Paper or plastic?

For single-serve milk market, there is no debate as
plastic sales soar, bringing smiles at dairy conclave

By Dan Campbell, editor

onald McDonald wasn’t officially registered as a guest or a speaker, but his presence was certainly felt during the joint annual meeting of the National Milk Producers Federation (NMPF) and Dairy Management Inc. (DMI), the planning and management organization formed by the National Dairy Promotion and Research Board (NDB) and United Dairy Industry Association (UDIA). The meeting, held in Reno, Nev., was filled with good news for dairy producers and their co-ops. Some of the best reports concerned the rapidly increasing sales of single-serve milk containers at two of the nation’s largest fast food restaurant chains: McDonalds and Wendy’s.

Wendy’s led the way by offering single-serve milk in plastic bottles as a substitute for soda in its kid-meal packs. Within a year of introducing the new milk packaging, sales shot up from about 65,000 milk cartons to more than 1 million plastic bottles of milk per week, according to DMI CEO Thomas Gallagher. McDonalds soon followed suite, and saw its milk sales rocket from 600,000 cartons to 4.2 million bottles weekly.

Other fast food chains are expected to join the party as production capacity is ramped up to meet the surge in demand, producers were told at the meeting, held in late October.

Many reasons to cheer
There were plenty of other reasons for good cheer at the conference, including big wins on the legislative front, higher on-farm milk prices thanks to the industry’s supplybalancing actions, and an increasing number of school districts getting back on the milk bandwagon.

Another cause for optimism was the way the entire industry — producers and their co-ops, food processors, retailers and nutrition and health experts — are uniting behind the “3-A-Day” promotional campaign. That effort builds on the newest version of the USDA food pyramid, which has bumped up the number of recommended daily servings of dairy products from two to three per day. New dietary studies are also showing that milk can play a part in fighting the obesity epidemic.

The 3-A-Day campaign shows that producers can look at food manufacturers “not as the enemy, but as powerful partners,” Gallagher said. And to those who think food pyramid placement doesn’t mean much, he pointed out that it helps to trigger government food purchases for use in feeding programs and the menu choices made by school districts and health professionals. Last year alone, school lunch and Women, Infants and Children (WIC) feeding programs made about $16 billion in purchases.

DMI Chairman Paul Rovey said the industry has traditionally been slow to respond to changes in the fluid milk market and has not been active enough in meeting the challenge as “others hedged-in on dairy’s calcium advantage.” But the dairy industry has become more flexible and proactive, as the marketing gains of the past year show, said Rovey, an Arizona dairyman.

Now the industry needs to capitalize on the finding that dairy calcium is a useful tool in fighting obesity, which may prove to be “the most powerful dairy nutrition message ever,” Rovey said.

“Five years ago, we saw that obesity would be ballooning as a health issue, and we wanted to make sure dairy was part of the solution, not the problem,” Gallagher said.

The point hammered home throughout the conference was that most of these marketing successes can be traced back to work funded by the Dairy Checkoff program, under which producers pay 15 cents per hundredweight to fund promotion and research.

CWT helps balance supply
Under the NMPF banner, dairy producers helped to boost on-farm milk prices this past year by using the CWT program to better balance milk supply with demand. CWT is an industry- funded, self-help program under which some producers contribute to a special fund that helps reduce excess milk production capacity by paying some producers to retire from the industry and by providing export assistance for selected dairy products.

“To some, CWT was a crazy, betthe- farm wager,” said Jerry Kozak, NMPF president and CEO. “But others were confident that it was a sound investment for the dairy industry, and they were proved right.” Indeed, the program was renewed on July 1 for another year.

“After 18 months of depressed milk prices, doing nothing was the riskiest course of all,” Kozak said. No one is claiming CWT was entirely responsible for higher on-farm milk prices last year, but it was definitely a “tailwind” that can probably take credit for a price increase of 60 cents per hundredweight, he noted.

