New faces and a new emphasis on performance have begun to define Dairy Farmers of America ten years out from the historic merger that created the nation’s largest farm cooperative. 



Adecade after its creation by the merger of four dairy cooperatives, Dairy Farmers of America Inc.  has entered a phase of challenging itself to be successful beyond its historic union and acquisition phase by focusing on greater discipline, new management roles and a renewed dedication to its core values.

The leading raw milk marketer in the United States, Kansas City, Mo.-based DFA also is a manufacturing powerhouse, making cheese, butter, a variety of dairy ingredients and other dairy and dairy-based products for retail, industrial, private label and foodservice customers through its Dairy Food Products division. Arguably DFA’s most well-known public identity is the Borden brand, under which the company manufactures and markets an expanding line of cheese.

“We continually focus on how to leverage the heritage of the Borden brand, while ensuring that Borden cheese products are relevant to today’s family,” says Mark Korsmeyer, president of Dairy Food Products, says of the brand, which boldly proclaims on each package that the proceeds go back to dairy farmers (DFA’s member-owners). “The number-one point of differentiation we communicate to consumers is the connection between DFA’s member-owners and Borden cheese. That connection drives the quality and wholesomeness of Borden cheese.”

The Borden brand has been connecting with consumers for many generations; in 2007, Borden celebrated its 150th anniversary.

Borden – along with other DFA branded products, including Keller’s and Plugrá butter, and the Sport Shake beverage products – account for thousands of SKUs and about half of DFA’s annual $2 billion in finished product sales. The remaining sales come from a robust contract manufacturing business, foodservice clientele and ingredients customers. “Our contract manufacturing will play a key role in future growth,” Korsmeyer says. “That business is growing at a nice, steady pace.”

Meanwhile, the division is exploring opportunities for growth through new products and line extensions that address consumer demands for health and convenience, as well as its first foray into the organic market (anticipated to debut later this year).

Leading the way are Korsmeyer and some fresh faces on his management team, including

John Stephens, filling the newly created position of DFP’s chief operating officer. With DFA for about six months, Stephens is heading up the effort to readjust the duties of sales and marketing with other units within the company for better communication and efficiency. This will bring more “clarity and focus for the organization,” he says. “We’re bringing people from sales and finance together in tight-knit groups to address challenges and, more importantly, bring different perspectives when identifying opportunities.”

The new organizational system aims to bring more centralized management to a business structure that historically has relied on local control. “We are centralizing, but we want to maintain the focus at our plant levels,” Stephens says. “We’re trying to bring the passion for solving customers’ problems. … We don’t want to take the autonomy away; we want more constructive and creative solutions to address customers’ needs.”

Form and function

Channeling that passion into brand development, DFA’s focus will be new products with taste plus functional benefits. “We try to bring the combination of great-tasting food with the functional benefits that moms feel good about when serving it,” Stephens says.

DFA’s answer is this month’s rollout of Borden Essentials, a line of sliced and snack-style cheeses fortified with vitamins A and E, antioxidants known to support a healthy immune system. “Cheese is a fun food,” Stephens says, “but with vitamins A and E added, it provides a healthy reason for a snacking occasion.”

The Essentials line is expected to go national by the second quarter of the year through a major big-box retailer, Stephens says. It’s a natural follow-up to the Borden Kid Builder line of fortified string cheese and processed slices, launched two years ago.

Meanwhile, DFA reports strong sales of its Borden Grilled Cheese Melts, a new processed sliced product with triple the calcium of regular processed singles, introduced last year. “It’s about an eating occasion – promoting grilled cheese for snacking and as a meal option,” Stephens says.

And DFA’s Plugrá European-style butter brand is the focus of a new marketing blitz to promote the specialty product as the choice of discerning chefs both inside and outside the home. Plugra has been adopted as the official butter of the French Pastry School and is being used in recipes by major restaurant and bakery chains, Stephens says.

