Making good things
Cass-Clay Creamery expands product line;
Marketing horizon moves eastward
By Dan Campbell, editor
rowing up on a North
Dakota grain and dairy
farm, Keith Pagel was
not a big fan of farmer
cooperatives. He recalls
the many times he would pull into his
local co-op elevator to have his grain
milled into feed, where more often
than not none of the co-op staff
seemed to care how long he had to
wait for service, or even if he did business
there or not.
“It seemed like you just had to stand
there and wait and wait and wait. If you
had a lot of grinding to do at one co-op,
you usually just wound up doing it yourself,”
says Pagel, admitting that patience
has never been one of his strong suites.
But lack of patience can sometimes be
an asset in the business world.
Today, as the president and general
manager of Class-Clay Creamery in
Fargo, N.D., those early experiences
have contributed to Pagel’s passion for
delivering superior service to co-op
members and customers. “When I
came on board, I struggled with it at
first knowing this was a co-op and
remembering those early experiences I
had. So it has always been my goal to
provide excellent service to members
and customers.” For field staff, that
can mean being on call 24 hours a day
if there’s a milk-quality issue to be
resolved on a member’s dairy.
“When something needs to be
done, we won’t tolerate people who
stand around and procrastinate, or who
always pass the job off to someone
else.” The co-op’s management philosophy
can be summarized as: “Let’s get
it done.”
Cass-Clay, which was founded in
1934, stands today as a prime example
of a traditional co-op that has re-generated
itself through a combination of
excellent management, strong member
service orientation and aggressive
product-development and marketing
programs. A big part of its success is
due to the involvement of a young,
savvy board of directors that has a
strong working relationship with management.
Cass-Clay’s sales in recent
years have totaled just under $100 million,
and patronage payments have
been as high as 40 percent of record
income in 2002.
Carving niche markets with
“vanity” ice creams, dips
Cass-Clay is one of only a few coops
in the nation that has been successful
as a fluid milk bottler and distributer.
Class I sales account for about
45 percent of its total volume and have
actually been increasing at a time when
most Class I distributors have seen
declines. The co-op markets a variety
of milks, including chocolate and highcalcium
skim milk. In 2002, Cass-Clay
introduced easy-grip, three-quart plastic
bottles into its beverage product
line, which have proven quite popular.
“They are easier for kids to grip and
pour milk on their cereal; older people
find them easier to use, too,” Pagel
says. And because they turn over
quicker than gallons, people enjoy a
fresher milk product.
Despite its success in fluid milk, the
co-op has been very active in expanding
its line of other dairy products.
These include cottage cheeses, chip
dips, yogurt, butter and sour cream.
Cass-Clay markets about two-thirds of
its output under the Cass-Clay brand,
but it also makes dairy products for the
private label market.
There’s been a major push in recent
years to expand the market for the coop’s
premium ice creams. Two years ago,
it was named the official dairy of the
Minnesota Vikings, and it now markets
four ice cream flavors with the Viking
logo, including Viking Touchdown
Toffee and First Down Fudge.
Cass-Clay also packages a number
of other ice creams and chip dips that
are aimed at alumni and backers of the
region’s universities. Hence, rolling out
of the Cass-Clay plant in Fargo you
will find products such as North
Dakota State University Bison Crunch
or University of Dickinson Buster Blue
Hawk ice creams. There’s also North
Dakota University Fighting Sioux
Champion Chip ice cream and
University of Minnesota Golden
Gopher ice cream, among others.
Alan Qual, who served three years as
board chairman and farms near Lisbon,
N.D., says the niche marketing of premium
ice cream and dips has proven to
be a successful strategy. “We’re focusing
on creating new products in areas
where we have experience, such as the
production of premium ice creams,”
says Qual, who along with the families
of his two brothers operates a
525-cow dairy and farms about 5,000
acres of grain crops.
Diversification pays dividends
Having a diversified product line is a
major key to success for the co-op,
Pagel says. “When the Class III market
skyrocketed (late last summer), cheese
prices went from $1.15 to $1.60, he
says. “We have the ability to then focus
more on those products. Diversification
means we can move products into the
highest value markets.”
“Many of the large-scale processors
are focused on making large volumes
of specific products, but we’re small
enough that we can cater to the special
needs of many niche markets,” Qual
adds. “We’ve made great ice cream for
many years, but now we’ve improved it
and expanded our flavor offerings. And
we’ve got good people working to get
these products sold in more markets.”