“CWT needs to be part of the industry’s long-term portfolio,” Kozak stressed.

There were also key successes on the legislative front, including a fullcourt- press lobbying effort that resulted in no major increase in dairy product imports from “down under” as a result of the Australia Free Trade Agreement. NMPF Chairman Charles Beckendorf said that trade deal would have been “anything but free for our dairy producers.”

NMPF staff and co-op representatives spent “countless hours” knocking on doors on Capitol Hill to carry the dairy producer’s message to Congress and the Bush administration. They even bought a full-page ad in the Washington Times to run an open letter to President Bush, telling him how crucial trade and other legislative issues are to dairy producers.

Beckendorf said that there will still likely be a slight rise in dairy imports into the United States in coming years, but that it will be “a drop in the bucket compared to what it could have been.”

Politics and government policy will always be a big part of the dairy industry, Kozak said, quoting Charles DeGaulle’s comment that “politics is too serious to leave to politicians.” Campaign finance reform has not removed the need for political action committees, he added. “Federal officials want to know what people are thinking, and you must stand out from the crowd to be counted.”

Working in partnership with IDFA (International Dairy Foods Assoc., a food processors’ trade group) was “a risky gamble,” given that the organization “has so often been at odds with us,” Kozak said. But successes in school lunch lobbying and other areas has proven it to be a good business move, he added.

School sales gaining
The dairy industry successfully supported legislation passed by Congress earlier this year that requires school districts to offer students at least two types of milk and would forbid schools from entering into exclusive contracts with soft drink companies that restrict the sale of milk products at school functions.

Beckendorf said the industry’s ability to work with schools is vital, because improved milk products must be placed in front of the nation’s youth at a time when they are forming lifelong dietary habits. As one speaker said, “if they drink milk at 16, odds are they will still be drinking it at 86.”

Test marketing showed that inschool milk sales would jump 30 percent when the switch was made to resealable plastic bottles. But last year’s results were even better, up 34 percent in schools where the change was made, Gallagher said. And this year the number of schools offering the improved packaging will jump from 1,200 to 3,000, meaning the industry needs “more processors to step forward” with the product, he added.

Mad Cow response
The discovery of mad cow disease (BSE) in a single animal in Moses Lake, Wash., in December 2003 could have been a disaster for the dairy industry, but a crisis communications plan was in place for that eventuality, leading to the flow of the type of prompt, reliable information needed to reassure the public and media about the safety of the nation’s dairy foods and herds.

Beckendorf said the biggest outcome of the BSE discovery will be the eventual creation of a national animal identification program that will enable any disease problem to be traced back to the exact source so that it can be nipped in the bud.

With a lean staff of only 17, Beckendorf said he knows of no other ag commodity organization that does as much for its members at does NMPF.

New direction for promotion
William Siebenborn, a Missouri dairyman and UDIA chairman, said forging a single dairy marketing plan and vision will help boost worldwide demand for U.S. dairy products. Under this effort, what had been primarily an advertising and classroom-based dairy promotional program has transitioned to one that leverages partnerships with the industry. It was not a quick or easy transformation to complete, he said, adding that the effort starts with local dairy promotion boards.

“Kids don’t read or study the food pyramid,” he said, so product presenta- tion to them is all important. “Milk won’t be cool just by saying it is in ads,” he continued. “We need the right products in the right places — availability is the key.” So emphasis has switched from running health-oriented ads to creating milk products with more pizzazz.

“Now the concept is to work within marketing chains to get improved products into more outlets,” Gallagher said. He cited Yoplait Yogurt as an example, noting that it will print the 3-A-Day logo on all of its yogurt lids. “That’s 2 billion packages annually that moms all across the country will be seeing,” he said.

William Ahlem, Jr., a Hilmar, Calif., dairyman and NDB chairman, said it takes an enormous logistical effort to get new dairy products into stores and fast food restaurants. The industry has felt “tremendous frustration” for many years with school districts for not being more willing to include more milk and dairy products on their menus.

