Dairy finds profits through unique partnership

Aug 10, 2018  | 7 min  | Ep4351

Dairy producers are fighting a battle for survival. Overproduction and export declines are piling up on top of rising production costs that outpace revenues. 

There are federal programs to help make ends meet but a few producers have chosen a different path.

Peter Tubbs has more in our Cover Story. Producer Contact peter.tubbs@iptv.org

Twelve hundred Holsteins receive their morning milking at McCarty Farms in Rexford, Kansas. Their milk is high in volume and butterfat compared to other Holsteins in the dairy industry, but the path their milk will take to the customer is unusual. 
Ken McCarty, McCarty Family Farms: “We desired a greater connection to the consumer, a greater connection to those who bought our milk, and a greater valorization of what we felt were our best practices, in the hopes that in doing that would create a better economic model.”

The evolution of the model originally began when the McCarty family moved in 2000 from Pennsylvania to western Kansas in search of lower feed costs. Yet a decade of low dairy prices kept profits at the family business thin. 

The pursuit of a different business model led the McCarty’s to Dannon, the largest yogurt maker in the United States. The McCarty’s were looking to stabilize a volatile bottom line. Dannon was seeking price stability for its products, and had specific needs for its raw milk. 
Michael Neuwirth, Danone Wave: “We envision a food system that is a little different than it is today, in the sense that we want to be working with Mother Nature, and with the dairy farmers, to change how food is made, because that is what shoppers are increasingly looking for.”   

Changing consumer preferences are driving food producers to design supply chains that allow traceability of their products right down to the farm. Several companies, Dannon among them, have found consumers are interested in traceability and are willing to pay a premium for the privilege.

Michael Neuwirth, Danone Wave: “Recently we have just introduced our first non-GMO Project Verified yogurts, in which non-GMO is traced which are verified to the feed of the cows.”

Eighty percent of the dairy’s forage is purchased from the region. The 8,200 milking cows that McCarty Farms milk at operations in Kansas and Nebraska have been on an entirely non-GMO feed regimen since June of 2017. The process of creating a non-GMO feed supply took 18 months and required the McCartys to convince local farmers to change their seed preferences. For the McCartys, the increased costs and record keeping were worth the extra work.

Ken McCarty, McCarty Family Farms: “A very warm reception with those farmer partners. Obviously we had to harvest the forages, takes some time, and then we had to build the traceability, the protocols, and whatnot to comply with the standard. “

The partnership between Dannon and the McCartys is more than just vendor-client. The bulk milk price the two sides negotiate is based on an open-books philosophy. The McCarty’s open their books and share their cost of production with Dannon in order to earn what both believe to be a fair price. Profitability for both buyer and seller is maintained. 

Each side believes this open policy is better for both sides of the equation. 

Michael Neuwirth, Danone Wave: “Over time, Americans have been looking differently at the foods they are eating, where they come from, and how they are produced, and no surprise, interest in non-GMO products is growing. And so through direct relationships with farms are now able to provide a non-GMO Project Verified option in non-organic yogurt that previously was not available. The only reason we are able to do that is because of the direct relationships we have with dairy farmers, and the ability to work with them over a longer term period, so that they can plan accordingly, for their feed inputs, to ensure that they too are non-GMO Project verified.”

The relationship between Dannon and McCarty Farms also carries environmental and animal welfare expectations. Border areas of the farms are now planted in native grasses to reduce mowing and encourage wildlife. Chemical use on forage ground is limited. Crop rotations are required. The dairy cows have access to feed and shade, and are closely monitored for signs of health issues or a change in milk output.

The focus on animal welfare has led McCarty farms to become the first dairy in nation to earn all four Validus certifications, a third-party verification of socially responsible on-farm production practices. Dannon has committed to sourcing milk exclusively from Validus Certified dairies. 

Michael Neuwirth, Danone Wave: “Animal welfare is something that we as a company are very passionate about. It’s also something that consumers are also increasingly interested in. We believe Validus is the gold standard in the industry in the United States. It’s a process that we are so committed to that we put it into the agreements with our dairy suppliers, and its part of the cost equation that we are also bearing, because its that important to us.”

Milk production from McCarty Farms four dairies in Kansas and Nebraska is trucked to the Rexford, Kansas facility to be condensed before shipment to Dannon plant #48 in Dallas, Texas. By evaporating 75 percent of the water in the bulk milk at an on-site facility, Dannon reduces the carbon footprint of its yogurt. The reclaimed water is filtered and reused on the farm for drinking water for the cows, cleaning of the plant, and irrigation of crops. In an arid climate t¬¬¬hat receives only 15 inches of rain per year, 50 thousand gallons of water reclaimed each day represents a large percentage of the dairy’s water use. 

In the short term, the financial details of the changes Dannon and McCarty Farms have made in their supply chain raised the price of doing business. However, in the long term, being accountable to the customer will be the profitable position in a commodity business.
Ken McCarty, McCarty Family Farms: “The real goal is: How do I do something that is positive and bigger than me, bigger than us. I think this model gives you the springboard to do some things like that.”

For Market to Market, I’m Peter Tubbs.


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