Key selling points for the branded lines include Borden cheese products’ boosted calcium content, Plugrá’s higher butter fat content and the Keller’s seasonal butter sculpture formats. But Stephens says the trump card is at the products’ source. “The unique aspect we have over the others is farmer ownership,” he says of DFA’s 18,000 farmer member-owners in the lower 48 states. “Our members have a long-term commitment to producing high-quality dairy products. That message resonates with our customers and consumers.”

That message also gives DFA the unique position of being a large company that’s still able to take advantage of the growing trend toward locally produced food. “We have members in so many communities,” notes Janine Smiley, DFA’s director of industry communications. “And these members have tremendous investments in their local communities.”

To bring local commitment more into focus, a new campaign expected to be launched this year will include DFA members more prominently in marketing, namely specific farmers in local and regional markets “to show their commitment to their products and the community,” at the retail level,” Korsmeyer says. “Many of our brands have a regional orientation and are number one in their regions. We customize programs specific to our retailers taking into consideration our farmers and their locations.”

Contractual obligations

In addition to the cheese that’s in great demand from private label and foodservice customers, DFP is enhancing the extended shelf-life capabilities of its contract manufacturing business. Seeing innovation in this segment as a growth area for the future, DFA’s members have invested in low-acid canning facilities and is one of the few dairy manufacturers nationwide that utilize retort technology.

The company recently installed additional retort equipment in its Cabool, Mo., plant to increase its production capacity, and has made a significant investment in a new filling and batch retorting line that expands the types of packaging formats available to its customers.

DFA currently manufacturers retail and institutional products for well-known national brands and produces its own shelf-stable nutritional dairy-based beverage under the Sport Shake brand.  

Over the past decade, the company has made a “renewed effort to expand into more traditional shelf-stable beverages where flexibility and innovation are key,” says Art Farris, executive vice president of DFP’s Formulated Dairy Food Products division, who directs DFA’s contract manufacturing activities.

In fact, DFP’s shelf-stable business – which includes sports drinks, coffee and milk-based beverages and infant formula – has grown from 360 million to 600 million units of product over the past eight years, Farris notes. “It’s one of the reasons DFA’s members have been so supportive of this product category,” he says.

That support has come in the form of additional dollars to establish and support a research facility in Springfield, Mo., where DFA’s manufacturing, engineering and R&D teams specialize in formulating shelf-stable, low-acid foods and dairy-based beverages packaged in glass, aluminum, plastic and steel containers.

“We’re going to see products move in and out of this category pretty quickly. That’s why it’s important to have equipment that allows us to be flexible to meet customer needs,” Farris says. “All of these new products are going to give greater breadth to this market than has traditionally been limited as to packaging and beverage types.”

Farris expects DFA to launch line extensions of its convenience-driven products. “People are looking for safety, for quality and for something that gives them nutritional value,” he says.

Growth in the shelf-stable dairy markets has been particularly strong with ready-to-consume coffee beverages and energy drinks. “The growth has been rapid,” Farris says. “The low-carb drinks of a few years ago opened up the marketing and packaging of nutrition in a different way.”

DFA’s R&D team spends about a quarter of its time on new research while focusing the rest on improving the quality of existing products and addressing new product demands. “Contract manufacturing going forward is going to be positive for DFA,” Farris says. “Our true goal is to deliver returns to our members and a quality, low-cost product to our customers. Our foundation is strong and we are in position to manage developing market trends.”

Challenges, opportunities

Rollercoaster commodity costs are an issue at DFA as they are throughout the industry. “Increased commodity cost has been a major challenge,” says Stephens, who brings to DFA the experience of stints with Frito-Lay, ConAgra and Parmalat’s bakery division. “It’s not the absolute increase. It’s the volatility we saw through 2007.”

Of course, this creates problems, which Stephens says are especially evident when working with foodservice customers trying to establish menu prices and plans for the year. Consistency is key for consumer confidence, he says.

