Checkoff Ruled Unconstitutional

Citing success in boosting consumption, industry is hopeful the court decision will be appealed.

Charging milk producers mandatory fees for the dairy industry's "3-A-Day of Dairy" promotional campaign is unconstitutional, a federal appeals court ruled February 24.

The 3rd U.S. Circuit Court of Appeals decision overturned a lower court ruling against Pennsylvania farmers Joseph and Brenda Cochran, who claim they were forced to contribute to the National Dairy Promotion Board's advertising campaign. The Cochrans, who raise 150 cows on their 200-acre farm and pay about $3,500 annually in checkoff fees, claim their rBGH-free milk is superior to the generic milk promoted in industry ads. The Cochrans and their attorney say the program violates their freedom of speech and the ads misrepresent their products.

News Wire

nDreyer's Grand Ice Cream Inc. purchased the Häagen-Dazs ice cream shop franchise group from Minneapolis-based General Mills Inc. Häagen-Dazs Shoppe Co. Inc. has 236 ice cream parlor franchises nationwide. Dreyer's obtained a license for the superpremium brand and ice cream supply contract for the shops when it merged with Nestlé Ice Cream Co. in June 2003. The acquisition makes Dreyer's Grand Ice Cream Holdings, Oakland, Calif., the country's largest seller of packaged premium and superpremium ice creams and frozen snacks. In other Dreyer's news, the company began shutting down parts of its Union City, Calif., plant in anticipation of a July closure, which will end manufacturing and relocate research and development offices. Dreyer's officials said the plant had become too expensive to operate. The company will use former Nestlé plants in Bakersfield, Tulare and City of Commerce. At least one-third of Union City plant workers took jobs at other company locations, and the company's second-quarter earnings reported in August point to likely layoffs, officials say.

nThe U.S. Department of Agriculture (USDA) released revised data showing 2003 milk production was 170.3 billion pounds, or 0.1 percent over 2002 figures. Preliminary data had shown a 0.1 percent decline in 2003 compared to the previous year. Revised 2002 numbers increased the annual total by 0.2 percent, while 2003 production was up
0.4 percent from earlier estimates. Production per cow in the United States averaged 18,749 pounds for 2003, up 141 pounds from 2002.

nAfter five years in California, the Marschall Cheese Seminar will return to Wisconsin this year and combine with the Wisconsin Dairy Products Association's (WDPA) annual convention. The joint event, to be known as the Dairy Symposium, is scheduled for June 27 to 29 at the House on the Rock Resort in Spring Green, Wis. The Marschall show is sponsored by Madison, Wis.-based dairy ingredient maker Rhodia.

nA judge has ruled Tillamook County Creamery Association (TCCA) can't prevent a local beef jerky producer from using the name of the Oregon coastal town they both call home. The jerky maker, Tillamook Country Smoker, has used the name since 1976, and the judge said TCCA waited too long to object. But, the judge ordered the smoker to drop the slogan "Tillamook Jerky" from its packaging and Web site. TCCA has shared its town's name with local businesses for 92 years, but in 1997 raised an objection when the smoker — which had sold its product in the creamery's visitors center — began marketing its products in grocery stores where Tillamook cheese was sold. According to federal law, trademark owners defend their brands, but if they allow the name to be shared for an unreasonable amount of time, they can't claim infringement.

nLake Forest, Ill.-based Wiscon Corp., maker of Caputo-brand cheese, broke ground on a new cheese aging plant at its Melrose Park, Ill., site. The 20,000-foot expansion, to be located behind the existing office building, will provide space to maintain more than
5 million pounds of Italian-type cheeses. Wiscon's current facility ages parmesan, romano and asiago. The expansion, expected to be completed by April, will allow for a second renovation of its Caputo Cheese Market outlet store.

nNebraska dairy operators plan to build a 4,500-head Jersey cow dairy in northwest Iowa that will help supply Wells' Dairy, Le Mars, Iowa. The dairy, maker of Blue Bunny ice cream and other products, says this location was chosen for to its proximity to the processor and would reduce shipping costs.

nThe bitter labor dispute between WestFarm Foods and Teamsters Local 66 continues as the company refuses to end its lockout of nearly 200 workers. Teamsters asked the Seattle-based dairy processor to end the lockout in exchange for a union pledge not to strike for a year, but WestFarm rejected the offer, saying it would undo months of work toward a long-term deal. The company said it made four offers to the union since the lockout began in August. In late February, WestFarm denounced ads the union ran "that contained highly exaggerated claims about quality of products." Teamsters also planned to picket the company's plants in Lynden and Chehalis, Wash. Federal mediators dismissed an early February meeting. A seven-hour meeting in early March without federal mediation made "some, but insignificant, progress."

