2019 STRATEGY
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WHERE WE HAVE BEEN Dairy Farmers of America was founded on the idea that farmers can accomplish more together than they can apart. Project Vision laid out the guiding principles that formed DFA — bringing together competing cooperatives for a common purpose, and establishing a national dairy cooperative that enabled dairy farmers across America to work together to secure markets for their milk. When I accepted the role of president and chief executive officer, we committed to defining our path. Supported by the guidance and leadership of the Board, we created a strategy and a set of values that reflect those of our family dairy farmer-owners.
These efforts established a solid business. We have a group of diverse, efficient, performance-driven operations that deliver strong results, and have created growth opportunities for the future. This result has secured our Cooperative’s financial foundation and delivered on our vision of being America’s leading dairy cooperative.
As we executed our strategy, we started evolving the ways in which we could deliver value. We expanded our member services, offering more services and reaching more members. We also began, after a period of exiting non-core and under-performing businesses and partnerships, to make disciplined commercial investments — growing our manufacturing and marketing footprint and expanding our ability to add value to members’ milk.
As I look at where we are today, the commitment and hard work of you — our members and employees — has helped DFA evolve to a place that allows us to have options we could not have imagined 20 years ago. Thank you for taking the time to read our strategic plan to learn more about where we are going. By working together, as one DFA, we can expand on how we bring value to today’s members and the next generation of family farm-owners. Because just as it was in our beginning, we can accomplish more together than we ever could apart.
“THE COMMITMENT AND HARD WORK OF YOU — OUR MEMBERS AND EMPLOYEES — HAS HELPED DFA EVOLVE TO A PLACE THAT ALLOWS US TO HAVE OPTIONS WE COULD NOT HAVE IMAGINED 20 YEARS AGO.”
Rick Smith President and Chief Executive Officer
- Rick Smith
Strategic Plan 2010
10220 N Ambassador Drive Kansas City, MO 64153 ph: 816-801-6455 www.dfamilk.com 1
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2007
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WHERE WE ARE GOING A lot of thought and hard work from Board members and staff has moved DFA into a position of strength. We are no longer only fighting the urgent issues of today. We can now plan how we attack the important issues of tomorrow. We can look beyond the horizon and think about where we could go, grounded on the understanding that DFA exists to deliver value to our diverse community of family farm-owners. You and I know a stagnate cooperative will not serve us well. We live in an ever-changing, dynamic, global industry where it is increasingly important for farmers to come together to ensure our interests are protected. Our 2019 strategic plan recognizes we must continue to grow and evolve to be relevant, not only to ourselves as dairy farmers, but to all the communities we touch — our DFA employees, our customers, our consumers and our partners in the dairy industry.
“WE MUST CONTINUE TO GROW AND EVOLVE TO BE RELEVANT, NOT ONLY TO OURSELVES AS DAIRY FARMERS, BUT TO ALL THE COMMUNITIES WE TOUCH.” - Randy Mooney
This means creating connections locally where we live and work, across the United States and, increasingly, around the world. The Strategy and Policy Committee, a group of directors, members and staff, has taken an in-depth look at the current state of our members, our industry, who we are today as a Cooperative and the opportunities we have for the future. The result of their efforts is an empowering, purpose-driven strategy that recognizes our diversity and establishes a resilient, sustainable path forward that will deliver results. Our strategy is essential to preserving our right to dairy, to helping us dairy profitably and to retaining the realistic option of passing the farm to the next generation — the best definition of sustainability. As a dairy farmer and as chairman of DFA, I am proud to endorse and support our 2019 strategic plan — a plan that keeps DFA relevant to all the communities we touch well into the future, while always focusing on delivering value to our family farm-owners.
