is the primary reason for the carton shortage.

“Fewer processors bottling milk means fewer suppliers, and when one of those suppliers has an issue, it affects the industry as a whole,” McGuire said. “Twenty years ago, there were 29 regulated bottling plants in Federal Order 30 (Upper Midwest). Today, there are nine.”

Wisconsin is home to only three regulated plants. In addition, a handful of farmstead operations exist in the state.

 “The vast majority of the bottled milk in this order is processed by two co-ops,” McGuire said. “When there are only two major players left, there isn’t as great of a need for material suppliers, and we see limited flexibility or response to supply chain issues.”

Lamers Dairy supplies milk to 20 schools in the Appleton and Green Bay school districts of Wisconsin. McGuire said their carton supplier caught up with the backlog in production just after Thanksgiving.

“Our supplier is still lagging a bit with their fulfillment times, but they have been able to meet our needs before we have run out of inventory,” McGuire said. “That said, we keep substantial back-stock on hand to mitigate any supply issues. The paper half-pints are a very small percentage of our business, so we fortunately do not have a lot of exposure to this supply issue.”

Herrick said lead times continue to be a challenge for the industry, but all signs point to the supply issue easing by late winter or early spring.

“Hopefully, what we’ll see coming out of this is greater resilience in our supply chain,” Herrick said. “That’s an important lesson. We need resilience, and we need options. There are suppliers doing a good job at meeting demand for a number of years, but some customers are beginning to explore other options.”

Other carton packaging suppliers include Elopak and Tetra Pak, which stepped up production capacity during the shortage. Herrick said Elopak has plans to expand carton production, which may help address shortages in the future. Potential new packaging suppliers are coming onto the scene as well. They are talking to processors and conducting pilot programs.

“School milk is a very demand-intense environment,” Herrick said. “We’re grateful for those packaging companies stepping up and excited for any new partnerships that might occur. We’ve urged our processors to have backup plans in place. We don’t know that this won’t happen again going forward. That’s why we’re trying to pair up processors with packaging providers so they continue to have options.”

Herrick said margins in the dairy industry are tight across the supply chain, and school milk might be the tightest margin around.

“It is a very difficult environment to operate in,” he said. “Any change in price by a 10th of a penny or even less, or change in ingredients, packaging or procurement has an immediate effect on the processor’s ability to meet demand and supply.”

It is an issue that the IDFA continues to discuss with the USDA.

Herrick said the department could offer a greater share in the reimbursable meal value to milk. Offering greater value to processors on that milk could ease the burden on the margin, which Herrick said is so tight that it might drive a small processor out of the school marketplace.

“This is especially difficult in rural areas where there may be a processor just doing a few counties,” Herrick said. “In addition to fresh milk, which is the priority, we’re trying to make sure economies of scale work for everyone when it comes to shelf milk and aseptic milk, especially schools strapped in terms of budgets.”

Herrick said the situation has eased considerably in the last few weeks, and as of Jan. 11, he was not aware of any schools going without milk.

“I’m not aware of any shortages today, but that’s not to say it couldn’t happen next week or the week after,” Herrick said. “We’re not out of the woods yet by any means.”

However, Herrick and the IDFA remain optimistic and heartened to see milk processors working in such a dedicated way with schools and other processors to ensure milk remains on every meal tray in the country.

“That is everyone’s shared goal,” Herrick said. “Everyone understands how important that is.”