Co-ops and the transformation of
global dairy relationships
By Larry G. Hamm
Extension Specialist and Professor
Michigan State University
Editor’s note: Hamm’s article originally
appeared in “The Michigan Milk Messenger,”
the member magazine of the Michigan
Milk Producers Association.
he United States and
Michigan dairy industries
are rightly focused today
on the consequences of
drought, heat stress, high
replacement prices, environmental challenges,
milk prices and the prospects for
dairy farm income. While the dairy markets
are reacting to these immediate market
factors, the transformation of global
dairy relationships continues. Depending
on how one views these global trends,
dairy producers are either building a new
world order or heading for unforeseeable
problems.
While individual dairy operations
cope with difficult management decisions,
the consolidation and deregulation
of the dairy industry continues.
Consolidation in the U.S. dairy industry
has been discussed in this column several
times. The proposed merger of Dean
Foods into Suiza Foods appears to still
be moving toward some final resolution.
Even today’s largest dairies are small
when compared to national and international
buyers. Therefore, the preferred
milk marketing tool still is cooperatives.
But even the largest milk
marketing cooperatives tend to be
smaller than milk buyers. This is why
cooperatives were given the Capper-
Volstead Act to use to get even more
influence in the marketplace.
Michigan’s superpool was the first,
and still remains one of the best, applications
of Capper-Volstead Act principles.
Superpools and Capper-Volstead
cooperatives are used extensively in the
fluid milk markets. Recently, some of
the United States’ largest cooperative
marketers of nonfat dry milk powder
(NFDM) established a Capper-Volstead
cooperative organization called Dairy
America to market and attempt to
enhance the price of NFDM. This was
a response to the U.S. policy to deregulate
the dairy industry by eliminating
the dairy price support and eliminating
(through the GATT negotiations)
import quotas on NFDM imports.
As U.S. dairy producers are challenged
by market concentration, deregulation,
globalization, etc., they have
continued to reinvent their use of and
commitments to cooperatives. To have
dairy producers elsewhere in the world,
there have been extensive mergers of
European and Scandinavian cooperatives.
Irish cooperatives have converted
to non-cooperative forms.
The two remaining large New
Zealand cooperatives and the New
Zealand Dairy Board are voting to
merge into one marketing entity called
Global Dairy Company. Australia
deregulated its dairy industry and is
now engaged in mergers and alliances
with other cooperatives and/or multinational
dairy companies. All this is taking
place in the context of the largest
world dairy companies such as Nestle,
Kraft, Parmalat and Unilever getting
bigger and more dominant in virtually
every major milk market in the world.
The world dairy markets are beginning
to look like the local milk markets
used to look like in the United States.
Individual market areas would have a
few very dominant buyers with a few
cooperatives and clusters of independent
producers. Producers would compete
against one another, assuring that
the producer price would fall to federal
order minimums or, without orders, to a
flat price equal to the lowest value use of
milk in the market. In the new global
world it will be groups of organized
producers from one country competing
against other organized producers from
other countries for access to specific
market areas. This will likely hold for all
major agricultural commodity markets.
Dairy producers have other options,
however. The majority of the world’s
milk producers are organized into cooperatives.
Just as U.S. producers learned
that the Capper-Volstead Act allowed
cooperatives to join together so as not to
be condemned by the outcomes of market
competition, so could the world’s
producers join to present a united marketing
front. The vision of many of the
world’s early cooperative pioneers was
that someday cooperatives would have
the ability to work together across borders
to help producers gain the countervailing
power to increase producer
incomes and standards of living.
To date, the idea of global cooperative
coordination has been the stuff that
“old college cooperative professors”
would put in lectures and on exams. In
late July, however, Dairy America and
the New Zealand Dairy Board (NZDB),
two national-level, producer-owned
organizations, opened negotiations to
have the NZDB be the agent for foreign
(outside the United States) sales of Dairy
America producers’ skim milk powder.
Needless to say, this announcement
has opened the debate on what should be
the form of producer strategies for dealing
with the globalized dairy industry.
Are worldwide producer coordination
and cooperation possible and desirable?
Or is this approach counter-productive
and harmful? Clearly, multinational milk
buyers will not welcome this approach.
Likewise all the arguments about the
virtues and vices of cooperation among
co-ops will be revisited.
The forces of globalization are in
place and no more reversible than the
forces of technological change. Just as
technology requires new management
strategies, so does globalization. But
once again, dairy producer investments
in cooperatives and cooperative behavior
gives dairy producers more options
for shaping their futures than most of
the global farmer neighbors.