Randy Mooney Chairman of the Board
DRAFT V12 3:00 p.m., 1/29/19
2019 STRATEGY
Dairy Farmers of America
STRATEGIC PL AN 2014
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2014
2019
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OUR STRATEGY Our strategy exists for and because of the family farmers who own Dairy Farmers of America. DFA is America’s leading dairy cooperative. We are positioned to move forward, addressing together the challenges of an increasingly dynamic, volatile and global industry. Now in its fourth iteration, DFA’s strategic plan continues to evolve to meet the needs of our family farm-owners. This plan is not an attempt to predict the future, or an attempt to capture every detail of what we do across our entire Cooperative. Rather, it outlines a strategic framework and sets priorities for the next 5–10 years. These priorities are based on informed choices, our members’ needs, where we are as a business and what is happening around us*. These are choices where we can win, when winning means delivering value to members. Our strategic plan supports and connects everything we do. This document highlights where the Cooperative is working to deliver value that supports our members’ dairy operations, where Cooperative employees in their individual roles and responsibilities underpin the overall DFA strategy, and where customers and dairy value chain partners can connect to DFA’s priorities to create mutual value. Our strategic plan is where all the communities we touch can learn about DFA’s commitment to being a purpose-driven cooperative.
“OUR STRATEGIC PLAN IS NOT TRYING TO PREDICT THE FUTURE. IT IS MAKING INFORMED CHOICES AND SETTING OUR PRIORITIES.”
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See environmental analysis on pages 34–43 for more information.
Lance and Mike Mills, Warm Springs Dairy, Monroe, Utah
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Koller Family, Koller Dairy, Mondovi, Wis.
OUR FOUNDATION Our mission, vision and values are the foundation of our strategic plan. They have been updated to reflect where we are today as a Cooperative, and where we are going. Together, these three cornerstones provide a strong foundation on which to build long-term success, all the while keeping DFA’s focus on our family farm-owners as we continue to evolve.
“WHAT WE DO IS IMPORTANT AND HOW WE DO IT IS IMPORTANT.” - Rick Smith
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MISSION Deliver Value to Our Family Farm-Owners as a Global Dairy Cooperative
VISION Enriching Communities and Consumers’ Lives Through All the Possibilities of Dairy
VALUES
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MISSION Deliver Value to Our Family Farm-Owners as a Global Dairy Cooperative Our members, the family farmers who own DFA, are all united in their shared passion for dairy, and at the same time, all have different needs. We must continue to deliver value to all our members, understanding this takes many shapes across our diverse membership. We will continue to maximize net returns at the farm by securing and enhancing milk markets and milk marketing relationships, by investing in commercial businesses that add value to members’ milk and by providing services and programs that create real economic value for our members. Our mission commits us to remain a member-focused cooperative as we continue growing our farm-to-consumer global food business and recognizes that leadership and business performance will require the best people and best business partners. This commitment will help DFA as it evolves to become a leading global dairy cooperative.
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Wood Family, Sherwyn Wood Dairy, Stephenville, Texas
VISION Enriching Communities and Consumers’ Lives Through All the Possibilities of Dairy We are a purpose-driven organization, starting with our farm families who produce milk, nature’s most perfect food. What they do, day in and day out, has the opportunity to enrich the communities in which we serve and the lives of those we touch with our products. This opportunity goes beyond the traditional dairy case to supporting and providing opportunities for rural communities to thrive, bringing nourishment to those in need and preserving our natural resources through ongoing sustainable innovations. It extends to the memories we help create, like Thursday night pizza with friends, ice cream after the first t-ball game of the summer or baking cookies on a Saturday morning in the comfort of grandma’s kitchen. The undeniable goodness of dairy brings with it infinite possibilities to enrich communities and the lives of consumers around the world.
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VALUES We live by our values every day. Values that were developed by our Board. Values that bind the entire Cooperative to our family farmer-owners and strengthen the connection with our employees, our customers, our consumers, our partners in the dairy industry and all the communities that DFA touches.
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Thomas and Clare Matthews, Noblehurst Farms, Linwood, N.Y.
QUALITY We are committed to quality — the quality of our farms, our plants, our products, our brands, our services and our way of doing business.
“BUSINESS ENVIRONMENTS CHANGE. STRATEGIES EVOLVE. VALUES ENDURE.”