This latest court ruling said the government's interest in promoting the dairy industry wasn't substantial enough to justify an infringement on the Cochrans' free speech rights by requiring them to help pay for the ads.

Although most news media have mentioned "got milk?" when reporting on the ruling, the case actually involves the dairy producer generic marketing program, not the Milk Processor Education Program (MilkPEP), notes Susan Ruland, vice president of communications at Washington, D.C.-based International Dairy Foods Association (IDFA).

"There has been no court challenge to MilkPEP, which is strongly supported by the milk companies that fund and manage it," says Ruland. "For clarification, the dairy producer program under Dairy Management Inc. (DMI) has shifted its efforts from the 'got milk?' program, and is now primarily dedicated to the '3-A-Day of Dairy' campaign. Less than 5 percent of the producer program involves marketing that uses the 'got milk?' tagline. However, California milk companies have an active 'got milk?' program, and the MilkPEP currently runs the successful National Milk Mustache 'got milk?' Campaign." Ruland notes that neither of these programs is involved in generic marketing litigation.

IDFA and other industry groups say they are confident the case will be appealed, possibly all the way to the U.S. Supreme Court.

Dairy is not the first food industry to have a checkoff program challenged by producers. A St. Louis federal appeals court ruled in July that ranchers could not be forced to pay a $1-per-head fee on cattle to support the marketing campaign that spawned the slogan "Beef: It's what's for dinner." A Cincinnati appeals court struck down a similar fee in October that supported ads calling pork "the other white meat." These cases are awaiting action by the Supreme Court, which will announce in April whether or not to hear the beef case. If heard, a ruling is not expected until 2005.

Last year, the Supreme Court ruled a similar program for mushroom growers violated free speech rights, but previously ruled in a 1997 case that joint advertisements were constitutional in heavily regulated industries such as California fruit production.

In 2000, the Supreme Court refused to hear a case brought by dairy producers who objected to funding the "got milk?" campaign. Justices rejected an appeal in which dairy producers challenged the government's authority to force them to finance ads aimed at boosting the entire industry.

U.S. Department of Agriculture (USDA) attorneys in the dairy checkoff case have said a joint marketing campaign is the only effective way to compete with other beverages because dairy prices and distribution are tightly regulated.

Dairy producers pay a mandatory fee of 15 cents per hundredweight, or about 2 cents a gallon. Producer assessment collections will continue during the appeals process.

Kansas City, Mo.-based Dairy Farmers of America (DFA) is "disappointed with the ruling," says Agnes Schaeffer, vice president of communications.

"Our members are urging the secretary of the U.S. Department of Agriculture to continue its support of the dairy checkoff program. As a cooperative, DFA and its dairy farmers have aggressively worked for implementation and continuation of the dairy checkoff. Many of our members have helped over the years to get the legislation passed in 1983 and are those same farmers who voted on it and subsequent referendums in both 1985 and in 1993," says Schaeffer. "We're confident that the courts will ultimately decide that the dairy checkoff is beneficial for U.S. dairy producers and consumers because it does help increase demand for American-made dairy products."

Ruland says producer and processor programs are vital to increasing demand for dairy products, handling tough public relations issues surrounding dairy and educating the public on dairy products' benefits.

Citing a 2003 Cornell University study completed for Congress on the DMI/MilkPEP checkoff program, Ruland says: "Fluid milk consumption would have averaged 4.3 percent lower each year between 1998 and 2002 without the checkoff programs. Total consumption of milk in all dairy products would have averaged about 2 percent lower annually, or about 3.2 billion pounds a year."

PEOPLE ON THE MOVE

PROCESSORS

Friendship Dairies Inc. — Jim Harwood has joined the Jericho, N.Y.-based processor as regional sales manager. He is responsible for the company's expansion into the Atlantic Coast/Smoky Mountain region.

O-AT-KA Milk Products Cooperative — Michael Patterson has joined the Batavia, N.Y.-based cooperative as chief financial officer. Patterson has more than 15 years experience in the dairy industry, including financial and operational management positions with Upstate Farms Cooperative.

Westby Cooperative Creamery — The Westby, Wis.-based cooperative has hired Peter Kondrup as general manager. Kondrup has more than 30 years experience in the cheese industry.

