Despite millions of investment dollars and rapidly increasing sales, Maine’s Own Organic Milk, known as MOO Milk, has ceased production and no longer will sell milk directly to consumers, the company’s top executive said Friday.

The decision, which is likely to put a dozen Maine dairy farms in jeopardy, highlights the challenges to the long-term viability of local food producers, said representatives of Maine’s food industry.

MOO Milk CEO Bill Eldridge said the Falmouth-based company is shutting down because of problems with its packaging equipment, which pours the organic milk into cartons.

“It’s been very, very dicey from the beginning. It started to get worse this year,” Eldridge said. “We were just starting to get poor (packaging) quality coming out.”

The company explored the option of building a new packaging plant but decided against it because the construction timeline would have kept MOO Milk off store shelves for as long as 18 months, he said.

Putting the brand on hiatus for so long would have made it difficult to get it back on the retail market, Eldridge said. “Supermarket chains really don’t forgive you for a year and a half.”

MOO Milk’s production and sales volumes had been rising rapidly. In late 2011, the company was selling about 2,000 gallons of milk per week. This year, it was selling 8,000 to 10,000 gallons per week, Eldridge said.

Its whimsically designed milk cartons have been in 200 grocery stores all over New England.

The four-year-old company’s final production day was Wednesday, Eldridge said. Its last shipment of milk will be on retailers’ shelves until it sells out.

MOO Milk laid off half of its six-member staff Thursday. The remaining employees will help the company wind down, which likely will take about 90 days, he said.

MOO Milk has enough cash to pay off its current debts and will not have to file for bankruptcy protection, Eldridge said.

It has a contract to sell its milk wholesale for the next three months to Stonyfield’s yogurt facility in Londonderry, New Hampshire, he said.

Farms ‘really in trouble’

The company’s milk has been produced by 12 organic dairy farms in Maine, including Two Loons Farm in South China.

The farm’s owner, Spencer Aitel, said MOO Milk’s shutdown came as a surprise. “We had been moving aggressively toward building a new facility, and I thought we were going to continue with that,” Aitel said.

The demise of MOO Milk means its network of organic dairy farmers will have to scramble to find a new processor within the next three months. That’s not likely to be easy, said Aitel. Aside from Stonyfield and Smiling Hill Farm, the nearest processor of organic milk is Guida’s Dairy in New Britain, Connecticut. “There’s a lot of people that are really in trouble here,” he said.

Since MOO Milk, a low-profit limited liability company, began production in 2010, Smiling Hill Farm in Westbrook has been its exclusive processor.

But Eldridge said MOO Milk relied on antiquated equipment that was donated by Oakhurst Dairy after it was taken out of use by Maine’s largest dairy processor. The equipment to fill cartons used old technology, broke down frequently and was incapable of meeting MOO Milk’s needs, he said.

MOO Milk and Smiling Hill Farm have agreed to terminate their agreement, Eldridge said. The shutdown will not affect production of Smiling Hill Farm’s milk, which is packaged in glass bottles by different equipment.

Expansion plans tripped up

In some ways, MOO Milk is a victim of its own explosive growth, Eldridge said. Until Friday’s announcement, it was considered by many a rising star in the locally produced organic food movement.

In May 2013, it secured $3.9 million in private funding with the goal of bolstering its finances and hiring an advertising agency to promote its brand.

In March, Eldridge told the Kennebec Journal that MOO Milk was planning to expand into new markets and add six farms to its stable of milk producers. Its retail network of grocery stores included Hannaford, Shaw’s and Whole Foods.

MOO Milk most recently expanded to stores in the Boston area, Rhode Island and Connecticut. However, the packaging problems derailed the company’s plans, Eldridge said. MOO Milk was ill-prepared to solve those problems, he said, partly because the rapid rise in sales had outpaced the development of contingency plans and a more reliable infrastructure.

“We sprang full-bore into being a company,” he said.

Aitel said the fallout from MOO Milk’s failure extends well beyond Maine dairy farmers. Investors in the company include Norman Cloutier, founder and former chief executive officer of United Natural Foods Inc., and S. Donald Sussman, majority owner of MaineToday Media, which publishes the Portland Press Herald and Maine Sunday Telegram.

“There’s been an awful lot of effort put in by a lot of people,” Aitel said, “an awful lot of money on investors’ part that’s been lost here.”

The demise of MOO Milk illustrates the difficulties that Maine’s medium-sized, local food businesses face in finding adequate capital to sustain themselves as they grow, said Ted Quaday, executive director of the Maine Organic Farmers and Gardeners Association.

“The growth challenges are largely in the infrastructure available to support shipping, processing and distribution of dairy products, especially in the far reaches of Maine like Washington and Aroostook counties,” he said.

The problem isn’t lack of demand, Quaday said. Consumers want locally produced food, and local, organic farms are good for the environment and create jobs.

But Maine’s farmers continue to struggle with the process of getting their food to market, he said. Quaday called for government and the community to do more to help keep the local food industry viable.

“We need to redouble our efforts and work with stakeholders, including the Department of Agriculture and state policy makers, to ensure that development of dairy infrastructure is a priority in Maine,” he said.

J. Craig Anderson can be contacted at 791-6390 or at:

canderson@pressherald.com

Twitter: jcraiganderson