More than milk
Dairylea’s scope of farmer services moves beyond milk marketing
By Pamela J. Karg
Editor’s note: Karg is communications specialist based in
Baraboo, Wis., with extensive experience working with
cooperatives.
challenge the premise of the question ‘What is
Dairylea doing to survive?’” says Rick Smith,
chief executive officer of the dairy cooperative
based in Syracuse, N.Y. “Who wants to just
survive? We want to thrive and have our members
thrive. In doing that, we’re finding ways for our members
to enhance their farm income.”
At a time when many food businesses are growing in the
number of plants, suppliers and employees they encompass,
Dairylea Cooperative Inc. has taken a different tack. Like a
well-positioned Wall Street financier, the Northeast’s largest
milk-marketing organization has diversified its portfolio of
services in response to a changing farm economy.
“I give credit to the organizations that have found ways to
be successful with dairy processing plants and brand names,
but there’s not just one way of doing business. And neither
way is right or wrong. It’s a matter of what works for your
farmers and your organization,” Smith explains.
A history of change
But Dairylea’s current focus did not happen overnight. In
fact, the cooperative’s history and the Northeast dairy scene
are rife with change.
A group of Orange County, N.Y., dairy farmers united in
1907 to increase their bargaining power, forming one of the
first cooperatives in the country: The Dairymen’s League. By
the 1930s, its membership had grown to more than 100,000
farms. To guarantee a market for its members’ milk, the
League began operating its own processing and manufacturing
plants. And its Dairylea line of products became one of
the best-established brands in the region.
In 1969, the League changed its name to its popular consumer
brand name, Dairylea. But by 1988, Dairylea had sold
its product lines and the last of its milk plants, and refocused
its resources on enhancing the overall profitability of its
membership.
Dairy farming is the largest agricultural industry in
Dairylea’s home state of New York, providing more than 50
percent of its agricultural income. In 2002, the state had
about 7,100 dairy farms with almost 679,000 milking cows,
making New York the third largest dairy state in America.
But the majority of the dairy industry moved to the Upper
Midwest a century ago and is shifting again to California,
Texas, Washington, New Mexico and Idaho.
The Northeastern and Mid-Atlantic regions remain
major milk-producing regions despite the decline in farm
and cow numbers there. New York and Pennsylvania
remain among the top milk-producing states in the country.
The region produces about the same amount of milk
as California within a similarly sized geographic region.
However, the region has almost 50 percent more consumers
than does California. This makes it a prime location
for dairying.
Today, Dairylea is a fast-growing, service-oriented and
multi-faceted organization. Since the early 1990s, Dairylea’s
membership has grown substantially throughout the region
and the volume of raw milk that it markets has quadrupled. At
the same time, Dairylea has greatly expanded its array of programs
and services to reflect what its members want from the
cooperative. More than a marketer for its farmers’ milk,
Dairylea and its subsidiaries are focused on maximizing the
profitability of each member’s farm operation, Smith explains.
“Our mission is to enhance our farmers’ profitability.
Profitability has two major components: income and costs.
Not only does Dairylea work hard to secure a competitive
price for member milk, but it also provides programs and services
that help make a farm business efficient and profitable,”
Smith says.
Milk marketing partnerships
“Many of the long-term, major dairy companies of the
past have exited the region, while others have merged,” says
Dairylea President Clyde Rutherford, who operates a 500-
acre dairy farm with his wife, Jeannette, and partners Elmer
and Ann Johnson. “The number of milk plants in the region
has declined. This will continue. In general, we are no longer
dealing mainly with the family-owned businesses that we
knew for generations. Many of the major dairy operations in
the East are part of diversified mega-corporations, many
international in scope.”
On this sea of change, Dairylea has emerged as the largest
milk-marketing organization based in the Northeast. Last
year, it sold 5.5 billion pounds of raw milk through a milkmarketing
network that reaches from Maine to Ohio to
Maryland. Sales have steadily increased and are now at $1
billion. The cooperative also has investments in several dairy
companies in the region, as well as many long-term sales
agreements.
“Dairylea has developed a strong yet flexible milk marketing
network throughout the Northeast. We maintain business
agreements and joint ventures with
other cooperatives and proprietary companies,
and are, therefore, free of dependency
on any one plant, customer or relationship,”
Smith explains.
In September 1999, Dairylea formed a
partnership with Dairy Farmers of
America (DFA), Kansas City, Mo., the
nation’s largest dairy cooperative. The
new entity, Dairy Marketing Services
(DMS) LLC, markets nearly 16 billion
pounds of milk provided by more than
9,500 dairy producers in the eastern
region. It is supplying the milk requirements
of more than 90 processors and
manufacturers in the region.
As the retail industry continues to consolidate,
DMS has played a vital role in
the industry. Last year, DMS became a
national company and has established
milk marketing relationships with industry
giants such as Dean Foods, Land O
Lakes, Vermont-based cooperative St.