A door of opportunity was thrown open to the dairy industry when the Surgeon General issued a warning that the nation is facing a calcium-deficiency crisis, Ahlem continued. The report said 7 of 10 boys and 9 of 10 girls are deficient in calcium. Other reports indicate that the nation’s epidemic of obesity is increasingly spreading to our children. Dairy Checkoff-funded research shows that calcium helps burn body fat, Ahlem noted.

Low-carb milk?
About 7 percent of the U.S. population is now on a low-carb diet, and 24 percent say they are watching their carbs, it was noted.

John Kaneb, CEO and chairman of HP Hood, a New England dairy company with seven national dairy brands and $2.3 billion in annual sales, said Hood spent $25 million in 2004 to develop a new low-carb milk, called Carb Countdown. That effort was launched following a request from Wal-Mart in 2003 for such a product. Kaneb, whose family purchased Hood in 1995, said even a company of Hood’s size can’t go on putting that kind of money into new product development indefinitely.

Hood would like to find ways it can work with dairy co-ops and NMPF to get more help in the early stages of product development, he said. “Dairy’s competitors have many advantages. They either control raw materials, or the raw materials are so cheap — as in the case of soda — that they don’t need to control them,” he said.

Kaneb indicated that help from dairy producers might come in the form of allowing processors to avoid having to pay Class I prices for milk being purchased for use in some of these promising new products.

Hood also makes Lactaid, a bestselling, lactose-free milk. It too is expensive to process and package, as it must be processed with enzymes. Hood has to buy five gallons of milk to make four gallons of Lactaid, Kaneb said, “so producers should love it.”

Other meeting highlights:















CoBank CEO: Gear co-ops to consumer demand

Doug Sims, CEO of Denver-based CoBank, told national dairy conference attendees that consumer-driven co-ops will be the winners in the years ahead because “the consumer is driving the bus that all of agriculture is riding on.” For many, the ability to capitalize on market niches will also be crucial as is their capability to work together to strengthen the market position of co-ops. Co-ops must further show how they are different and what makes them unique — to demonstrate that they add value for members, customers and employees, said Sims, who grew up on a dairy farm.

CoBank and its affiliated agricultural credit associations in the U.S. Farm Credit System support the dairy industry with more than $2 billion in loans outstanding to agricultural cooperatives, dairy processors and dairy farm operators.

Sims told attendees at the annual meeting of the National Milk Producers Federation, United Dairy Association and National Dairy Promotion and Research Board that the dairy industry today has “more influence than any other livestock industry because you are working together.” For example, Sims pointed to the milk supply/demand balancing program of Cooperatives Working Together (CWT) as “a real success that shows the industry is united.”

He encouraged continued cooperation, noting that coops need to collaborate to fund research and development — as the dairy industry is — and should even try working with competitors.

At a time when only a handful of retail chains control approximately 40 percent of food sales in the U.S., Sims said through cooperation, co-ops can and must create market power. The rate of concentration in food retail markets is likely to accelerate rapidly, he predicted, and co-ops must establish market position with these top food retailers.

“Investing in new ways to collaborate, investing in new products, new markets and new ways of thinking about your value proposition are critical success factors,” Sims said.

Sims added that the dairy industry’s willingness to fund new, innovative products is paying off. He pointed to the industry’s success in introducing “low-carb” products to satisfy changing consumer preferences as one example. Citing research from Productscan Online, Sims noted that in the first five months of the past year, dairy processors introduced 62 “low-carb” ice creams. In contrast, there were only 19 “low-carb” ice creams in 2003 and in 2000 there were none.

“Consumer-driven co-ops will be the global winners,” he said. “The consumer by far is the key driver in the food system. In the U.S., the consumer is “king and queen.”

