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Whatever it takes: Land O'Lakes asks (and answers) hard questions about its role in today's agribusiness world.

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In 1921, cooperative leaders from 320 local creameries in Minnesota decided they needed a middleman to help them improve the marketing, quality and price of their butter. To use a fancier 21st century term, they were seeking marketplace "intermediation."

With a $1,000 loan and $375 of their own seed money, the farmers met in St. Paul and established the Minnesota Cooperative Creameries Association--today's Land O'Lakes Inc. The new organization was soon working to improve member profitability and expanding its membership. Operations rapidly spread into other states. As it grew, the company not only grew its marketing power, but also put its cooperative buying power to work, bringing producers better pricing on feed, seed and agronomy inputs.

For Jim Fife, Land O'Lakes senior vice president for member and public affairs, it is important to remember this early history, because of "disintermediation"--which became an academic buzz word in the early 2000s for those who were predicting the demise of large, wholesale cooperative business organizations such as Land O'Lakes. This process would be driven, they said, by the Internet, farmer buying groups or small, independent distributors.

However, Land O'Lakes, Fife says, was started by local cooperatives, built on a commitment to serving local cooperative needs and will continue to be viable as long as it maintains and delivers on that commitment.

"Disintermediation is a myth, but consolidation is a reality," says Fife. "The cooperative system is still delivering value and actually growing its market share. By the 'cooperative system,' we mean the retail system Land O'Lakes serves: local cooperatives and their member-owners, as well as CHS Country Operations--all of which add scale and mass to our wholesale business, which helps us be the best provider for the system."

Cooperative assessment

To make sure it was not just insiders at the Arden Hills, Minn., office reassuring themselves that Land O'Lakes was needed and relevant, the regional cooperative went in search of more opinions, from both inside and outside the system.

"We are serious about this," says Fife. "We looked at our ag services businesses with an intense and objective focus. We did draw on internal expertise, but we also hired a leading global consulting firm with extensive experience in agricultural sectors and went out in the country and talked with a significant number of local co-ops to determine what was expected of us and what their needs were."

Working with Land O'Lakes and local cooperative leaders, this consulting firm took an indepth and objective look at Land O'Lakes Inc., its relevance to the cooperative system and to the overall agricultural production environment.

"They came back and told us that some disintermediation was occurring in the CN [crop nutrients] industry, where there were margin streams for manufacturers and retailers with application and consulting expertise," Fife says. "But at the distributor level, margins were getting very, very thin because CN is a bulk commodity business and lends itself more to a two-step rather than a three-step system."

However, the study also showed that in other areas of agribusiness in which Land O'Lakes was a player there was an important difference.

"They saw an extremely high margin pool shift into seed categories, driven by traits, and that the devaluation going on in crop protection products was lessening and flattening," he says. "So think about what we did in September 2007, when we broke up Agriliance: CPP [crop protection products] moved into WinField Solutions[TM] with our seed business, which makes sense. And, with CHS being very much in the commodity, logistics and grain business, it seemed logical for them to handle CN distribution.

"Ultimately, the system analysis helped drive our decision--working with CHS--to take the wholesale pieces of Agriliance and break them apart and put them into the ownership where the skill sets were the strongest."

Fife also notes that in the two years since the analysis was done, the world supply and demand picture has undergone a lifetime's worth of change. This, in turn, makes intermediation vital for local cooperatives.

"We've seen shrinking availability of particular CPP products, so the brokers working out of pickup trucks have been tremendously disadvantaged compared to the days when we had an oversupply and devaluation situation. Now that it's more difficult to obtain active ingredients, generic manufacturers are at a disadvantage as well, and that has made us more valuable as a distributor for basic manufacturers. Frankly, it has cleaned up the marketplace of people who were able to go out with non-value-added, unbranded and cheap generic product."

Non-price variables

Land O'Lakes' cooperative assessment also found that nonprice variables are playing a growing role with farmers, large and small.

"The results indicated value in the system's expertise and ability with genetically modified seeds and CPP and seed traits," Fife says. "And given the current supply situation, the availability and stability of supply ranks very high with cooperatives and producers. We did a survey and found that price wasn't always at the top of the list with producers. So, in the future, we will be going to the cooperative system with a package that includes the things that our cooperative assessment showed us are important to farmers."

When he speaks at local cooperative meetings or in one-on-one chats with members, Fife summarizes the Land O'Lakes commitment to them by saying that the organization wants to earn its position as the preferred supplier to the cooperative system and will do whatever it takes to help local cooperatives compete and win. This, he says, will require a shared commitment.

"The formula for cooperative system success has two critical parts," he says. "First is a strong and successful local retail cooperative system and second, an equally strong, successful and supportive wholesale cooperative presence."

A new focus

This strong wholesale presence seemed less than assured when Land O'Lakes flipped over its corporate calendar and started the new century. A hard-eyed look at its balance sheet and businesses convinced the board and executives that some major changes were needed.

In addition to an obvious need to improve the balance sheet, they saw that the company portfolio was too broad, Whatever It Takes that financial performance was mixed and that they were unable to adequately invest in existing businesses.

That finding led to four very specific strategic imperatives that focused Land O'Lakes on: "Best Cost, Best People, Superior Insight and Superior Portfolio."

In pursuing those imperatives, the company repositioned several of its assets. For example, in 2006, the MoArk subsidiary sold its liquid egg business to Golden Oval Eggs of Renville, Minn. In 2005, Land O'Lakes joined the other eight cooperative owners in accepting a buy-back plan from CF Industries, a nitrogen and phosphate fertilizer manufacturer and distributor. In 2007 Agriliance was repositioned so that its crop nutrient (CN) assets and people were aligned with CHS Inc., and that company's commodity handling assets and expertise. Agriliance CPP was brought to Land O'Lakes and became part of WinField Solutions[TM] LLC, where products and expertise complement seed and traits sold by CROPLAN GENETICS[R].

We're No. 1 (2 and 4)

The result says Fife, is a Land O'Lakes that holds No. 1 market positions in butter, deli cheese, branded dairy-based foodservice, livestock and lifestyle feed and wholesale crop protection products. The company also holds a strong No. 2 position in shell eggs nationally and has built the Land O'Lakes Seed Division into the fourth-largest farm seed company in the country.

As it has grown into the leader in forage genetics and seed traits, CROPLAN GENETICS, the Land O'Lakes seed brand, has established a value-added reputation for its expert sellers and its more than 100 Answer Plots, where customers and cooperative employees can come and see first-hand the importance and performance of genetic families and various CN and CPP products.

Land O'Lakes Purina Feed provides cutting-edge research and products that continue a tradition that began with the industry's first calf milk replacer in 1951. Fife says today's products, such as Cow's Match[R] Calf Growth Formula and Synchronized[R] Nutrition, are improving milk production and milk checks for dairy farmers across Land O'Lakes trade territory.

"Land O'Lakes was chartered as a member-owned organization focused on improving productivity and profitability for the cooperative system and farmers," says Fife. "That hasn't changed. Our commitment to the cooperative system is unwavering. We'll remain member focused and member friendly and fully engaged in system success, and we will earn our position as the preferred supplier for the system."

Editor's note: Johnson is a former staff writer for Land O' Lakes and is currently a freelance writer, based in Minnesota.
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Author:Johnson, Mark S.
Publication:Rural Cooperatives
Date:Jul 1, 2008
Words:1430
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