Embassy Dairy Inc., one of Maryland's five remaining commercial dairies, announced yesterday that it filed for bankruptcy because of a threat of losing a major contract to fTC supply milk to the Safeway stores in the Baltimore and Washington areas.
D. Bradley Holland, senior vice president and general manager of the Waldorf-based dairy, said a loss of the Safeway account would be "devastating" to the dairy's financial position.
He said it would likely lead to the sale of the company and result in the layoff of between 50 and 70 of its 215 workers.
Embassy's petition under Chapter 11 of federal Bankruptcy laws gives the company relief from creditors as managers seek to reorganize.
The company will continue in business and manage its own operations.
He said that Safeway Stores Inc. notified the dairy in February that it planned to terminate its contract with Embassy this weekend.
Embassy supplies milk and fruit juice to the 120 Safeway stores.
Safeway is the dairy's largest contract, accounting for a third to one half of Embassy's total sales, according to Holland.
The Embassy executive said that Safeway offered no reason for canceling its contract. "Their letter was blunt. It just said they were canceling our contract," the executive stated.
Safeway and Embassy were on opposing sides of controversial legislation in the recently ended General Assembly session that would have given Maryland's Secretary of Agriculture the authority to set minimum milk prices at the farm, processor and retail levels.
Embassy favored the legislation that was designed to safeguard Maryland's declining dairy industry by eliminating what proponents of the bill called unfair competition allowing dairy operations in Virginia and Pennsylvania to undercut the market in Maryland.
The two neighboring states have price support programs that allow dairies there to grab a bigger portion of the Maryland market by selling their excess milk here at below-market prices.
Milk processors in Maryland are unable to retaliate because the Pennsylvania and Virginia price support programs set minimum prices.
The legislation was defeated because lawmakers feared that it might lead to higher milk prices in Maryland.
Safeway and other major retailers in the state, including Giant Food Inc., opposed the legislation.
Holland said that Safeway didn't give Embassy any indication that its action was related to their opposing views on the legislation. "I have no reason to believe it one way or the other," he said.
Safeway officials could not be reached for comment.
Holland said the filing took place in bankruptcy court in Greenbelt.
He said one goal of filing "is to prevent the untimely termination of the contract with Safeway. We don't know if we will be successful, but we are trying."
Embassy also disclosed that it has reached a preliminary agreement for the sale of the dairy to Michael A. Liberty, whom Holland identified only as a private investor.
Holland said the sale could involve an employees stock ownership plan in which the workers would be part owners of the dairy.
Embassy is owned by High's Dairies Inc., which is a subsidiary of Protein Holdings Inc., a Delaware corporation. Embassy posted sales of $80 million last year.
In its court filing, the company listed assets of approximately $12.3 million and liabilities of $12 million.
Maryland has lost more than 40 percent of its dairy farms since 1988. In the mid-1980s, it had more than 35 commercial dairies.
Pub Date: 5/02/97