Albans and others.
“We are excited about this venture
which allows for increased savings for our
farmers on milk hauling and supply distribution,”
says Rutherford. “At the same
time, we are managing near 50 percent of
the Northeast’s milk supply, which enables
us to provide superior service to our customers,
particularly those large dairy companies
with multiple plant operations.”
Before the formation of DMS, Dairylea
and DFA had a common investment in
Dietrich’s Milk Products in Pennsylvania,
and had milk exchange arrangements with
several of their common customers. The
creation of DMS has improved the efficiency
of serving the fluctuating needs of
all their customers, including major players
Dean Foods, Kraft Foods, Great Lakes
Cheese, Leprino Foods, H.P. Hood and
Sorrento Cheese.
“For many, many years, farmers have
been concerned about the lack of cost-effectiveness regarding
several milk tankers going down the same roads and
picking up milk at different farms depending on which
cooperative the farmer belonged to,” adds Rutherford.
“Additionally, milk supplies that were logical for a particular
plant often went to a more distant facility because the
cooperative serving that customer did not market that local
block of milk. With the creation of Dairy Marketing Services,
we have moved a giant step closer to maximizing the
efficiency of milk assembly and distribution in our region.”
Beyond the milk truck
“Dairy farmer-owned cooperatives have changed over the
years,” adds Rutherford. “Some have merged and some have
gone out of business. At the same time, organizations that
provide services for farmers have changed significantly in
recent years.”
The first issue that moves a farmer from one milk-marketing
organization to another is price. Dairy farmers will jump ship
for what seems like a few pennies for every 100 pounds marketed,
which can quickly add up to thousands of dollars annually.
But Dairylea has moved beyond just the assembling and
marketing of milk, and then paying farmers a competitive
price for their raw supply. The approach seems to be paying
off in the cooperative’s ability to attract more people to its
membership, which has grown steadily
over the past few years, says Smith. He
believes that growth comes from the
added services that fill a void and focus
on helping farmers reduce their costs.
In addition to DMS, Dairylea’s other
subsidiaries include Agri-Edge Development,
Agri-Services Agency, Eagle Dairy
Direct, Empire Livestock Marketing and
Agri-Financial Services. It also maintains
a partnership with Dairy One the former
Northeast Dairy Herd Improvement
Association. Each entity adds value
to the membership a farmer holds in the
cooperative.
“We continue to examine new ways
of doing business. Some of our ideas
would be viewed as non-traditional for a
dairy cooperative,” admits Smith. “In
recent years, Dairylea has evolved from
being strictly a milk-marketing cooperative
to becoming an agricultural service
organization that focuses on milk marketing.”
Agri-Edge Development
Dairylea’s Agri-Edge subsidiary is a business and development
planning venture that focuses its efforts on problem
solving, sourcing solutions and mobilizing needed resources
for farm and non-farm agricultural businesses.
Agri-Edge Development has reviewed hundreds of farm
and non-farm businesses since it started in 1998. It has
worked with a wide range of business types in their efforts to
expand operations, upgrade facilities, implement new technology,
start a new venture, enter into a joint venture, turn a
difficult situation around, or simply improve profitability.
In one instance, Agri-Edge helped a young dairy farmer
who was milking 80 cows in a rented facility to implement a
plan to buy a quality facility from an older farmer. Working
with the young farmer’s primary lender, Agri-Edge helped
source capital for the additional cows needed to make the
purchase provide sufficient cash flow. It even assisted with
sourcing of the animals. Additionally, a group of advisors was
brought together to work with the young farmer in his startup
operation. A milk price risk management plan was developed
to provide support to the farmer and the lender in the
face of price volatility.
This subsidiary is focused on delivering results for individual
agribusinesses to invigorate the region’s agricultural
industry and rural economies, explains Tom Shephard of
Agri-Edge.
Agri-Service Agency
This is the oldest of the services offered by Dairylea,
and it provides farmers and their employees across the
country access to a wide variety of competitively priced
insurance programs.
Coverages include medical, dental,
workers’ compensation, disability, life
and long-term care insurances for farmers,
their families and their employees.
Most notably, its workers’ compensation
coverages provide up-front discounts, a
potential dividend and the lowest net
cost available in the marketplace. The
Blue Cross and Blue Shield network, a
long-time insurance leader, sponsors its
national health plan.
Agri-Services Agency (ASA) also offers
and administers the innovative Farmer
Flex benefit plans that can save money for
agribusinesses, farmers and their employees.
In addition, Medical Expense Reimbursement
Plans are available, which allow
the average family of four to save about
$100 per month by allocating pre-tax dollars
toward insurance-related expenses.
This program allows participants to earmark
funds for the cost of insurance premiums, deductibles
and non-covered medical, dental and vision care expenses.
More than 60,000 farmers, agribusiness owners, their
employees and families are covered by ASA insurance plans.