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INTEGRITY We act ethically in all matters without exception.
PASSION We are passionate about the land we are charged to protect, the animals we care for, the employees we work with, our Cooperative and the communities we serve. This passion fuels us to be the best at what we do — delivering all the possibilities of dairy to our neighbors down the road and around the world.
COMMUNITY We are a community of American family farmers and employees bound by our shared values. We understand our impact on society and our role as part of the billion-person-strong global dairy community. This connection inspires us to be an integral part of all the communities we touch, starting with the local towns where we live, work and raise our families, to those communities we reach with our products.
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STRATEGIC PLATFORMS DFA has four strategic platforms that support our mission and vision: milk marketing, member services, commercial investments and leadership. These platforms have remained in place since our initial strategic plan. Together, they form our Cooperative business model. The power in our business model comes from our ability, and willingness, to operate along the entire dairy value chain. This holistic cooperativebased approach allows us to maximize the value we can deliver to our family farm-owners. At the same time, we recognize the need to modernize and evolve the Cooperative in order to win in our dynamic business environment, to ensure we are supporting our diverse membership.
MILK MARKETING
MEMBER SERVICES
COMMERCIAL INVESTMENTS
LEADERSHIP
A cooperative model that is truly focused on maximizing the milk check, on getting cash to members, creates challenges not experienced in traditional corporate business models. We understand the need to communicate the value created by each of our platforms, even when this value is not always clearly reflected in DFA’s financial performance. This requires an ongoing commitment to educating members and employees about how DFA creates value and how we deliver that value back to our members. 12
MILK MARKETING Milk marketing is, and always will be, our core business. It is where all our members share a common interest. It is where we ensure that DFA is always member-focused. It is where we deliver on our most important responsibilities — marketing members’ milk and paying a competitive price. Marketing members’ milk and paying a competitive price is no longer a casual promise in an environment where dairy farmers around the country have lost their markets. An environment where regional milk prices are converging and milk premiums are shrinking. An environment where long-established customer relationships are being replaced with unpredictable short-term transactional sales. The changing nature of our customer relationships is further complicated by ever-increasing demands being placed on DFA and our family farm-owners. DFA’s diversity, our members’ diverse farming models and our diverse customer base, helps us address these issues and identify ways to create value for members from these demands, not simply add costs.
“OUR MOST IMPORTANT RESPONSIBILITY WILL ALWAYS BE TO MARKET MEMBER MILK AND PAY A COMPETITIVE PRICE.”
When we deliver on our core responsibilities of marketing members’ milk and paying a competitive price, we can expand our business model to include member services, commercial investments and leadership. But we are only ever really adding value when we start with a competitive milk price. Dan and Nathan Osborn, Southview Farm, Castile, N.Y. / Field Representative Pam Giese and Jim Hanke, Hanke Farms, Sheboygan Falls, Wis.
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MEMBER SERVICES DFA’s size and business footprint creates the opportunity to deliver services that make it easier and more profitable for our members to farm. These services provide a connection, a stickiness, between the Cooperative and our members that goes beyond milk prices. The most obvious member services come from our large and growing Farm Services Division — delivering products and services that otherwise might not be available or at prices that otherwise might not be offered, including several partner discount programs. The most valuable member services might come from our extensive information and communications offerings, covering government programs and regulations, a voice on important policy issues, market and risk management reports and much more.
“MAKING IT EASIER AND MORE PROFITABLE FOR OUR MEMBERS TO FARM HAS NEVER BEEN MORE IMPORTANT.”
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Field Representative Gary Smith with Steve and Sue Sondericker, Friendly Acres Farm, Attica, N.Y.
“DFA IS CONNECTING OUR FAMILY FARM-OWNERS TO CONSUMERS AROUND THE WORLD THROUGH OUR COMMERCIAL INVESTMENTS.”
