Iowa Dairy Processing Sector: Status and Opportunines

Iowa Dairy Processing Sector: Status and Opportuni7es Dr. Marin Bozic, University of Minnesota DairyIowa CommiBee Mee7ng Ames, September 4, 2013 Plan for Today •  Maps of Iowa Dairy Plants •  Recent Dynamics •  DairyIowa Survey: Idea and Goals •  Summary of Findings •  Recommenda7ons Iowa Fluid Milk Plants -­‐ Commercial Dean Foods Le Mars Prairie Farms Dubuque Anderson Erickson Des Moines Iowa Fluid Milk Plants – Farmstead/Niche Iowa Fluid Milk Plants – Farmstead/Niche 1. Hansen’s Farm Fresh Dairy (Hudson, IA) 2. Kalona Supernatural (Kalona, IA) 3. Picket Fence Creamery (Woodward, IA) 4. Radiance Dairy (Fairfield, IA) 5. Sheeder’s Cloverleaf Dairy (Guthrie Center, IA) 6. WW Homestead (Waukon, IA) Iowa Ice Cream Plants Wells Blue Bunny Le Mars Anderson Erickson Des Moines Iowa Cheese Plants – Large Commercial AMPI Sanborn Agropur Hull Swiss Valley Farms Luana Wapsie Valley Creamery Independence Twin County Dairy, Inc. Kalona Iowa Cheese Plants – Farmstead/Niche 1.  Frisian Farms (Oskaloosa, IA) 2.  Maytag Dairy Farms (Newton, IA) 3.  Milton Creamery (Milton, IA) Goat: 1.  Honey Creek Dairy (Honey Creek, IA) 2.  Triple Creek Dairy (Long Grove, IA) 3.  Yellow River Dairy (Monona, IA) Iowa Dry Milk Plants AMPI Arlington Recent Dynamics in Iowa Dairy Processing Sector 2008 2009 2010 2011 2013 Dean Foods purchases Le Mars fluid milk plant from Wells B.B. Swiss Valley Farms closes Cedar Rapids plant. Green Meadows Foods cheese plant opened in Hull. Swiss Valley Farms sells Dubuque plant to Prairie Farms. AMPI AMPI closes Sibley plant. Arlington AMPI closes Mason City plant. Foremost closes Waukon plant. Swiss Valley Farms expands Luana plant. Prairie Farms closes Roberts Dairy plant in Iowa City. Proliant Dairy buys majority stake in Twin County Dairy Agropur close to decision to expand Hull, IA plant. Emerging Patterns? 1.  Focus on Core Business 2.  Increase in Size of Plants AMPI Arlington 3.  Rebirth of differen7ated farmstead processing 4.  I-­‐29 Corridor DairyIowa Processors Survey Goal: •  Establish status, prospects, needs and concerns of Iowa dairy processors Method: •  21 telephone interview conducted, mostly in August 2013. Par7cipa7on rate: •  Large processors: 87.5% •  Farmstead/niche processors: 93.3% DairyIowa Processors Survey: Topics 1)  Mission statement, market posi7on & trends 2)  Byproducts, need for expert help, sugges7ons for basic research at the MDFRC. 3)  Future plans: capacity & investments 4)  Iowa dairy business environment: milk availability, regulatory environment, dairy industry outlook 5)  Collec7ve ac7ons: “Made in Iowa” logo; DairyIowa ac7ons. 6)  Final thoughts and advice to new producers 1. Mission statement, market position & trends 1)  To open this interview, how would you describe your business? 2)  Would you characterize your market as primarily local, regional, na?onal or interna?onal? 3)  Would you describe the market your products par?cipate in to be stable and mature, changing moderately, changing fast? 4)  In the forthcoming period of 3-­‐5 years, do you expect your market share to stay stable, decline or grow? 1. Mission statement, market position & trends •  Wide variety of strategies: •  Cost advantage (commodity business) •  Differen7a7on (staying out of commodity world) •  Flexibility through product mix •  Market dynamics •  Sluggish market demand may not necessarily mean stable markets – consolida7on of buyers; “zero-­‐
sum” game. •  Yogurts, organic & local changing fast •  Market shares – widespread op7mism •  Almost all expect their market share to grow 2. Byproducts, need for expert help, MDFRC 5) Dairy produc?on oHen involves byproducts, such as lactose, buIermilk or whey. Could you please speak about your approach to byproducts of your principal produc?on? 6) Are there any aspects of your business you would like expert help with? Examples may include improvements in produc?on process, regulatory issues, es?ma?ng consumer sensory acceptability and demand (price-­‐point) analysis for new products you are developing, etc. 7) As you may know, Iowa, South Dakota and Minnesota land-­‐
grant universi?es share efforts in fundamental dairy foods related research through Midwest Dairy Foods Research Center. Would you like to provide any advice on the research focus you would find of benefit or interest? Any par?cular dairy economic analysis that you would be interested in seeing done? 2. Byproducts, need for expert help, MDFRC •  Byproducts: •  Milk à cream •  BuBer à buBermilk •  Cheese à whey Where volume allows it, u7liza7on is op7mized. Where volume is too small, ac7vely seeking collabora7ve solu7ons within industry. Acid whey is a problem. •  Expert help & MDFRC •  Important research topics are (mostly) being worked on •  Milk supply development •  Business planning & regulatory issues (farmstead opera7ons) •  Cost of processing analysis •  Processing troubleshoo7ng, esp. whey 3. Future plans: Capacity & Investments 8) What is your current processing volume? In par?cular, what is your daily and annual milk intake and quan?ty of products shipped? Please feel free to provide us with approximate range, if you do not feel comfortable sharing a specific number. 9) How does your current volume compare to your current processing capacity? 