Sunday, October 26, 2003

Industry brief: US Dairy An insightful article from the US Department of Agriculture FoodReview ("Large Companies Active in Changing Dairy Industry", May-August 2000) documents the concentration of this once highly localized industry. The industry has seen an almost total restructuring since the 1960s. As the authors, USDA economists, observe, "Traditional dairy companies that manufactured and sold a full line of dairy products (fluid milk, ice cream, cream, cheese, butter, and canned milk) have disappeared from the scene." Many of these local enterprises were bought out by institutional investors and conglomerates. "Of the seven largest companies in the U.S. dairy business in 1975, five were or became conglomerates comprised of a variety of unrelated businesses, and two were diversified. " But, as the authors point out, conglomerates lost favor as they, in the end, failed, to deliver profits, partly because of the difficulty of managing diverse lines of business. As a result, the diary industry has developed into a set of concentrated companies with clear "core competencies," and that may mean specializing in one set of products only (cheese, yogurt, ice cream) or in dominating specific markets. The other key is developing branded products that are not just the typical generic milk or yogurt, but can develop customer loyalty. The big split in the industry is between farmer-owned dairy cooperatives and proprietary companies involved in dairy manufacture. The dairy cooperatives tend to be more dominant in the fresh milk and butter area, the proprietary companies in branded cheeses and cultured products (yogurt). Of course, the borderline is not quite so well defined. And even that pattern is changing as both cooperatives and diary manufacturers get bigger. Mergers, acquisitions, leveraged buyouts, and divestitures have drastically changed the dairy industry. Large firms-those with food and nonfood sales in 1998 of $800 million or more (not including retailers)-accounted for 69 percent of U.S. dairy sales in 1998." That figure has gone up since, as even more takeovers continue and as the marketing force of dairy brands has been cultivated. As smaller dairy have lost share, larger producers and cooperatives have grown. In 1998, the last year for which the authors have figures, the three leading general dairy companies (companies that supplied liquid milk, butter, sour cream, yogurt, cheese and so on) were: Dean Foods Suiza Foods Southern Foods Group Southern Foods was bought by Suiza in 2000. Later in 2000, Dean Foods bought Suiza, that left Dean Foods the king of the hill, and its prominence was only magnified when it arranged to market all of the Land O'Lakes cooperative milk products (other than cheese and butter), While there are still some 50 independent dairies in the US, along with a dozen cooperatives, none can match Dean's range of products and geographical distribution. We expect Dean Foods  is on line to snap up more local dairies, along with some cheese producers. Among the largest dairy product companies, as you might imagine, there are established multinationals. These include Kraft (Altria), Nestle, Unilever, General Mills, and several others. A few supermarket chains (Kroger, Safeway) maintain dairy operations as well.) A few small, family companies still have some market share. Leprino specializes in mozzarella cheese, particularly the kind sold to pizzerias and other restaurants. It's still a family owned business with ten plants across the US. Schreiber Foods in another privately held cheese manufacturer, that mostly makes food service and store brands. In the co-op side, Dairy Farmers of America (DFA) is the largest, with around 24,000 farm members, across the US. It is the result of the merger of four regional cooperative in 1998. DFA also owns a 50% share in National Dairy, and has joint ventures with a number of other companies. Land O'Lakes is the DFA's closest rival. It has 7,000 affiliated farms plus 1,300 local dairy co-ops. In 2000, Land O'Lakes sold its fluid milk sales to Dean Foods; Land O'Lakes members supply Dean Foods with milk and other dairy products, while Dean does the marketing and some of the manufacturing. Meanwhile the cooperative has gone into the livestock feed, business, buying out Purina feed operation in 2001. It