But DFA is in a unique position as a farmer-owned cooperative, which seeks to get top dollar for its members’ milk as well as control costs on the manufacturing end. “Forward contracting and risk management are key ingredients for more continuity of costs in the future,” Korsmeyer says. “It is our goal to produce products and create a positive return on our owners’ assets.”

Energy and feed costs play a large role in driving up production costs for DFA members, whose costs are passed along to manufacturers, Korsmeyer adds. “This all adds up to greater cost impacts that we must manage,” he says. “Our supply-chain people deal with this continually.”

Heading up that effort is John McDaniel, vice president of supply chain and one of DFA’s new management team members. “We’re looking to hedge fuel costs to take some volatility off the table,” he says, along with consolidating the company’s carrier base for better efficiency.

It’s part of a new effort to work more closely with customers and suppliers in moving raw materials and finished goods. “You’re going to see industries in general working more closely with customers and suppliers,” McDaniel says. “It really cries out for more of a team effort. We’re talking to customers about things we can do to help save them money.”

Until McDaniel arrived in December 2006, DFA had no centralized supply chain organization, which is typical for organizations that have merged and have a variety of systems in place. His task was to centralize logistics, purchasing, warehousing and transportation activities. “We’ve taken a more holistic, global approach, to take advantage of efficiencies across our organization that may have been overlooked,” he says.

One thing McDaniel’s group is studying is how to reduce the cost of transporting fluid milk used to make various food products. Making a concentrate by removing the water would help reduce transport costs, but he notes that such a move would depend on the standards of identity for products to be made from the milk.

“The marketplace is becoming more competitive. Customers are getting larger and they expect us to drive costs down,” McDaniel says. “There’s no stone unturned. We’re looking at every area we can. There’s only so much you can do to manage commodity costs.”

McDaniel’s group sets annual goals that he expects will eventually “drive millions of dollars” of efficiencies over the coming decade.  “We got several million dollars in savings in 2007,” he says.  “We expect to get double that in 2008 and the same levels over the next five to 10 years.”

By improving its position regarding the cost of doing business, DFA can concentrate on seizing new opportunities for its products at home and around the world. “Number one are better-for-you products with line extensions of our brands,” Korsmeyer says. “Secondly, we need to continue to focus on a shorter product cycle in our go-to-market strategy.”

Also important are exports. DFA currently exports cheeses, butter oil, dry powder and ingredients overseas to customers in Europe, Korea and Japan. “We need to adjust our mindset of building a base of international customers for the long term,” Korsmeyer says.

“U.S. manufacturers must shift from “spot sales” to “longer-term demand sales.”

DFA is well positioned for doing business in the Pacific Rim, Korsmeyer says; the company’s key assets include farmers and plants in California, in good proximity to Asian markets. “Our whole business model in the West gives us tremendous opportunity,” he says.

Valuable resources

Korsmeyer, who reports to president and chief executive officer Rick Smith, describes DFA’s management structure as “a pretty flat organization.” Smith once remarked to an audience at Dairy Forum soon after he took the reins at DFA that he hardly ever sees the inside of his Kansas City office. Korsmeyer concurs that DFA’s leadership spends a lot of time in the field.

“The business happens outside the corporate headquarters. Rick travels continuously to meet with our members and our customers; I do the same thing as my schedule permits,” he says. “When you get out with customers, understanding how they do business and developing relationships to help build their businesses, you’ve got a success.”

Also important are the DFA employees around the country. There are more than 4,000 employees in all, 2,200 of them based at 15 plants across the country. An array of training programs helps honor management’s commitment to its work force, Korsmeyer says. “Communication is a critical thing,” he says.

David Darr, vice president of sustainability and public affairs, agrees. “As we look at our business, people are the most valuable asset we have. The foundation of that is our members. They’re providing leadership locally in their communities,” Darr says. “We want to operate our business in a similar fashion, in the right way for the right reasons, with care for our people, the environment and the resources we use.”