Greg Hansen, vice president for
marketing, oversees a staff of 11 sales
reps stationed throughout the co-op’s
four-state trade territory. This includes
all of North and South Dakota, eastern
Montana and western and northern
Minnesota. In the last several years,
Cass-Clay has also begun to push into
the Minneapolis-St. Paul metro area.
The ice cream business has been
growing at such a clip that, two years
ago, the co-op invested $2.5 million
for a new freeze tunnel and tripled the
size of its cooler room at Fargo.
Before the new tunnel was built, it
took 24 to 36 hours to freeze ice
cream. “Now we can do it in an hour
and produce a better quality ice
cream,” Pagel says as he watches cartons
of ice cream scoot by on the manufacturing
line.
Young board bullish on
plant investments, promotion
Not too many years ago, the average
age of a director on Cass-Clay’s
nine-member board of directors was
close to 60 which is fairly typical for
the industry. But then there was a rash
of retirements, and a number of bright
young candidates stepped forward. As
a result, the average age for directors is
now about 40.
“These are businessmen not just
farmers who milk cows,” Pagel notes.
“It’s been a huge change. They are
very supportive, but also very demanding
they want
good answers and
solid plans.”
“With a younger
board, there seems
to be a tendency to
want to invest more
in the plants, with
an eye toward longterm
profitability,”
says David Glawe, a
nine-year board
veteran with a dairy
farm near Detroit
Lakes, Minn.
In addition to
the new ice cream
freeze tunnel and
cooler, the co-op
recently invested $2.4 million in highspeed
bottling lines and material handling
equipment for Fargo. Nor has the
board and management turned its back
on the co-op’s other two plants. A new
cooler and load-out dock has been
installed in Mandan, N.D., where the
co-op bottles gallons, half gallons and
institutional-size containers of milk.
New boilers have been installed in Cass-Clay’s cheese plant in Holven, S.D.,
where it manufactures specialty cheeses
including Romano and Parmesan for the food ingredients industry.
In total, Cass Clay has invested
more than $5 million in plant improvements
in just a little more than two
years. And it plans to continue to invest
about $1 million per year to keep the
plants well equipped and efficient.
“The board reviews these types of
expenditures very carefully after all,
we’re there to look after the members’
equity,” Qual says.
Adds Glawe: “We want to see realistic
projections of what the returns
will be on an investment before we
approve it.”
Adjusting to changing
wholesale dairy market
Some changes at the plants are
being made in response to changes in
the wholesale food industry. In the
past, most products where shipped out
of Cass-Clay on tandem or single-axle
trucks. But increasingly, larger food
retailers dispatch huge semi trucks that
load at the co-op’s docks and deliver to
grocery stores.
“We do a lot more dock loading
now because of the demand for large
volume shipments,” says Qual. “These
truck drivers are working under contract,
and they are in a hurry to get in
and out. I don’t blame them. They
make money by being on the road, not
standing in a line waiting to load.” So
Cass-Clay is striving to speed the rate
at which they can load.
Qual joined the board about five
years ago, “because I wanted to give
something back to the co-op, and I
felt that I could contribute to it. If
Cass-Clay isn’t successful, neither are
we.” He spent three years as board
chairman, then rotated off, in accordance
with the bylaw that limits directors
to three consecutive years in any
office, after which they must sit out at
least one year. “That way, everybody
gets experience,” he notes.
Glawe says it is the board’s job to
“ask hard questions and closely monitor
the co-op operations. We’re not
afraid to try new things to improve
returns for our fellow producers,
which means taking some risk.”
Glawe has been a strong advocate
for expanding the co-op’s marketing
territory and of more aggressive
advertising and promotional efforts.
The co-op now spends about $1 million
annually to advertise, and has
been tailoring its ads to play up the
fact that Cass-Clay is farmer-owned.
Marketing studies showed that
Cass-Clay didn’t have a strong identity
with consumers, most of whom did not
realize the business was farmer-owned.
So TV commercials have been filmed
on members’ farms, and print and billboard
advertising also stresses the
farmer-owned nature of the business.
The co-op’s own fleet of 40 delivery
trucks has been re-designed to convey a
more attractive, quality look, Pagel says.