11) Are you planning to change the size of your plant? I.e. are you considering an expansion or downsizing? •  Most commodity plants trailing leading U.S. plants in terms of capacity. Fortunately, several plants are looking into feasibility of expanding to reduce average costs. •  Underu7liza7on is frequently reported (esp. for farmstead opera7ons). 4. Business environment: milk availability & outlook 10) How sa?sfied are you with milk availability currently? For example, is it hard to source enough milk from an area close to your plant? How much of your milk do you procure outside Iowa? Do premiums you need to pay for milk jeopardize your compe??veness, etc? 12)  Number of Iowa dairy farms has been steadily declining. Does this influence your business strategy going forward? In other words, are you worried about availability of milk over the next 3-­‐5 years? How about for a longer planning horizon? 13) Could you please comment on the general situa?on of dairy industry in Iowa? 4. Business environment: milk availability & outlook •  Coopera7ves are generally long on milk (procure more than they process), while private companies find milk to be 7ght. •  Over-­‐order premiums are found to be high, and impact adversely both feasibility of investments in cheese business and consump7on of fluid milk. •  Processors are not concerned about the decline in number of dairy farms, as long as the dairy herd size does not decline. •  Concerns about long-­‐term availability of milk varies across processors: some are very concerned, some are not concerned at all. •  Many processors recognize external factors that reduce aBrac7veness of dairying rela7ve to growing crops: ethanol and high crop prices; high land prices. 4. Business environment: milk availability & outlook 16) Can you talk about regulatory environment in Iowa and at your loca?on? How does it impact your business? Do you have any par?cular sugges?on what change would benefit dairy business in Iowa? •  Wide diversity of answers. From “it’s ridiculous” to “business environment is friendly, inspectors are helpful”. •  Several processors expressed concerns about changes in federal regula7ons – health care and food safety reforms in par7cular. •  Some complaints about unnecessary duplica7ons of inspec7ons and product sampling. •  Interes7ngly, nobody men7oned new farm bill (e.g. supply management, etc), though some processors are on record publicly opposing the Dairy Security Act. 5. Collective actions: “Made in Iowa” logo; DairyIowa 14) If a “Made in Iowa”/ “Cheese From Iowa” / Midwest Cheese logo were available, would it add value to you in any markets and would you consider using the logo on your products? •  “Made in Iowa” label is found to be of no value to most processors. Large processors tend to do business-­‐to-­‐business sales, while smaller opera7ons that are well established focus on emphasizing their par7cular differen7a7ng characteris7cs or town where located. 5. Collective actions: “Made in Iowa” logo; DairyIowa 14) I understand that a lot of entrepreneurial success comes from efforts of a single individual or a company. But is there something important that we as an industry should try together to achieve? •  Milk Supply Maintenance & Development: Farm transi7on, Crea7ng friendly atmosphere for farmers considering reloca7ng to Iowa or strongly expanding their herds. •  Keep a pulse on regulatory issues •  Be friendly to and suppor7ve of all types of dairy businesses: large dairies; value-­‐added dairies; all processors – coops and private. 6. Final thoughts… 17) What advice would you give to a young person considering dairy produc?on in Iowa? Where to locate? Is value-­‐added something to consider (i.e. organic, grass-­‐fed, value added produc?on, agrotourism, etc.) •  Locate near the dairy plant. •  If commodity producer, be efficient, know your costs and choose an appropriate size of opera7on. Think in terms of profit margins, not gallons shipped. •  If value-­‐added: do your research before you try this – it’s hard. Plan carefully how to differen7ate and find your niche. •  In order to succeed in dairy business, you have to have a passion for it! Summary & Recommendations 1)  Write up survey results and distribute to processors, policy makers and make available online to producers. 2)  Reduc7on in number of commercial dairy plants is likely over, though I have some long-­‐run concerns regarding several facili7es. Status quo is not an op7on long term. 3)  Dairy infrastructure founda7on has four pillars, and all of them should be strongly supported: •  Midwest Dairy Foods Research Center •  ISU Extension •  Dairy check-­‐off •  Dairy trade associa7ons 4)  Variety should be respected and encouraged by all, as it contributes to dairy image and industry viability. 5)  Ar7sian cheese producers should consider organizing into Iowa Cheesemakers Guild. Iowa Dairy Processing Sector: Status and Opportunities Copyrighted Material presented at the DairyIowa CommiBee Mee7ng, September 4, 2013. Dr. Marin Bozic mbozic@umn.edu Department of Applied Economics University of Minnesota-­‐Twin Ci7es 317c RuBan Hall 1994 Buford Avenue St Paul, MN 55108 Thank you for your help: Chris Hoeger, Swiss Valley Farms Kevin S7les, Midwest Dairy Assoc. Mark Truesdell, Iowa Dairy Foods Associa7on DairyIowa Innova7on CommiBee Members