Darr leads DFA’s sustainability efforts, providing a framework for bringing company-wide programs together. “We’re doing lots of great things to better utilize our resources,” he says. “We’ve developed plans … a lot of local initiatives that have been going on for a long time. As we look at our milk supply chain, we want to better understand what they’re doing on the farm, their strengths, where we can assist them.”

Last year, DFA launched its “Gold Standard Program” to promote environmental stewardship, “to quantify what our members do every day toward sustainability,” Darr explains. Included in these efforts are studies on a no-idle policy for trucks and a close monitoring of fuel use. Further, he notes, “dairy facilities are great recyclers,” and water extracted during manufacturing processes is treated and reused for sanitation.

No flavor of the month, sustainability is here to stay, Darr affirms, and it’s a policy that in many cases is being pushed along by key customers. “The dairy industry, we’re not ahead of the curve yet,” he says, “but we’re getting on the curve and speeding along at a rapid pace.”

History

Dramatic change within the dairy industry helped shape the creation of Dairy Farmers of America Inc. The presidents of four of the nation’s leading dairy cooperatives met in late 1996 to determine a strategy for improving members’ competitiveness. All the co-ops were successful in their own right, but a thorough evaluation revealed the enormous potential of working together.

The boards of each of the four merging cooperatives realized that by combining resources and assets as one organization, under one name and one vision, they could build better, more efficient and dynamic opportunities for members and customers of the cooperatives.

On January 1, 1998, DFA was formed, combining the resources, talents, leadership, markets, technology and vision of four cooperatives - Southern AMPI Inc., Mid-America Dairymen Inc., Milk Marketing Inc. and Western Dairymen Cooperative Inc. Two more cooperative organizations have since become part of DFA - Independent Cooperative Milk Producers Association and California Gold Dairy Products. DFA was created by dairy farmers with a common goal of each of the merging cooperatives to create a dairy marketing cooperative that would give its members the ability to compete in rapidly changing global business environment.

As a result of these mergers, DFA and the merging cooperatives combined their substantial resources to better participate and compete in a multinational industry that has experienced, and continues to experience, increasing consolidation. At the same time, DFA provides a grassroots organizational structure to ensure member-producers participation in the management of DFA.

SOURCE: www.dfamilk.com

Fast Facts

• Based in Kansas City, Mo., DFA has members in 48 states. Products manufactured by DFA are sold in every state and exported internationally.

• DFA is governed by its board of directors, which is made up of dairy farmer members of DFA who are elected on a grassroots level by the dairy farmer-members of DFA in the same geographic region. Each board member serves a two-year term and helps to establish guidelines that define the business directions for DFA as a cooperative food company.

• Rick Smith is DFA’s president and chief executive officer. He leads a team of more than a dozen upper-level managers who oversee the company’s various operating divisions.

• In 2007, DFA marketed more than 61.9 billion pounds of milk for its 18,278 dairy farmer members, supplying bottling plants and manufacturing plants that produce a complete line of dairy products for consumers in the United States and around the world. In 2007, DFA had sales of $11.1 billion.

• DFA manufactures American and Italian cheeses; natural and processed shredded and diced and cheeses; shelf-stable infant and adult nutrition products; dehydrated dairy products; nonfat dry milk; dried whey products; dairy and dairy-based extended shelf-life products; dairy-based dips and sauces; and other dairy ingredients. DFA manufactures Borden Cheese products, which include natural and processed cheese slices, natural chunk and shredded cheese, snack and string cheese, salted and unsalted butter quarters, and spreadable butter with canola oil. Borden-branded products are available nationwide at major grocery and mass-merchandise retail stores. 

• Keller’s Creamery, a division of DFA, produces and markets butter products sold under DFA-owned brand names, such as Breakstone’s, Plugrá, Falfurrias and Hotel Bar. 