COMMERCIAL INVESTMENTS DFA has been growing our commercial investment portfolio during the past decade, making the Cooperative thicker. We remain committed to continued disciplined, focused growth. To being a buyer and seller of investments. Our investments operate across the full breadth of dairy food categories, selling into multiple channels, working with our customers to reach millions of consumers every day. • Ingredient Solutions — manufactures and markets a full range of dairy-based ingredients, from commodity through specialty, into domestic and global markets • Dairy Brands — features local and regional-branded cheese and butter products, as well as regional fresh dairy businesses currently operating throughout the East and Midwest with leading brands supported by strong customer relationships • Beverage and Dairy Foods — provides a broad offering of contract manufacturing services to industry-leading partners and customers in addition to developing DFA-branded products • Joint Ventures and Alliances — mirrors the diversity of our own investments and represents strong, mutually beneficial partnerships with industry-leading companies DFA’s commercial investments create value in a number of ways. We are better suppliers to our milk marketing customers when we understand their markets. We help secure a home for our members’ milk by investing in high-milk-utilization plants, including cheese and ingredient powder facilities. We support general market growth by driving innovation in categories critical to our members, such as fluid milk. We deliver profitable returns from our commercial business units, adding real value to our members’ milk.
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LEADERSHIP DFA has positioned itself to be an industry leader locally, regionally, nationally and globally. Being positioned to lead is valuable, but we know leadership is earned, not given. To earn the right to lead, DFA must continue identifying, developing and supporting potential future industry leaders — both members and employees.
DFA Board of Directors (2017)
Our commitment to lead is with the clear understanding that leadership comes at a cost. That there will be free riders who get the benefit while others do the work. That leadership can bring unwanted attention. That our commitment to lead must be balanced by the need to test any leadership role against our mission of delivering value to our family farm-owners.
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“WHAT IS GOOD FOR DFA IS GOOD FOR THE U.S. DAIRY INDUSTRY.”
DFA’s willingness to lead is based in part on our belief that we are a fair representation of the U.S. dairy industry. Our diverse members — size, geography, farming models and business objectives. Our large, diverse commercial investments. Our extensive member services offerings. Our wide and deep industry participation. All combine to give us confidence that what is good for DFA is good for the U.S. dairy industry in total.
First meeting at Singapore office
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2019 STRATEGIC INITIATIVES • Protect Our Family Farm-Owners’ Opportunity to Dairy • Ensure a Strong, Sustainable Cooperative • Drive Efficiency from Farmer to Consumer • Secure Markets and Create New Demand Through All the Possibilities of Dairy • Deliver Continuous Improvement by Working Smarter to Become a Learning Organization • Enrich Our Relevance with the Communities that Matter Most, Starting with Our Family Farm-Owners
“OUR STRATEGY IS NEITHER TOP-DOWN NOR BOTTOM-UP. WE USE A COMBINED APPROACH TO LEAD THE COOPERATIVE. THESE INITIATIVES ARE WHERE ALL OF OUR EFFORTS COME TOGETHER.”
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“WE CAN NEVER GUARANTEE ANY MEMBER THAT THEY WILL BE SUCCESSFUL DAIRYING, BUT WE CAN PROTECT THEIR RIGHT TO DAIRY.”
PROTECT OUR FAMILY FARM-OWNERS’ OPPORTUNITY TO DAIRY DFA is owned and governed by our family farm-owners, a diverse community of independent business men and women who dairy in many different ways across the United States. Independent family farms are, increasingly, under pressure. That pressure goes beyond the familiar financial, weather and animal husbandry challenges that dairy farmers have always had to manage. DFA is committed to helping address these new pressures. We are a leading voice for dairy farmers in legislative and regulatory debates, in supporting the science and facts around dairy and dairy farming, in building consumer trust in dairy, and in defending our family farm-owners’ opportunity to farm in the ways they choose.
Jessica DeVries, Hinkley Dairy, Hinkley, Calif.