The vast majority of its business is in the health-care and
workers’ compensation insurances.
In New York, ASA provides EMPACT the Empire State
Agricultural Compensation Trust. Structured as an independent
trust, EMPACT is able to offer substantial up-front premium
savings as well as year-end dividends.
ASA provides workers’ compensation coverage through its
Agri-Services Safety Group program in New York, Pennsylvania,
New Jersey, Delaware, Maryland, Virginia, Connecticut,
Massachusetts, Vermont, New Hampshire, Rhode Island
and Michigan. This group offers its members discounted
rates and year-end dividends, resulting in significant savings.
A bonus dividend is often available for those farms and businesses
with favorable safety records.
Additionally, ASA conducts an on-going farm safety program for participants in its workers’ compensation
programs. The goal of the safety program is to reduce
employee injuries by improving work practices and providing
safer work areas. Fewer injuries result in fewer claims, thereby
lowering workers’ compensation premiums.
Agri-Financial Services
and Dairylease
Because today’s farmers are spending more time with consultants,
bankers and others to help plan and implement
short and long-term business strategies, Dairylea developed
Agri-Financial Services and Dairylease cattle leasing program.
Whether a farmer is looking to purchase a new tractor,
expand his or her herd, or make some much-needed updates
and repairs to facilities, these
programs offer an additional
source for funding for Dairylea
members.
Besides a line of credit, Agri-Financial Services offers capital
loans. Both have maximum terms
of five years.
In addition, the Dairylease cattle
leasing program was initiated
in 1996 to give farmers another
option for financing cattle. The
tax benefits, along with the fact
that a lease frees up capital for
other areas of the business, are
attractive to many Dairylea farmers. The premise that assets
do not have to be owned to be successful holds true for cattle,
as it does for equipment, vehicles and land.
This 36-month program provides the option for a buy-out
at the end of the lease for a predetermined amount. Also, the
farmer keeps all offspring born to the leased cows while
agreeing to replace any leased cows that are sold or culled.
There is a minimum of 20 cows required for a lease, and the
maximum lease would be 50 percent of the farmer’s herd.
“The key to this program is that the farmer selects the
animals and negotiates the price,” explains Karen Cartier,
who works with the Dairylease program.
Buying programs
To help members reduce farm input costs, Dairylea has
developed several innovative buying programs through its
subsidiary, Eagle Supply Co. For members looking to save
money on corn and forage seeds, fertilizer, chemicals, pharmaceuticals
and a variety of other farm and milk house supplies,
the Dairy Direct offers reduced pricing and direct-to farm
delivery.
Additionally, a large-scale buying program is in place for
those members who can take bulk delivery of products ranging
from commodities to minerals to milk replacer to silage
plastic. Purchasing products on-line through Eagle Supply
Company’s e-commerce site will soon be possible.
Livestock marketing venture
In 1999, Dairylea launched another marketing venture
when its Empire Livestock Marketing LLC (Empire Livestock)
subsidiary joined with L&L Livestock to create a new
direct marketing program. Empire Livestock is the largest
full service marketer of livestock in the Northeast. It operates
nine regional markets and a direct marketing facility,
commanding more than a 50 percent market share of all livestock
sales in its operating territory.
Empire Livestock offers a variety of enhanced services to
help producers maximize income from the sale of livestock,
equipment and facilities. When bovine spongiform
encephalopathy (BSE) fears devastated the livestock industry
in the United Kingdom two years ago, Empire Livestock
played a leading role in
addressing public concerns about
the safety of domestic livestock.
Dairylea partners
with Dairy One
Having access to a reliable and
accurate milk testing and information
system is an extremely valuable
management tool for dairy farmers.
Smith says that’s why Dairylea and
the Northeast Dairy Herd
Improvement Association joined
forces several years ago to create
Dairy One an information technology
cooperative that provides farm management information
services throughout the Northeast and Mid-Atlantic regions.
Since its formation, Dairy One has succeeded in expanding
and improving laboratory testing and information reporting
services. In addition, it is better able to respond to the individualized
needs of the region’s farmers. Dairy One services
include milk testing laboratories for DHIA analysis, producer
payment analysis and dairy research analysis; records service
tailored to the needs of individual farmers to help make profitable
herd management decisions; dairy management software
and support; and a feed and forage laboratory.
Where to next?
“Controlling the expense side of the dairy operation, we
believe, is as important as enhancing the revenue side,”
Rutherford says.
To that end, Dairylea turned to its members again to analyze
their needs and determine how the cooperative could assist. On
April 1, a new employment company was added to its portfolio to
help place people on Northeast dairy farms. The new service will
provide employment screening, hiring, training, resource and
supporter materials, and “help bridge cultures,” explains Smith.
“No one across this geographical area is doing business
like we are,” he adds. “We recognize a need in our members
and we determine if, and how, we can provide services. We’ve
been very proactive.”