WestFarm Foods — John Mueller, president and chief executive officer, will retire at the end of the month. A 30-year veteran of the food industry, Mueller spent six years at the helm of the nation's fourth largest dairy cooperative, a subsidiary of the Northwest Dairy Association. John Underwood, a
22-year veteran of WestFarm Foods, will be appointed interim CEO.

PROCESSOR SUPPLIERS

Alcoa Closure Systems International — Juan Lopez has joined the Indianapolis-based aluminum manufacturer as marketing manager in growth markets. He will be responsible for publicizing new product development, consumer research and advanced molding systems.

Fogg Filler Co. — James Dahlke has been appointed president of the liquid filling systems manufacturer. Dahlke has more than 30 years experience leading manufacturing companies. Mike Fogg remains chief executive officer and chairman of the Holland, Mich.-based company.

Great Dane Trailers — Kit Hammond, president of the company's Multiproducts Division, has announced his retirement. Hammond was named president in 1997 and has been with the Savannah, Ga.-based firm for 40 years. He will remain on the company's board of directors.

Hansen Technologies Corp. — Milton Pritts has been appointed vice president of global sales and marketing at the Burr Ridge, Ill.-based manufacturer.

Hi-Speed Checkweigher — Kyle Thomas has been appointed marketing manager at the Ithaca, N.Y.-based packaging company. He will be responsible for marketing programs that build awareness for the company's checkweighers, robotic case packers and material handling systems in North America and Latin America. Jeff Adams has joined Hi-Speed as general manager after more than 20 years at Mettler Toledo Group, the firm's parent company.

Information Resources Inc. — Scott Klein has joined the Chicago-based firm as president and chief executive officer. He has more than 25 years experience with technology and consumer packaged goods groups. Klein and Dr. Romesh Wadhwani, IRI chairman, will be members of the office of the chairman.

Madras Packaging LLC — John Arcangeli has been named vice president of sales for the Charlottesville,
Va.-based plastics packager. Robert Reiser & Co. Inc. — Peter Mellon has been appointed president of the Canton, Mass.-based company. Mellon led the company's U.K. offices for more than 10 years. He replaces Roger Reiser, who served as president for more than 35 years. John McIsaac, who has worked in the food industry for more than 15 years, has been promoted to vice president of engineering/research and development.

R&D SUPPLIERS

Autocrat Inc. — Gregory Fowler has joined the Lincoln, R.I.-based ingredient company as director of operations, overseeing operations at its corporate headquarters as well as its distribution center in Woonsocket, R.I.

Chr. Hansen Inc. — Chuck Riley joins as account manager for the Milwaukee-based ingredients company's dairy business. He will provide sales and support for Southwestern customers.

Main Street Ingredients — Rudy Rott has been promoted to vice president of operations of the LaCrosse, Wis.-based ingredients company. A 25-year food industry veteran, Rott most recently was director of manufacturing operations.

U.S. Flavors & Fragrances — Roderick Sowders has been appointed president and chief executive officer of the ingredient company. The Wauconda, Ill.–based company is the first North American acquisition for the Carbery Group, an Irish ingredient company.

FACES AT THE FORUM

Processors share opinions at the 2004 Dairy Forum

QUESTION: What new products do you have on the horizon?

Dan Wells, president, Wells' Dairy Inc.: "We're following the low-carb craze. We see alternate sweeteners as being the future. Disney licensing is something we're pursuing also. The X-Game line is exciting, more teenage-oriented, (and) electrolyte water ice."

Brian Perry, executive vice president and vice chairman, Perry's Ice Cream Co. Inc.: "Our number-one product coming out, like everybody else, is a low-carb product. That will be coming out in the spring; we're looking at an April 1 release. It'll be in a 56-ounce scround package and also a round pint."

Rick Beaman, chief operating officer, Southwest Region, Dean Foods Co.: "As some of these new milk drinks hit the market, we're watching very closely. We are still promoting our value-added products like Hershey's, our soy milk, Horizon Organic and anything out there that will help us get more share of stomach."

Not Quite Total Recall

Smoothie named among memorable product launches.

The Dannon® Frusion™ Smoothie was named one of the most memorable new products in 2003, but garnered only 26 percent of consumer awareness, according to the results of a recent study.

The smoothie, made by Tarrytown, N.Y.-based Dannon Co., was the lone dairy product identified among the 38 new products named in the study. Launched nationally in January, the 10-ounce yogurt drink is available in six flavors.

Three of the top 10 launches in 2003 were food products. Last year saw a record 33,678 new products hitting store shelves and marketers were faced with an unusually strong competitive marketplace.

Surprisingly, the most memorable launch of 2003 was not a product, but a commodity — the redesigned $20 bill.

