2015 Exporter of the Year: California Dairies Inc. sees the future
In 2013, California Dairies Inc. gathered more than 100 mid-to-upper level employees to unveil a revamped strategic plan just approved by the board of directors. To commemorate the event, employees were given a curiously heavy, cardboard gift box. They opened it to find a crystal globe, wrapped in black satin.
CDI President and Chief Executive Officer Andrei Mikhalevsky joked, “I don’t want anyone coming to me in the future saying you can’t predict pricing in international markets – because you now have a crystal ball.”
That got a chuckle. But the keepsake globes, measuring 4 x 4 inches and weighing 3.5 pounds, sent a serious message: California’s largest dairy processor was staking much of its future on exports.
Etched in the globes between California and New Zealand, in the middle of the Pacific Ocean, was the company’s new vision statement – to become “The Leading Source of Dairy Nutrition for a Healthy World.”
Not a leading source, but the leading source.
CDI has not fulfilled its ambitious global vision yet. But working closely with its milk powder marketing arm, DairyAmerica, it has come a long way.
Dairy Foods has named California Dairies Inc., based in Visalia, Calif., the 2015 Tom Camerlo Exporter of the Year. Sponsored by the U.S. Dairy Export Council, the award honors companies that demonstrate leadership in driving global dairy demand and U.S. dairy exports. The award is named for the late Tom Camerlo, who, among other industry leadership positions, served multiple terms as chairman of the USDEC board of directors. USDEC, which leads the dairy industry’s overseas market development, is funded primarily by the dairy farmer checkoff program.
“This award validates our position as an exporter in the world markets,” Mikhalevsky said. “It also validates the strategic plan we have put in place. It’s recognition that our farmers and their co-op are making progress with a forward-looking board.”
“While a long-time export player, California Dairies has a new strategy and focus that is quickly establishing CDI as a go-to supplier for dairy buyers around the world,” said USDEC President Tom Suber. “By extension, that effort is lifting the reputation of the U.S. industry overall.”
On behalf of its 435 dairies, the co-operative’s export accomplishments include:
- Shipping to nearly 50 countries
- Accounting for an estimated one-third of all U.S. milk powder exports and 10% of U.S. butter exports
- Investing tens of millions of dollars in processes, equipment and training to develop product specifications that meet the exacting requirements of importers worldwide
- Expanding its product lines to capture overseas market opportunities
- Building a just-completed evaporator at its Visalia plant
- Playing a key role in the establishment and success of marketing cooperative DairyAmerica, which handles all of CDI’s overseas milk powder sales
- Maintaining dedicated capacity strictly for manufacturing export products, ensuring consistent supply for customers who require product year-round
- Cultivating long-term relationships through regular visits to customer facilities across the globe and hosting overseas visitors at its six California processing sites
- Committing to sustainability with a comprehensive greenhouse gas and water reduction strategy
When the CDI board of directors named Mikhalevsky president and CEO in 2012, it got an ambitious international businessman who racks up frequent-flyer miles with a last name on his U.S. passport that some find difficult to pronounce. The grandson of Russian immigrants, Mikhalevsky tries to make it easy by instructing people to go with this phrase: “Make-a-LEFT-ski.” Though not phonetically precise, Mikhalevsky said “it’s close enough.”
When he came to CDI, Mikhalevsky brought more than 35 years of international business experience, having lived in more than 20 cities around the world. The only continent he hasn’t done business in is Antarctica. His resume included five years as the managing director of global ingredients and foodservices at Fonterra Co-operative Group Ltd., the world’s largest dairy exporter, where he was responsible for building Fonterra’s global customer partnerships.
“His professional experiences opened his eyes to what’s out there in the world,” said Eric Erba, CDI’s senior vice president and chief strategy officer. “Most people don’t see the world like he does. They see the world as what’s local to them, through a prism of what they do on a regular basis. Most people tend to be provincial. Andrei didn’t come from that mold.”
One of Mikhalevsky’s first major tasks was to update the CDI strategic plan. In addition to the global vision statement, it included an updated mission statement, to “profitably market, process and add value to members’ milk.” Erba was there when the plan was presented to the CDI board.
“It was so much more about where we could go, rather than where we were,” said Erba. “I don’t think board members envisioned their cooperative being such an international player. I think they were excited, enthusiastic and amazed – all good adjectives.”