This does not mean that we get to set the rules, that we can ignore consumers’ wishes, that our members do not have to continue evolving their farming practices just as prior generations of farmers have evolved. It does mean that through our strong Cooperative, DFA members can remain independent farmers. It means that we can avoid being pushed into the poultry and pork contract farming models where someone else makes all the decisions, owns the processing and market assets and inevitably eliminates diversity and independence. 19
ENSURE A STRONG, SUSTAINABLE COOPERATIVE The belief that farmers can accomplish more together than they can apart was a guiding principle that helped form DFA. This principle is as true today, as important today, as ever. Perhaps even more so given the declining number of dairy farmers. A strong cooperative owned by and controlled by dairy farmers ensures their interests are placed first. That the farmer’s voice is heard and, more importantly, that action is taken — action that increases, wherever possible, a farmer’s ability to control their own future.
* *DFA does not own or control any membership interests in Dairy One.
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Field Representative Patrick McIntyre and Scott Wolfe, Oak Spring Farm, Centre Hall, Pa.
“PROTECTING OUR MEMBERS’ RIGHT TO DAIRY REQUIRES WE MAINTAIN A STRONG, SUSTAINABLE, FINANCIALLY SECURE COOPERATIVE — A COOPERATIVE MEMBERS CAN TRUST.”
To ensure DFA maintains a strong, sustainable cooperative, we will: • Operate to the highest financial standards of performance and transparency • Maintain a strong balance sheet supported by an appropriate capital structure • Employ the best talent to run our farm-to-consumer global food businesses DFA’s ability to control our own future includes making investments in people to lead our Cooperative, in Farm Service offerings to support our members on their farms, in processing capacity to help secure markets for member milk, in innovation to drive new demand, in global markets to reach more consumers and in brands to capture more value for our family farm-owners. Investments that deliver real value to our members.
• Remain a member-focused, membergoverned cooperative
Financial performance
These investments are only possible when DFA is financially strong and when we are paying a competitive milk price.
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DRIVE EFFICIENCY FROM FARMER TO CONSUMER DFA needs to drive efficiency across the entire dairy value chain — from the farm to consumers — if we are to remain a strong, financially secure cooperative. No business can rely purely on cost reductions to deliver financial success, but any business that fails to focus on cost consciousness and is not as efficient as possible will not be sustainable. This is especially true when a big part of your business model is based on a commodity. Dairy is perhaps the ultimate commodity, with unstoppable multiple daily harvests producing an extremely perishable product subject to unpredictable, volatile market prices. Real efficiency benefits come when we work together across the entire value chain. Focusing only on one part of the chain simply squeezes costs and does not really eliminate them. To truly drive efficiency, it takes all of us working together. Working with farm supply partners and members through DFA’s Farm Services Division to improve efficiencies and lower costs; working with fluid milk customers to reduce farm auditing, milk hauling and storage costs; working across Areas and DFA plants to optimize milk utilization and total returns; working with retailers to streamline the order-to-delivery process and working with Dairy Management Inc., National Milk Producers Federation, U.S. Dairy Export Council and other associations to maximize the value of farmer investments in industry-wide initiatives are all areas where DFA is actively driving efficiency.
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“DFA CREATES VALUE WHEN WE DRIVE EFFICIENCY FROM FARMER TO CONSUMER — WHEN WE WORK AS ONE DFA.”
DFA creates value from modest actions like saving paper through electronic communications to dramatic actions like working with partners to evaluate self-driving applications and to develop block chain technology. And everything in between, including enhancing our business intelligence tools to drive better, faster decision making; expanding our sales and operations planning capabilities to reduce costs and working capital requirements across our business; coordinating with customers to reduce the time and cost of introducing new, innovative products; and partnering with industry groups to reduce the risk and speed of executing our global market expansion. A strong, financially secure cooperative requires an efficient cooperative.
Piertsje Vanderlei, Five Star Dairy Texas and Milk Harvest Dairy, Amherst, Texas
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Graft Family, Leatherbrook Holsteins, Americus, Ga.