A city bus in Fargo has even been decorated
to resemble a carton of Cass-Clay
milk. “It’s been a total face lift for the
co-op, and the public and the members
really seem to like it,” Pagel says.
Cass-Clay, which was founded in
1934, got its name from what were initially
the two main counties of its production
area: Cass County, N.D., and
Clay County, Minn. When Pagel
joined the co-op in 1985, at first as
quality control manager, Cass-Clay
had about 1,400 members in three
states: North and South Dakota and
Minnesota. Due to ongoing farm consolidation,
the co-op now has 400 members in the same three states but
handles even more milk: about 420
million pounds annually.
Competition for milk
leads to volume premiums
The hottest membership issue for
the past couple of years has been the
volume premiums the co-op pays to
large producers. Some members with
smaller farms view them as unfair, but
the Cass-Clay board feels it has to
offer them to maintain the milk volume
needed to keeps its plants operating
at maximum efficiency.
To understand why, one must consider
the changing farm demographics
of the area. In the mid-1980s, the
co-op’s largest farm had about 200
cows. Today, it has eight members
which each milk 800 to 1,000 cows
and account for nearly 25 percent of
the co-op’s milk volume. Still, the
average farm in the co-op has about
50 cows.
Cass-Clay competes for milk with a
number of other, larger co-ops, including
DFA, Land ‘O Lakes and AMPI, as
well as some private purveyors.
However, co-ops in the area often
work together. For example, Cass-Clay and DFA have a co-hauling
arrangement that has saved both coops
money.
“We need those large members, but
then the smaller members feel they are
not being treated fairly. It’s a balancing
act how far do you go with premiums?”
Pagel says.
The competition for milk has
grown as the number of farmers quitting
the business in the Upper
Midwest has risen. The average age of
a dairy producer in the region is about
57, and even though it’s not unusual
for a farmer to work into his or her
70s, there’s a definite horizon issue.
(See sidebar.)
“Personally, I don’t like the volume
premiums,” Glawe says. “But if you’re
competing with others that initiated
them, we have little choice. We can’t
make our co-op a sacrificial lamb for
the sake of principle. Right now, you
have to do it to get the product you
need to keep your plants operating
efficiently. I’d says the general feeling
of the board is that it’s necessary, but
we’re not fond of it.”
Given current trends, Pagel thinks
volume premiums will soon pass away
on their own, which he notes has
already occurred on the West Coast.
Not too many years ago, quality
premiums were the hot issue of the
day, notes Pagel, whose nearly two
decades with Cass-Clay, including 11
years as manager, have changed his
attitude about co-ops.
“There is such strength in the
membership and in their commitment
to see this business succeed,” says
Pagel. “Their participation has been
instrumental in shaping the direction
and success of this co-op every step of
the way.”
Attracting the Upper Midwest’s next generation of dairy farmers
Alan Qual doesn’t have to look very far to see signs of the
way dairy farming is evolving in the Upper Midwest. He grew
up on the family farm, which his father started after World
War II near Lisbon, N.D. To save money on hauling their milk,
the Quals were one of 28 dairy farms in the Lisbon area that
formed their own milk hauling co-op to deliver to Cass-Clay in
Fargo (about 75 miles away). Today, the hauling co-op is still
going, but it’s now down to two members.
What happened? A couple of those farmers
moved their operations to other states. A
couple of others switched to another co-op,
Qual recalls. But most of the rest have either
quit farming or they switched away from
dairy to grain-only or grain and beef farming.
In the cases where the dairies closed shop
or switched away from dairy farming, it is usually
because the children lacked interest in
coming back to run the dairy. They saw the
lifestyle as too demanding, Qual says. Add to
that they often saw the need to greatly expand
the size of the farm to keep it competitive in
the years ahead, and many said “no thanks” to
dairy life.
It says volumes about just how timedemanding
dairy life is when you consider
that beef cattle and grain crop production
not exactly the best career for a slacker are viewed as far
less demanding than dairying. Hence the decision of many
one-time dairy operators to switch to crops and beef.
Lack of new producers entering the business is a “huge
concern,” says Keith Pagel, president and general manger of
Cass-Clay Creamery in Fargo. “When we did a survey eight
years ago, the average age of a producer was 57, and it’s
getting older,” Pagel notes. “Kids very often look at dairying
and see their parents working seven days a week, 15 hours a
day and no vacations. It’s a lot of struggle. Then they see
their friends working in downtown Fargo, 40 hours a week
and earning more. Some young people do still like dairy life,
but very often they feel they can’t get to the size needed to
financially have a good quality life.”