"Consumer packaged-goods marketers can learn a few things from the U.S. Bureau of Engraving and Printing based on the runaway success of the new $20 bill," says Joan Schneider, president of Schneider & Associates, a public relations firm specializing in new product launches.

"We were surprised that the federal government surpassed experienced consumer product marketers with the most memorable launch success story of 2003. Clearly their multimedia and promotional approach paid off," says Schneider, author of an upcoming book on new product launches.

In the online survey, which asked 1,000 Americans to name new products through unaided recall, half of those surveyed couldn't name a single new product launched in 2003, up 33 percent from the previous year.

Launching a new product is a high-risk venture and failure to win consumer awareness can be fatal. Past studies from Chicago-based Information Resources Inc. suggest that many of those 33,678 new entries won't achieve broad distribution, and of those that do get on major retailer's shelves, anywhere from 50 to 75 percent fail to sell in adequate quantities and will disappear from store shelves within two years.

The most successful new product launches of 2003 used a mix of marketing communications approaches and more consumers learned about new products through recommendations from family and friends than any other channel — including advertising.

"The obvious goal of marketers is to generate sales, but what is sometimes overlooked is the most effective way to build sales is to get consumers so excited about your product that they tell their friends and family about it," says Harry Stagnito, president of Stagnito Communications Inc., publisher of Dairy Field and 14 other magazines covering the food, beverage and packaging industries.

Completed in January, the study was conducted by Stagnito Communications, Schneider & Associates and InsightExpress.

CALENDAR

March

29: First World Congress on Organic Food: Meeting the Challenges of Safety and Quality for Fruits, Vegetables and Grains, Organic Trade Association, East Lansing, Mich., www.foodsafe.msu.edu/organics.

30-31: Dairy 101: Milk Procurement Workshop, International Dairy Foods Association (IDFA), Rosemont, Ill., (202) 220-3557, www.idfa.org.

March/April

29-2: Wisconsin Cheese Technology Short Course, University of Wisconsin-Madison Department of Food Science, (608) 262-2253 or (608) 263-2015, fax: (608) 262-6872.

31-2: HACCP for Juice Processors, Food Processors Institute (FPI), Sacramento, Calif., (800) 355-0983 or (202) 393-0890, fpi@nfpa-food.org, www.fpi-food.org.

April

3: From Recipe to Reality, Food Processing Center at University of Nebraska-Lincoln, (402) 472-8930, aburney@unlnotes.unl.edu.

13: NAFFS Technical Meeting, New Jersey Convention and Expo Center, Edison, N.J., (732) 922-3218, fax: (732) 922-3590, info@naffs.org, www.naffs.org.

14-15: Polymer Reaction Engineering course, University of Wisconsin-Madison Department of Engineering Professional Development, Houston, (800) 462-0876, fax: (800) 442-4214, http://epdweb.engr.wisc.edu/webF857.

18-21: Annual Meeting of American Dairy Products Institute (ADPI) and American Butter Institute, Chicago Marriott, (630) 530-8700, info@adpi.org, www.adpi.org

19-23: Dairy Technology Workshop, Randolph Associates Inc., Birmingham, Ala., (205) 595-6455, us@randolph
consulting.com.

20-21: FSIS Verification of HACCP Plans, Food Processors Institute (FPI), Washington, D.C., (800) 355-0983 or
(202) 393-0890, fpi@nfpa-food.org, www.fpi-food.org.

20-21: Powder and Bulk Mixing: Processes, Applications and Equipment course, University of Wisconsin-Madison, Philadelphia, (800) 462-0876, fax: (800) 442-4214, http: //epdweb.engr.
wisc.edu/webF858.

22-23: Prerequisites to HACCP, Food Processors Institute (FPI), Washington, D.C., (800) 355-0983 or (202) 393-0890, fpi@nfpa-food.org, www.fpi-food.org.

26-27: Dryer Technology course, University of Wisconsin-Madison, (800) 462-0876, fax: (800) 442-4214, http://epdweb.engr.wisc.edu/webF779.

28-29: Atomization and Spray Technology course, University of Wisconsin-Madison, (800) 462-0876, fax: (800) 442-4214, http://epdweb.engr.wisc.
edu/webF778.

May

2-3: 2004 All Things Organic Conference and Trade Show, Organic Trade Association, Chicago, www.atoexpo.com.

4-6: Cultured Dairy Products Short Course, University of Wisconsin-Madison Department of Food Science, (608) 263-2015 or (608) 262-2264, fax: (608) 262-6872.