Sims also acknowledged the changing global marketplace, noting that governments are reducing barriers to entry and providing access to U.S. markets. Specifically with regard to the Farm Credit System, Sims said that FCS owes thanks to the dairy industry for supporting efforts to oppose the sale of a key Farm Credit System lender to Dutch banking giant Rabobank this past year. He stressed the importance of farmers having a locally owned and controlled cooperative lender.

Another key factor to watch in today’s business environment, according to Sims, is the effect of recent scandals on the image of corporate America. Good governance practices by co-ops will help avoid such scandals, he advised. He posed a series of questions to encourage co-op attendees to engage in critical self-examination of their business practices, governance policies and business focus. “What do you offer members that they value? Why should retailers take your products? Why do employees want to work for you? What is the difference between your co-op and the business down the road? What training do you provide your directors?

If patronage returns are the only way a co-op returns value to members, it will ultimately prove to be a losing proposition, Sims continued. Co-ops must also deliver superior service and convenience, and provide access to domestic and global markets at a competitive price.

He further urged co-op leaders at the meeting to determine whether their capital plan will meet demands of equity retirements, business growth, product research and development and other needs. If outside capital is being raised, how will it affect the governance of the co-op? “And does your co-op have the right skills on the board? Do directors understand the co-op’s strategic plan? How is the co-op measuring progress?”

If directors lack skills, get training for them, he stressed, and remember that every meeting is a director-training opportunity. Sims said he is a proponent for using outside (non-member) directors to bring valuable expertise to the board, which can range from help with product development to greater financial acumen.

The most important function of a co-op board is hiring the CEO or manager, Sims continued. To do it right, and to monitor his or her performance, directors must be able to ask the right questions.

“The keys to success today and in the future is all about investing in the right things — people, strategy and business execution,” he emphasized. “Co-ops need to critically examine the combination of expertise reflected in their boards and management teams, re-evaluate their business focus in light of changing markets and challenges, and collaborate in efforts to deliver innovative products quickly and efficiently.

“Working together, co-ops can invest in a better future, and continue to make a definitive difference in the marketplace,” he concluded.

By Dan Campbell





Livingston gives producers legislative tips

Former Louisiana Rep. Bob Livingston, who chaired the House Appropriations Committee during his tenure, told producers they must continue to find effective ways to make their needs known to their elected officials. “You may be convinced in the righteousness of your position, but there is always someone just as fervent on the other side,” said Livingston, who retired from Congress in 1999 and now operates a lobbying firm.

“You need to frame and condense your message so that they listen to you, rather than the other guy. That’s why we band together in trade associations and hire lobbyists and attorneys — to study, advocate and lobby.”

Congressional representatives are incredibly busy, he said, so you can’t waste their time. “You must be ready to make your case in 15 to 30 minutes.” He advised letting elected officials know that a large number of their constituents favor the position you espouse, and hammer that point home by having constituents contact the official prior to, or immediately following, your meeting. “It is incredibly important to have grassroots activity back home support your position,” Livingston said.

He advised producer groups to find out when one of their elected officials will be back home, and then volunteer to host a fact-finding session for them. These can take the form of a town hall-type meeting with constituents, a tour of farms, etc. Having your political action committee hold a fund-raising barbecue on a member’s farm is also a good idea. Such an event can be 90 percent fun, but the critical time “is the half-hour you spend discussing your key concern.”

Members can also become activists in campaigns, he noted.

“Tighter budget caps are coming for farm programs, which means you must make your voice even louder,” Livingston said.

He noted that the dairy industry failed last year to close a loophole that is allowing imported casein-protein to enter the United States, which means the industry needs to worker harder next year to close the loophole.

“Continue to work to make sure free trade means fair trade, and work to hold your seat at the table so you don’t wind up as the main course,” Livingston advised. “Oppose unilateral disarmament [in trade talks]. Keep pressure on your elected officials all year long.”

Congressional oversight of agriculture is critical, but over-regulation is not, he said. “If government does not provide sufficient oversight, you get monopolies and lack of competition.” But too much regulation will stifle the industries it is supposed to help.”





January/February Table of Contents