SECURE MARKETS AND CREATE NEW DEMAND THROUGH ALL THE POSSIBILITIES OF DAIRY The U.S. dairy industry’s business environment has changed dramatically since DFA was founded in 1998. Twenty years ago, consumers trusted dairy. Drinking milk was a staple in every American household. Almost all milk was the same when collected at the farm and all U.S. milk was effectively sold domestically, with the U.S. government as the buyer of last resort. There was always a market available for growing U.S. milk production. Today, consumers’ trust in dairy has changed dramatically. Based in large part on misleading or slanted information often provided by biased sources — but sources that many consumers now trust over scientists, government authorities and health care professionals. Drinking milk sales continue to decline, replaced by alternative beverages and impacted by changing eating trends. Milk is no longer just milk where any farm could supply any plant. Milk now has multiple definitions, from organic to pasture to local to lactose-free to whatever a marketer can dream up. Today, more than 15 percent of all U.S. milk production is exported and the U.S. government is no longer a buyer of last resort, pushing every dairy farmer into the global market, whether their milk is sold around the corner or around the world. Today, there is no guaranteed market for growing U.S. milk production. 24
“A HOME FOR FARMERS’ MILK IS NO LONGER A CERTAINTY — CONSUMERS’ TRUST IN DAIRY IS NO LONGER A GIVEN.”
These changes are not all negative, and many create new opportunities for the dairy industry and DFA. Butterfat demand recovery shows the industry can leverage good science and good taste to bring consumers back to dairy. Drinking milk is in decline, but milk is finding new, highervalue homes in dairy-based beverages, coffee products and other, less traditional consumption moments. Fragmenting milk definitions create opportunities to differentiate and add value — to move beyond gallon milk jugs, butter quarters and mild cheddar cheese. The global market offers access to new consumers for growing U.S. milk production, including highvalue products — exporting has become more than moving surplus U.S. milk with commodity sales. DFA has been adapting to these changes as we execute our strategy to grow market access with customers, partners and our own commercial investments. We are committed to securing fluid milk sales by working closely with our customers, expanding our processing partnerships and growing our commercial investments with focused acquisitions, expansions and new plants. We are committed to enhancing our innovation efforts, to speeding our globalization efforts with more staff and offices overseas, to building our brand awareness from the DFA brand out to our strong regional brands. We are committed to connecting our farmers to consumers, capturing value where consumers increasingly want to know not just how their food was produced, but who produced it.
Strategic growth
We are committed to all of these actions because if the Cooperative is not investing to secure markets and to create new demand, there is no guarantee of future markets for our growing member milk production.
2011 2012 2012 2013 2013 2014 2014 20092009 20102010 2011
Select product Select product lines lines
2016 2016
Cass City, Cass City, Mich. Mich.
Portales, Portales,N.M. N.M. Select product Select productlines lines
2015 2015
Fallon, Fallon,Nev. Nev.
2017 2017
2018 2018
2019 2019
Michigan Cheese St. Johns, St. Johns, Mich. Mich.
Garden City, GardenKan. City, Kan.
Kansas City, Kansas City, Kan. Kan.
Batavia, Batavia, N.Y. N.Y.
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DELIVER CONTINUOUS IMPROVEMENT BY WORKING SMARTER TO BECOME A LEARNING ORGANIZATION Every company employs some type of continuous improvement or learning organization tool to deliver improved performance. DFA has many business-unit level, business-function level and even DFA-wide examples of successful continuous improvement. Ways we are working smarter and employing learning-based programs. Kemps, IT and the DFA Milk Spark program are good recent examples. This initiative is not intended to consolidate all our future activity into one company-wide program. It is to ensure that across DFA we are enabling and implementing appropriate programs that deliver continuous improvement, support our desire to work smarter and help us develop a learning culture. Fostering a collaborative environment where we are sharing what works best in a way that moves the entire Cooperative forward.