4-6: HACCP for Juice Processors, Food Processors Institute (FPI), Atlanta, (800) 355-0983 or (202) 393-0890, fpi@nfpa-food.org, www.fpi-food.org.

9-12: 4th International Symposium of Recombined Milk & Milk Products, U.S. Dairy Export Council/International Dairy Federation, Cancun, Mexico, (703) 528-3049, www.milkrecombine04.com.

11-12: Applied Dairy Chemistry Short Course, University of Wisconsin-Madison Department of Food Science, (608) 263-2015, fax: (608) 262-6872.

11-13: Intermediate Laboratory Methods in Food Microbiology, Silliker Inc., South Holland, Ill., (800) 829-7879, www.silliker.com.

18: Wisconsin CIP Workshop, University of Wisconsin-Madison Department of Food Science, (608) 263-2015, fax: (608) 262-6872.

18-20: Ingredients and Ingredient Functionality Workshop, University of Nebraska Food Processing Center, Lincoln, Neb., (402) 472-9751, pgalloway2@unl.edu, http: //fpc.unl.edu/
Workshops/IngredientFunctionality.htm.

19: Dairy HACCP Workshop, University of Wisconsin-Madison Department of Food Science, (608) 265-6346, fax: (608) 262-6872.

19-20: Essentials of Auditing Management, Silliker Inc., Philadelphia, (800) 829-7879, www.silliker.com.

June

1: From Recipe to Reality, Food Processing Center at University of Nebraska-Lincoln,(402) 472-8930, aburney@unlnotes.unl.edu.

8-9: Wisconsin Cheese Grading Short Course, University of Wisconsin-Madison Department of Food Science, (608) 263-2015, fax: (608) 262-6872.

9-10: Food Allergens: Issues and Solutions for the Food Product Manufacturer, University of Nebraska Department of Food Science and Technology Food Allergy Research and Resource Program (FARRP), Hotel
Sofitel-O'Hare, Chicago, (402) 472-9751, pgalloway2@unl.edu, www.farrp.org/
workshop.htm.

Scandal Spills Onto U.S. Shores

Parmalat USA files for bankruptcy, promises to pay dairy producers.

After months of scandal at Italian dairy giant Parmalat SpA, three of its U.S. affiliates followed its parent company's lead and filed for Chapter 11 bankruptcy in late February.

Parmalat USA Corp., Newark. N.J.; Farmland Dairies LLC, Wallington, N.J.; and Milk Products of Alabama LLC, Decatur, Ala.; reported receiving nonbinding letters of intent from parties interested in buying their assets. The long-anticipated filings listed $414.4 million of assets and $316.5 million in debt. The affiliates say a sale of their businesses is "required to preserve value and benefit creditors." Interested parties also signed confidentiality agreements.

The subsidiaries seek court approval for up to $35 million of debtor-in-possession financing, which helps companies operating during reorganization, from General Electric Capital Corp. Debtors said they lost $12.5 million last year on revenue of $577.5 million.

All three Parmalat subsidiaries say they will continue normal operations, but need quick financing. Each company has assets and debts of at least $100 million each, including bank loans of about $5 million each owed to two Italian banks and a $10 million bank loan owed to Comerica of Detroit.

One provision of the bankruptcy filing specifically allows for prompt payment to dairy producers, says Parmalat USA spokeswoman Gillian Hewitt. Earlier this year, state departments of agriculture in New Jersey, Pennsylvania and New York said dairy producers stopped selling their milk to Parmalat following weeks of late payments. Parmalat blamed the lateness on "issues associated with the transfer of funds through the international banking system."

The Securities and Exchange Commission recently filed a lawsuit against Parmalat and officials are probing the company to find out what role U.S. banks might have played in the scandal. A number of U.S. law firms have filed class-action lawsuits against founder Calisto Tanzi and other officials; Italian stockholders are expected to join the lawsuits because no such legal resource exists in Italy.

News of the scandal first broke in December in Italy, and an audit revealed accounting irregularities and $18 billion in debt. Investigators are examining how Parmalat concealed debt through shell companies and what it did with billions raised through bond issues. Tanzi has been jailed and Italian authorities arrested about 50 family members and business associates in connection with fraud allegations.

Parmalat has food operations in 30 countries. Milk products include UHT, pasteurized, functional,
flavored, sterilized and powdered. Parmalat USA has about 1,300 employees nationwide, with headquarters in Wallington, N.J. The company operates six dairy processing plants in New Jersey, New York, Alabama, Georgia and Michigan.

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