Making its mark

Agri-Mark, New England's largest dairy cooperative, is building markets for producers
By Patrick Duffey
USDA Rural Development

here's a hard working Bantam rooster strutting around the New England dairy market these days, flapping and fluffing its brightly colored wings, and crowing with delight about the Cabot delicacies being introduced to new audiences along the East Coast and California. The rooster personifies Agri-Mark Inc., a dairy marketing cooperative representing 1,500 dairy producers in New England and New York. In less than a decade, Agri-Mark has patiently and methodically stretched to build a valueadded market that is beginning to pay dividends to its dairy farmer-owners as they try to carve out a living in a beleaguered industry. Agri-Mark is a cooperative that has done what many experts advise farmers to do: it purchased a popular consumer brand of food products, and is now marketing that brand to the hilt. Agri-Mark handles 40 percent of New England's raw milk supplies. Thirty percent of that comes from New York state, where the cooperative's membership is growing the fastest. New York producers are attracted by the premium price paid for milk under the six-state Northeast Dairy Compact, the only over-order pricing mechanism of its type in the nation. New England provides only 3 percent of the nation's milk supply vs. 16 percent from Wisconsin, the second largest milk-producing state. The Northeast is locked in by Canada to the north and the Atlantic Ocean to the east. The region's rocky terrain puts a damper on the corn acreage needed to support larger dairy herds. Milk production is also curbed by a short growing season and wide temperature swings. Just outside New England, neighboring New York state and Pennsylvania are major dairy-producing states. Although some 300 to 500 cow herds exist here, the Northeast herd size averages 75 milking cows. By comparison, 1,000-cow herds are common in California, the country's leading milk producing state. In 1983, Agri-Mark's 4,500 members provided 2.8 billion pounds of milk, or about 40 percent of the New England supply. Today, it takes only 1,500 Agri-Mark members to provide 2.3 billion pounds of the total 3 billion it markets annually. The average member produced 1.54 million pounds in 1999. Extra volume comes from milk Agri-Mark markets for other cooperatives. While small compared to its competitors, Agri-Mark is the largest New England-based dairy cooperative. It has 500 employees and is headquartered on Milk Street in Methuen, Mass., just outside Boston, a major destination for many of its products.

Birth of Cabot
The Northeast was the site of the nation's first dairy cooperative in 1807 at Goshen, Conn., when James Madison was serving as president. The national population was only 7 million, less than today's combined population of Massachusetts and Connecticut. For perspective, in 1919, Cabot Creamery's 94 Vermont farmers invested $3,700 on the basis of $5 per cow, plus one cord of wood each to fire the boiler in the building that became the home of the new cooperative. Cabot's early forte was the quality butter it produced for nearby neighbors. It added a cheesemaker in 1930 and began making Vermont Cheddar. The 1920s and 1930s marked a mass population migration from rural areas to the cities of the Northeast, so Cabot moved its products to meet them. In time, it began marketing milk to packagers across southern New England and manufacturing butter, Cheddar and cottage cheese. By 1990, Cabot had built a $30 million business based on a volume of 330 million pounds of milk. But two years later, the small Vermont dairy cooperative of 400 members was losing money. Although it was producing high-quality dairy products, its corporate and membership size could not adequately support the brand. A decade earlier, participation in the U.S. Department of Agriculture's whole-herd-buyout program was heavier in the Northeast than any other region of the country due to low prices, heavy oversupply of milk and the demand among developers for farmland. Between 1985 and 1999, dairy farm numbers dropped more than 40 percent.