But executing the plan would require a not-so-easy culture shift of the entire organization. That’s one reason the organization gathered so many middle managers when the strategic plan was released.
While most employees at CDI’s six plants were energized, some might be described by other adjectives, such as nervous, wary and even reluctant.
“If you have been here for 20, 25 years, this new mindset and vision can be different,” is the way Erba diplomatically put it. “Before Andrei arrived, I don’t think many employees saw CDI as much more than a large dairy cooperative in California.”
Close to West Coast ports
Like a good real estate agent, Mikhalevsky sees three major advantages of being in California: location, location, location.
“We are perfectly positioned, being in California, to take advantage of Asia and international markets,” said Mikhalevsky. “We have a 30% freight savings shipping to Asia versus shipping to Chicago. If it costs 10 cents per pound to send it to Chicago we can get it to Beijing for 7 cents per pound.”
Plants are located close to major shipping ports in Los Angeles, Long Beach and Oakland. After clearing testing, a CDI product can be loaded on a ship the next day.
Like all U.S. dairy exporters, CDI has had to weather a challenging year of volatility in global markets. Prior to 2015, annual U.S. dairy exports set new records for five consecutive years, increasing U.S. sales to more than $7 billion in 2014. If CDI would have strayed from its commitment to exporting, particularly powder, at competitive prices, the downturn would have been worse, not just for CDI, but total U.S. exports. In the first seven months of 2015, exports were equivalent to 14.4% of U.S. milk production on a total milk solids basis, down only slightly from 2013-14, when 15.4% of production was exported, according to the U.S. Dairy Export Council.
“We all know the markets are bad right now but you can’t jump in and out of exports whenever it suits you,” said Dennis Bettencourt, who oversees CDI’s six plants as vice president of manufacturing. “We have key customers we need to be there for every day or they will go with someone else. You have to be there when it’s bad or they’re not going to be there when it’s good.”
Along with three other co-operatives – Agri-Mark Inc., O-AT-KA Milk Producers and United Dairymen of Arizona – CDI is a shareholder in DairyAmerica, which markets milk powders internationally, as well as in the United States.
“The arrangement works well,” said Bettencourt. “DairyAmerica interfaces with the buyer and the warehouse people. They handle all of the supply chain and logistics, documentation and translation. They get us into the plant to interface with the technical people, so we can focus on the production side and innovation.”
Face to face with customers
Bettencourt said CDI visits major global customers once or twice a year to assess how they are testing, storing, using and transporting CDI products.
“You can’t just pick up the phone like you can sometimes in the U.S. to resolve something,” said Bettencourt. “You need to go see it to understand it. Sometimes the specifications say one thing, but there are variations according to various markets. When that happens, we don’t expect our customers to change. We try to adapt and change.
“That adaptability is part of the culture shift. It’s still a work-in-progress,” he said.
Among the six plants, Tipton and Visalia focus most on export products. Tipton is one of the largest plants in the nation with capabilities that include powdered milk, butter and production of a variety of condensed products. The Visalia plant is equipped with the largest single evaporator-dryer in North America.
To fulfill the mission statement’s mandate to “profitably market, process and add value to members’ milk,” CDI is creating more value-added export products. In three years, it has nearly doubled its product portfolio, and is investing for more expansion.
CDI added anhydrous milkfat in 2012, cream cheese in 2014 and milk protein concentrate and isolate this year. The addition of a third evaporator at the Visalia plant moves CDI’s export powder portfolio up the value chain and into higher specification powders. The new evaporator produces low-spore nonfat dry milk and skim milk powder, in addition to high-heat, heat-stable and low-spore milk powders for UHT applications.
“Innovation and new product expansion are driving this mission,” said Mikhalevsky. Exports have become so important to CDI “we can’t exist without it,” he said, crediting USDEC for ongoing assistance.
“We have to have an advocate, and USDEC is on top of all the issues,” Mikhalevsky said. “I think we leverage and use USDEC as much as anyone because we see USDEC as an extraordinarily beneficial asset to move our business forward.”
Those globes are proudly displayed on bookshelves and desks throughout the company. Intended to be aspirational, the crystal keepsakes appear almost magical when illuminated by a California sunbeam streaming through an office window.
“Employees love them,” Erba said. “They’re akin to a very large paperweight that gives you a perspective of where the company is going, and that’s very much in a global direction. For many employees, including me, that globe represents a new and fresh perspective of what CDI can be.”