But there are ways to structure a dairy so that you don’t
have to be chained to the farm. The Quals have done it by creating
a farm where three brothers (Alan, Danny and Rodney)
and their families all live and work, as well as several employees.
They expanded from about 200 cows in the 1970s to 525
today. But Qual says he still doesn’t consider himself or his
brothers really big dairy farmers. You have to divide that 525
by three families, he says, which comes out to about 175
cows per family.
The Quals have structured their duties so that they get
every other weekend off a real luxury compared to the
round-the-clock duty many dairy farmers live
with. When he was growing up on the then
much smaller dairy farm, Alan says he could
never go anywhere unless he could be back
by 4 p.m. to milk.
“We’re large enough that we have
employees, so we can get away at times,”
Alan says. “And that is crucial to making
this life attractive enough to get kids who
want to come back and farm.” His eldest
son, John, has been back on the farm for
three years now following school, and
plans to buy into the incorporated family
business as a stockholder in just a few
months. Some of this brothers’ children
also appear quite interested in being dairy
farmers. “We haven’t pushed them to come
back just made it available to them if their
interest was here.”
There are also some new dairy farmers moving into the
area, including some “transplanted” from Europe.
Pagel notes that to attract more, the area has to do a better
PR job of advertising the assets of the region and its quality
of life. “There is a general misconception about the harshness
of our climate and available leisure activity here.” Pagel
says there’s a great quality of life to be had around Fargo.
“A lot of people feel North Dakota is in the middle of
nowhere and that there’s nothing to do here. There’s lots to do
lots of places you can go in an hour. And our outdoors activity
can’t be beat: fishing, hunting, camping, boating, cross
country skiing, snowmobiling, ice fishing you name it. And
we’ve got good schools.”
Interviews with some dairy farmers who moved their operations
to other states indicate some wish they hadn’t left, he
says.
Finding labor can be a struggle
In the Detroit Lakes area of Minnesota, dairy producer
Dave Glawe says securing farm labor is a major challenge
for dairy farmers. Glawe has to compete for labor with both
manufacturing and tourism.
“A kid can go to work in a manufacturing plant for $9 per
hour plus benefits,” says Glawe, who currently runs the
farm with his brother and one employee. “We did have
another worker, but when milk prices dipped, it was hard to
justify keeping him on. So you just do more yourself.”
“Every farmer I talk to, labor is their biggest challenge
right now,” says Lisbon, N.D., dairy farmer Alan Qual. North
Dakota is one of the most sparsely populated areas of the
nation.
“I have two openings right now, and have advertised for
two weeks. But I only got one applicant, and he decided to
pass. We’re willing to train someone, but they will have to
relocate.” Like Glawe, Qual says he has to contend with
competition from manufacturing, most notably a plant that
builds Bobcat loaders. “If I had to pay my labor what they
pay, I might as well close the doors right now; it wouldn’t
pencil out even if we were milking 2,000 cows. Even with
an operation of our size, the margins are very thin when
milk prices dip as low as they have.”
Milk prices have been on a roller coaster the past last
couple of years, ranging from a low of about $10 to a high of
$16 per hundredweight. The price dips have hastened the
number of producers leaving the business.
“When prices drop to $10, you better not have any debt,
because that’s about the break-even point for most farmers
around here,” Glawe says. “This is a real serious challenge
for the nation: to find ways to make small farms more
viable. If we keep losing farmers at this rate, we’re going to
keep losing rural towns.”
Loss of farms sends ripples throughout rural America,
he notes. To cite one of the more dramatic and obvious
examples, Glawe notes one need look no further than the
local farm implement trade. These days, when one goes to
replace a tractor or harvester, the equipment dealers are
no longer interested in taking old gear in trade. “There just
isn’t a secondary market for used equipment any more
around here the smaller operations are no longer
around.”
Despite such challenges and the fact that production
trends show the dairy industry is still moving ever westward,
dairy farmers in the Fargo area say they can compete
with anyone. Qual notes that the corn supply is a major
advantage for the Upper Midwest. “We have abundant
corn and lower land values. They (the West Coast) have an
advantage with alfalfa, because they get more cuttings in a
season than us. They also seem to have a more ready
source of labor.”