Merger with Agri-Mark
Although Agri-Mark is a youngster in the market, its origins stretch back to the New England Milk Producers Association (NEMPA) formed in 1917. Like Cabot, it had been adapting to a changing consumer marketplace for decades. Agri-Mark was fortned in 1980 by the acquisition of the business and assets of Yankee Milk Producers and the acquisition of RE Hood processing plants, which were then leased back to Hood, then a wholly owned subsidiary of Agway. Fluid milk packager Suiza replaced H.P. Hood, Agri-Mark's former jointventure partner during the 1980s, as the new major processor in New England. In 1989, the changing environment prompted Agri-Mark to withdraw from its venture with Hood and caused the cooperative to take a hard look at itself Cabot Creamery was doing the same. In 1992, Cabot merged with AgriMark to gain marketing expertise and financial strength. At the time, about 10 percent of the milk supply was feeding the Cabot brand, compared with nearly 30 percent today. For Agri-Mark, the merger was an opportunity to couple Cabot's retail brands with Agri-Marles wholesale operations, build more valueadded business, and increase profits for dairy farmer-members. Agri-Mark's wholesale milk business, which supplies 75 customers, and its reputation as one of the leading butter and nonfat dry milk manufacturers, proved a natural link with Cabot's retail brand business of Cheddar cheese and butter. Promotions for the Cabot brand now play up its farmer-owned roots. Cabot Cheddar has also won first place ratings in two national contests in the past two years. Today, Cabot contributes $150 million to Agri-Mark1s $575 million in annual sales. Agri-Mark members fell in love with the idea owning the Cabot consumer brand. The combined cooperative now operates three milk processing facilities, two in Vermont and one in Massachusetts from which it produces a wide array of products, most notably its traditional white Cheddar cheese. The white Cheddar is extremely popWar throughout the Northeast - especially when it carries the "Vermont" tide in its name. Last year, though, the cooperative ran into a snag selling the white Cheddar in the Southeast. Customers were more accustomed to seeing a yellow-colored Cheddar, so the natural annatto coloring used to make cheeses yellow was added. Other new products introduced after the Cabot-Agri-Mark merger include Cheddar cheese slices, flavored cheeses and a refrigerated macaroni and cheese product. The New York/New Jersey market was targeted for expanding the Cabot brand. And the co-op's cheese plants arc operating near capacity.

Agri-Mark and Cabot Creamery joined forces in 1992 so the cooperative could build more value-added business and put more money back into the pockets of family dairy farmers. Photo courtesy Agri-Mark.







Balancing the market
At West Springfield, Mass., AgriMark owns New England's only balancing plant, the largest quality control lab and the only large butter manufacturing plant in the region. The plant converts surplus milk - milk not needed to fill customer demands for other products -into condensed blends of milk and cream, used by the ice cream industry and nonfat milk powder for the bakery and food industries. To take full advantage of the Cabot acquisition, Agri-Mark began modernizing facilities to support the expanded demand for its branded products. In 1994, it purchased a plant at Middlebury, Vt., and converted it to Cheddar cheese production. Last year, it added a 54,000-square-foot warehouse at Middlebury to store and cool up to 12 million pounds of Cheddar before the 640pound blocks are shipped to Cabot's updated cut-and-wrap operation. As a result of these capital investments, the Cabot facilities are a major New England tourist destination, attracting 50,000 visitors a year. It takes 10 pounds (or 10 pints) of milk to make one pound of cheese. That leaves nine pounds of whey, rich in protein, lactose (milk sugar) and other nutrients. This fall, Agri-Mark will open a $19 million whey protein processing plant at Middlebury to extract further profits from the whey. The facility was needed because whey processors in Vermont and neighboring states closed. In addition, Cabot-branded product sales have tripled. Specifically, the new equipment will more efficiently trap lactoferin, an iron-binding whey protein Agri-Mark has been marketing for the past two years. When USDA changed its rules in 1997 to allow yogurt as a protein component in school lunches, Agri-Mark wasted no time in responding. Sales of Cabot-branded yogurt increased nearly 2 5 percent since the program began.

The Cabot brand of dairy foods is among the most popular in the Northeast, and accounts for about $150 million of Agri-Mark's $575 million in annual sales. Photo courtesy Agr-Mark





Communicating with members
With three successful years leading up to 1999, Agri-Mark built up profits of $16 million. But like other dairy manufacturers, it got caught with high butter inventory values after milk prices hit a record in 1998. Fiscal 1998 sales reached $575 million, from which the cooperative generated a record $7.8 million in profits and returned $3.7 million to members in market premiums. However, the cooperative lost $4 million in fiscal 1999 due to poor markets. But AgriMark continues to invest in the future. The cooperative invested $2 million to update to a faster, more efficient mainframe computer system and expanded internal communications at all facilities. New software was added for production, sales and inventory control, and improved member and hauler pay~ roll systems - much of it aimed at implementing federal milk marketing order changes and to prepare for the new millennium. Agri-Mark follows the more conventional tenets of cooperatives. There are no outside directors. For specialized expertise, the board turns to consultants. It has a 15-member board of directors, all of them dairy farmers. Each of its 15 regions has between 85 and 100 member-farms. There is one voting delegate for every 15 member-farms. Carl Peterson from Delanson, N.Y., is in his eighth term as Agri-Mark's chairman. The cooperative believes its success stems in part from an educated membership. There are informational meetings, a newsletter published nine times a year, a letter sent with twice-monthly milk checks, a 1-800 number voice messaging service members can call every Friday for price updates, and a website updated weekly. To broaden the horizons of employees, member's and guests, Agri-Mark invites other cooperative or industry leaders to speak at its annual meeting. Last year's speaker was Don Storhoff, chief executive officer of Foremost Farms USA, a Wisconsin based diversified dairy cooperative. Johnston said the exchange "bridged regional differences and increased understanding." Gary Hanmann, CEO for DFA, appeared earlier. All three CEOs also serve on the board of the National Milk Producers Federation, the trade association for most of the nation's dairy cooperatives.

