If you can't beat 'em, join 'em. (Food for Thought).

* Dairy farmers in Vermont are about as independent as they come. But, having an independent streak won't buy you the time of day with a corporate food buyer--unless you can meet that buyer's needs for quality and volume.

That's why the St. Albans Cooperative Creamery in St. Albans, Vt., decided to team up with the nation's largest co-op, Dairy Farmers of America, in a marketing alliance. There were no mergers or acquisitions. The Creamery retained its independence as a co-op, but it also gained some considerable marketing clout through DFA.

"If you don't have marketing volume to bring with you, you don't get through the door (of large retail buyers)," says Harold Howrigan, dairy producer from Fairfield, Vt., and president of the Creamery's corporate board.

Howrigan runs a 450-cow dairy in partnership with three other families. In order to retain that way of life, small- to medium-sized farms must adjust to the changing realities of today's marketplace.

Changing marketplace

It's tough to buck the consolidation trend that has already affected many sectors of agriculture. Consolidation in the pork and poultry industries has led to the demise of independent producers. Those same trends could threaten independent beef and dairy producers unless they make adjustments.

Consolidation is universal. Look at the grocery industry--big retail chains like Wal-Mart, Kroger and Albertsons are taking over. In 2001, the top 10 supermarket chains accounted for 44.2 percent of total U.S. grocery store sales.

Big retailers deal in volume. They look to big dairy co-ops like DFA as one of the few entities that can supply their dairy needs nationally.

The consolidation trend is already well under way, points out Agi Schafer, vice president of communications and public relations at DFA. "No one can do anything about it," she adds. "The question is, how are farmers going to stay competitive as independent operators in a consolidating market?"

The Netherlands model

Look at what's happened in Europe. Consolidation within the dairy industry is further along than it is in the United States. In the Netherlands, for example, two main co-ops--Friesland Coberco Dairy Foods and Campina Melkunie--market about 75 percent of the milk produced in that country.

Dutch dairies must also deal with a strict set of government regulations. All dairies must abide by the Keten Kwaliteit Melk (KKM), or chain-quality milk program. Among other things, dairies must keep their somatic cell counts below 400,000, which is much stricter than the U.S. legal standard of 750,000. And, a veterinarian inspects each dairy four times per year to ensure that animal-handling guidelines are met.

Through it all, the individual dairy farm has survived as a viable economic unit. The typical dairy farm in the Netherlands is one with 60 cows--run by family labor. Indeed, the farms epitomize the "family farm." (As a side note, many of the dairy barns in the Netherlands are connected to the family's house. Literally, all that separates the people from the cows is a wall.)

In order to stay viable as small, independent producers, the Dutch made some adjustments. Certainly, the KKM program was one such adjustment. The KKM was intended to provide the consuming public, both in the Netherlands and abroad, with a greater assurance of quality.

It's the "covenant" mentality at work. Dairy farms make a covenant with the public to produce a quality product, and the public trusts the dairies to get the job done in the most expedient manner. It takes cooperation.

"In the Netherlands, there has always been and continues to be a high focus on quality," says Goedhart Westers, manager of business development for ReQuest Europe, an international agribusiness-consulting firm. "Having this image allows the dairy processors to pay their dairy farmers a good price for their milk. And, at the end of the day, that is the only thing that counts for the dairy farmer."

Independence preserved

Good economics will keep independent producers in business every time.

So, what is stopping the independent dairy or beef producer from going the way of the pork or poultry producer? It would appear that the dairy cooperatives and beef marketing alliances are firewalls of protection. A large dairy cooperative like DFA is a pretty substantial player in any arena. If it were eligible for inclusion on the Fortune 500 list, it would currently rank 275th based on revenues of $6.5 billion last year.

DFA's strength lies in its ability to form marketing relationships with dairy suppliers and retail buyers.

As long as the dairy and beef industries keep the customers happy--whether it is large retailers of the world, like Wal-Mart and Kroger, or smaller entities--there is no real impetus on the retailers' part to set up their own production facilities. Wal-Mart is not likely to go out and set up several 3,000-cow dairies on its own. Production remains in the hands of independent farmers.

The only reason why customers create their own supply is they're not getting the quality they want--when they want it, where they want it, how they want it delivered, and at the right price, says Schafer.

Pleasing the Wal-Marts of the world is no small task. It takes marketing savvy and an overall commitment to quality up and down the food-supply chain.

Yet, farmers are independent by nature. "So, we have to say to ourselves, 'If we're all independent, then let's find ways to keep our independence and still work together,'" Schafer adds.

Howrigan and the other producer-members at St. Albans Cooperative Creamery came to that realization. By forming a marketing alliance with DFA, they helped ensure the long-term viability of their farms and their co-op in an ever-changing marketplace.

Thomas Quaife

Dairy Herd Management