• DFA’s joint ventures include Hiland Dairy Foods, Roberts Dairy, National Dairy Holdings, HP Hood, and Stremicks Heritage Foods, all involved in fluid milk bottling and distribution. DairiConcepts, Humboldt Creamery, and O-AT-KA Milk Products Cooperative are other DFA joint ventures and affiliates that serve other segments of the dairy industry.

• DFA’s state-of-the-art technical center in Springfield, Mo., includes research and development laboratories, a sensory lab for small-scale pilot plant that allows scientists to perform all current plant processes and provide manufacturing process testing for new products. Technologists can work with DFA R&D staff in developing new products, including shelf-stable dairy products, cheese, dairy-based flavorings and cultured products.

• DFA exports cream and other dairy products internationally to locations where DFA is aggressively developing new markets.

• DFA’s position on rBST: “DFA has a policy of choice for its members. Through each of its seven area councils, DFA works with its members to market their milk to available markets, and with its customers to supply the milk they require. Many of DFA’s members have elected to discontinue the use of rBST and sign an affidavit, so that DFA can market their milk to customers requesting milk from producers pledging that they are not treating their cows with rBST.”

SOURCE: DFA

Borden at 150

Over the years, Borden products have become part of American history. The Borden brand maintains high industry and consumer recognition and has become a multigenerational household name, dating back to 1857 when a visionary named Gail Borden established the nation’s first milk condensery in Burrville, Conn.

Borden products emerged in large part as a result of Gail Borden’s relentless drive to create better products for American consumers. Born in New York, Borden was a bit of a renaissance man by the time he reached his 40s. He had been a publisher, cattleman, surveyor, civil servant, politician and missionary. In the mid-1840s, he began to focus on methods to keep food from spoiling.

In 1853, Borden began working on a process to condense milk as a means of preventing spoilage, patenting his design in 1856. A year later, he established his first condensery in Burrville and called his emerging business the New York Condensed Milk Co.

Borden built more processing facilities in Connecticut, New York and Maine. The business quickly grew after the Civil War began in 1861; the Union Army called on Borden to supply condensed milk in large quantities. For the first time, consumers could rely on dairy products to remain free of bacteria due to his processing methods.  As a result, the Borden brand became synonymous with quality and wholesomeness.

Borden maintained that reputation by establishing the “Dairyman’s Ten Commandments,” the guidelines and standards for barn and herd cleanliness which even today are the basis of many health department regulations. Borden’s sons, John Gail and Henry Lee Borden, were pioneers in their own right, establishing Borden also as a purveyor of fluid milk products in New York City in 1875, and a decade later selling sanitary milk in bottles. The business expanded to New York state and then to Illinois. The business further expanded with the sale of evaporated as well as condensed milk.

By the turn of the century, Borden reached $10 million in sales and the business was reorganized to allow non-family members as shareholders. In 1919, the firm changed its name from the New York Condensed Milk Co. to Borden Co. and Borden’s. The first annual report listed assets including 21 milk plants, eight dairy farms, 156 bottling plants, 70 city pasteurization plants throughout the United States and 3,400 horses and wagons.

By 1928, Borden had expanded to all regions of the country and became a nationally known brand. In the late 1920s, Borden acquired several of the nation’s leading ice cream and cheese companies.

In the 1930s, Elsie was created. She first appeared as one of many cartoon cows extolling the benefits of milk in medical journals. Doctors were so charmed that they asked Borden to send reprints that they could hang on their walls.

The first live Elsie was selected at the 1939 New York World’s Fair. The “Borden Boys” – young agriculture and dairy college students recruited to handle the cows at the Borden exhibit – were instrumental in choosing Elsie and taking care of her. In the 1940s, a study showed that more people recognized Elsie than President Harry Truman.