Northeast Compact supporters
Both Agri-Mark and neighboring St. Albans Cooperative Creamery in Vermont were strong proponents of the compact when legislation was passed in individual states and later by Congress in 1997. The compact was extended last year by Congress until September 30, 2001. It regulates Class I fluid milk only. Participating producers have earned $100 million since the compact began. To Agri-Mark members, that meant $30 million, or about $20,000 per member. Paul Johnston has been Agri-Mark's first and only chief executive officer and president for the past 24 years. He says the compact is "quite an accomplishment. It continues to have the support of consumers who consider it beneficial to keep farmers in business in this area and less subject to the whims of the federal government or milk production in other parts of the country. That support is critical to the compact's success and future, a factor ignored or downplayed by those who would like to see the compact eliminated." Compact regulations kick in whenever Class I prices decline below a predetermined level. The higher price has been a boon to many producers, who have suffered from a sharp decline in basic milk prices throughout the Northeast.

Looking to the future
Looking ahead, the cooperative conducts a Young Cooperator (YC) program for members age 18 to 40. They must either be members or work on a member's farm. They get acquainted with how their cooperative operates, its structure and its objectives to help them better understand its actions. They are chosen from each of the cooperative's 15 regions and mirror the Agri-Mark board in all respects. They prepare an annual budget and present it to the senior board for approval. Two-day training seminars are conducted for new YC members and officers in conjunction with the Agri-Mark board meeting. Chairman Peterson, other directors, CEO Johnston and his staff are involved. On occasion, outside speakers also appear. Two YC officers attend the cooperative's board meeting each month to see how it operates and how it develops policies. The YC annual meeting is conducted in conjunction with Agri-Mark's annual meeting.

Cabot butter rolls through a processing plant. The co-op's cheese plant in New England is a major tourist attraction, drawing 50,000 visitors per year.






Through an essay contest and interviews, several YC members are selected to attend the annual National Institute on Cooperative Education. As proof of how effective the program is in building future cooperative leaders, eight of the present 15 Agri-Mark directors were once YC members. Meanwhile, the cooperative is always searching for ways to develop new markets. It quit selling products to the Commodity Credit Corp. a decade ago. Now die search is on for international markets, especially for nonfat dry milk. The cooperative's award-winning Cabot Cheddar cheese was exported to England, where Cheddar cheese was first invented. While it was popular, import restrictions and tariffs added to the price and effectively blocked any sizeable export program. That reality squared with CEO Johnston's observations to members last year. "The rosy prospects accompanying the 1996 Freedom to Farm Act (Farm Bill) were based on predictions that world trade talks would open up new markets for U.S. agricultural products, including dairy. For the most part, this has not happened and it will be a long time before the opening of world markets will create the 'utopian' level playing field. But," he cautioned, "this does not mean that we should abandon efforts to open up new and existing markets." So, where does the future lie for a small dairy marketing cooperative that operates in a highly competitive industry where the four largest U.S. fluid milk packagers control 75 percent of the New England market? Speaking at the cooperative's 20th anniversary meeting last year, Chairman Peterson found the challenging answer right in his own back yard. "Our best option to address the new millennium is in more fully using the opportunities given to farmers by the Capper-Volstead Act enacted more than 60 years ago. It enables our farmers to join in cooperatives like Agri-Mark to achieve goals that are not possible individually. Unfortunately, there are many farmers who are unwilling to work cooperatively with their neighbors. And it is unfortunate that our achievements are of less a magnitude because of that. "We're focusing on adding value to our farmers' milk, whether it is on the wholesale or retail end of the business. If farmers want long-term profitability, cooperatives like Agri-Mark have to capture more of the consumer's dollar in the marketplace."