now jointly owns North America's largest feed supplier. Foremost Farms is the next biggest dairy cooperative, with 4,700 members in the Midwest. California Dairies, Inc, is the result of the 1999 mergers of three California milk cooperatives. The company has 700 members, and control about 40% of California's dairy sales. Prairie Farms is another Midwestern dairy coop with 700 members. WestFarm, located in Washington State, is owned mostly by the Northwest Dairy Association. Associated Milk Producers (AMP) is another big Midwest cooperative. With 4,500 farm members, it's particularly big in cheese and in instant milk. Branding is now the big challenge for dairy products. US dairy products are so standardized that one milk or sour cream tastes pretty much the same as any other. The big money (other than in setting mandated milk price, a subject discussed in teh USDa piece, is to be able to set premium prices on specialized products. Product differentiation is relatively weak for most dairy products. Brands are important for processed cheeses, higher priced ice cream, some specialty cheeses, yogurt, and to some extent, butter. For the dairy products that are not so dependent on brands, such as fluid milk, market power rests on other sources- packaging and new product development are examples. Dean Foods and Prairie Farms have introduced consumer-friendly containers similar to those for bottled water and soft drinks, which are carried in backpacks and pockets. Suiza is testing three low-fat milks with added nutrients, hoping to gain sales and loyalty among consumers looking for ways to increase calcium in their diets. Billion-dollar North American dairy firms Rank Company Product types Brands Sales 2002 billions US$) 1 Dean Foods All Garelick Farms, Lehigh Valley, Nature's Pride, Swiss, Tuscan, Wengert's, Barbers, Broughton, Country Delite, Dairy Fresh, Dean's, Frostbite, Louis Trauth, Meadowbrook, PET (licensed), Reiter, Shenandoah's Pride, Borden (licensed), Country Fresh, Land O'Lakes (licensed), Mayfield, McArthur, Purity, Schenkel's All Star, TG Lee, Verifine, Adohr Farms, Alta Dena, Barbe's, Berkeley Farms, Brown's, Creamland, Foremost, Gandy's, Hygeia, Meadow Gold, Model, Mountain High, Oak Farms, Price's, Robinson, Schepps, Swiss, Viva, International Delight, Sun Soy, Mocha Mix, Coffee Rich, Farm Rich, Silk, White Wave, Marie’s Hershey’s (licensed) Folgers Jakada (licensed), Naturally Yours,Second Nature and more. 8.1 2 Altria/Kraft Foods Cheese, Yogurt Kraft, Philadelphia, Velveeta, Cheez Whiz, Breakstone’s, Knudsen, Cracker Barrel, Polly-O, Churny, Athenos 4.1 3 Land O'Lakes Cheese, Butter Land O’Lakes, Lake to Lake, Alpine Lace, New Yorker 2.9 4 Saputo (Canada) Cheese Saputo, Stella, Frigo, Dragone, Dairyland, Baxter, Armstrong, Caron, Cayer, Frigo Cheese Head, orrainnchon, Jos. Luis, Ah Caramel!, Passion Flakie, Hop & Go, May West, Granny’s, Nutrilait 2.5 5 Schreiber Cheese Schreiber, School Choice, Cooper, Clearfield Deli, La Feria, American Heritage 2.3 6 National Dairy (50% owned by DFA) All Borden, Kemps Crowley, Coburg, Heluva Good, Meadow Gold, Cream O’ Weber, Flav-O-Rich, Velda and others ? 2.1 7 Kroger All Kroger, Private Selection 1.9 8 Parmalat Canada All Beatrice, Astro, Black Diamond, Lactantia, Santal, Balderson 1,8 9 Dairy Farmers of America All Borden, Breakstone, Mid-America Farms, Sport Shake 1.5 10 Leprino Cheese None 1.5 11 Nestle/Dreyer's Ice cream Dreyer’s, Edy’s, Starbucks 1.3 12 Agropur (Canada) All Oka, Vaudreuil, UltrA'milk, Sealtest, Natrel Ultra'Milk, Natrel Nutrition 24, Yoplait,* Source 1.3 13 Unilever Ice cream Breyers, Popsicle, Klondike, Good Humor 1.3 14 WestFram Foods All Datigold 1.3 15 Foremost Farms Cheese, yogurt Golden Guernsey, Foremost, Morning Glory 1.2 16 Prairie Farms All Prairie Farms, North Star, Pevely, Old Recipe 1.1 17 California Dairies All Danish, Challenge 1.0 18 Associated Milk Producers All State Brand, private label 1.0 19 Hood All Hood, Hendries, Booth Bros., Carnation, Lactaid, Land O’Lakes, NesQuik, Horizon, Organic Cow 1.0 20 ConAgra Cheese, ice cream, misc. County Line, Dorman’s, Healthy Choice, Reddi-wip, Blue Bonnet, Fleischmann’s, Parkay,Snack Pack, Squeez ‘n Go Hershey’s 1.0 21 General Mills Yogurt Yoplait, Colombo 1.0 Source: DairyFoods magazive     7:25:32 PM

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