For nearly 70 years, Borden has used Elsie as its “spokescow.” So far, there have been 29 Elsies. Elsie continues on the road today making appearances at fairs, parades and special events. She is a symbol of the wholesome quality products that bear the Borden label.

Eventually, Borden Co. became Borden Inc., with six operating divisions: dairy, grocery, snacks, non-food consumer products, packaging and industrial products and chemicals. In 1968, Borden created Borden International, Inc., a mirror image Borden’s U.S. operations with just about every Borden product distributed in America also being distributed overseas.

In 1995, investment firm Kohlberg Kravis Roberts & Co. (KKR) acquired Borden. KKR divested Borden’s food interests, selling its Borden/Meadow Gold Dairies Inc. unit in 1997 to Mid-America Dairymen Inc. (a predecessor of Dairy Farmers of America), which was granted a license to use the Borden trademark on cheese and other dairy products. Control of Elsie the Cow and the Borden trademark remained with KKR and its successor companies. (Meadow Gold is now owned by Dean Foods.)

Borden Cheese products are now marketed through DFA’s American Dairy Brands division. Borden Cheese products include individually-wrapped cheese slices, natural shredded cheese, natural chunk cheese, string cheese and natural cheese slices and are available nationwide at major grocery retailers and mass merchandisers.

Borden celebrated its 150th anniversary in 2007 with events that commemorated the heritage of the brand and showcased hard-working dairy farmers and their families.

“It’s American farmers who back Borden brand dairy products, and it’s the families who embrace those products that have made Borden a highly recognized brand through the years,” says Mark Korsmeyer, president of American Dairy Brands.

The anniversary campaign featured donations of memorabilia to the Smithsonian’s National Museum of American History and the New York Historical Society during National Dairy Month in June, including an original milkman uniform, 50 years worth of “Borden Boys” yearbooks and an original Gail Borden scrapbook.

SOURCES: DFA, deanfoods.com, meadowgold.com, Dallas Business Journal, Business Wire, answers.com.

The DFA Family of Products

Borden
DFA’s flagship is the historic Borden brand, under which DFA markets an extensive line of cheese and butter products. Hitting stores now is Borden Essentials, a new line of sliced and snack cheeses fortified with antioxidants. Among other new Borden products is the portion-controlled 100 Calorie line, including cheddar and Monterey jack cheese sticks, along with the Li’l Snacks line of cheddar and colby-jack sticks. Answering the call for more natural cheese options are Borden natural slices in mild and sharp cheddar, provolone and colby-jack. The Grilled Cheese Melts, launched last year, have quickly found a following. Borden processed singles – which have triple the calcium of most competitive brands – encompass nearly 20 varieties in regular, 2% and fat free, all in an assortment of flavors. Borden Kid Builder products offer singles and string cheese in a kid-friendly format. The Borden cheese family is rounded out by an extensive line of chunk, sliced, shred and string cheeses. More information is available at www.elsie.com.

Keller’s
As a fully owned division of DFA, Keller’s Creamery produces and markets well-known butter brands including Keller’s, Hotel Bar, Breakstone’s, Borden, Falfurrias, Cache Valley and Plugrá. Keller’s has a rich history in the Philadelphia area, with distribution in the Northeast and throughout regional pockets of the United States. What is now known as Keller’s Creamery began as the Branch Valley Creamery in 1906, and was later purchased and renamed by Florence and Harvey Keller. Over the next 100 years, the company would grow to become the second-largest branded butter manufacturer in the nation. In 2005, Keller’s Creamery became a division of DFA. More information is available at www.kellerscreamery.com.

Sport Shake
Sport Shake teams up protein and carbs with calcium-rich milk, resulting in a creamy milk shake-like sports drink packed with power and full of flavor. The beverage comes in chocolate, vanilla and strawberry flavors. The Sport Shake Web site is designed to help consumers with their active lifestyles and how this product can be an integral part, along with information about the nutritional benefits of dairy-based products over other energy drinks. More information is available at www.sportshake.com.