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“THE DRIVE TO IMPROVE NEVER SLOWS.�
Individual projects and actions will always be the central part of performance improvement. We need to build a performance improvement culture that sits behind and supports these projects. Getting the performance improvement culture right means we are always testing our performance, challenging how we do things and adapting to changing business environments. Getting our performance improvement culture right means we never have to stop and make a hard course correction. Creating a culture of continuous improvement by working smarter to become a learning organization builds a strong and resilient cooperative.
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ENRICH OUR RELEVANCE WITH THE COMMUNITIES THAT MATTER MOST, STARTING WITH OUR FAMILY FARM-OWNERS DFA’s first 20 years in existence were spent building a leading Cooperative and strengthening our memberfocused culture, while expanding our business footprint to capture value across the entire dairy chain. Entering DFA’s third decade, we are embarking on our next evolution — an evolution that will see the Cooperative continue to grow but also become more complex. The complexity created from committing to global markets, accelerating innovation, testing and expanding partnership models, embracing diversity and challenging those who threaten our members’ right to farm will force us to become more externally engaged. These commitments will require us to enrich our relevance with all the communities we touch. Enriching DFA’s relevance starts with our family farm-owners. We need to stay connected to our members, to remain member-focused. History is full of examples of cooperatives that lost the connection to their members as they become more externally engaged — inevitably giving up being strong cooperatives to become average corporations.
“WE ARE PART OF THE BILLION-PERSON DAIRY COMMUNITY, AND IT ALL STARTS ON OUR MEMBERS’ DAIRY FARMS.”
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Fitzgerald Family, Fitzgerald Dairy, Bridgeland, Utah
Field Representative Linda Hansen and Jeff Dunklee, Vern-Mont Farm, Vernon, Vt.
We need to enrich our relevance with consumers through the DFA brand and our local brands. We need to deepen our engagement with regulators, policy makers and trade officials, not just in the United States, but overseas. We need to connect more strongly with groups that today could be anti-dairy in order to share our story of the possibilities of dairy. We need to build relationships with customers that create mutual value, and don’t push costs down to our members. We need to connect our farmers to consumers — consumers who inherently trust farmers but want to know who is ultimately making their food. We need to connect more deeply with our employees as a purpose-driven organization. Building relevance across all the communities that we touch is a longterm commitment — one that starts with our family farm-owners and that will be strongly connected to the DFA brand.
Brent Verwey, Philip Verwey Farms 2 and 3, Hanford, Calif.
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HOW WE DELIVER VALUE
MEMBER SERVICES
MEMBERS
MILK MARKETING
CUSTOMERS WE SERVE LEGISLATIVE VOICE
INFORMATION
LOGISTICS AND TRANSPORTATION
* *DFA does not own or control any membership interests in Dairy One.
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DFA’s business structure supports our strategic platforms to deliver value across the dairy chain. From our member services, milk marketing and commercial investments teams to the business functions that support the Cooperative, the power of our business model comes from our ability and willingness to operate along the entire dairy value chain.
COMMERCIAL INVESTMENTS
INGREDIENT SOLUTIONS
OUR BRANDS
2009
CUSTOMERS WE SERVE CMYK - COLOR BREAKDOWN
C = 70 C = 58 C = 47 M = 15 M = 15 M = 11 Y = 100 Y = 83 Y = 72 K = 20 K = 10 K = 7
C = 90 M = 60 Y = 20 K =2
C = 80 C = 70 M = 50 M = 40 Y = 10 Y = 6 K =2 K =3
2010
2011
DAIRY BRANDS
BEVERAGE AND DAIRY FOODS
STREMICKS HERITAGE FOODS
JOINT VENTURES AND ALLIANCES
OUR BRANDS
CUSTOMERS WE SERVE
OUR BRAND
OUR PARTNERS
®
2012
2013
2014
2015
C =0 C =0 C =0 M = 35 M = 25 M = 16 Y = 100 Y = 85 Y = 67 K =0 K =0 K =0
Select product lines
CUSTOMERS 2016 WE SERVE
Fallon, Nev.
2018
St. Johns, Michigan Cheese Mich.Mich. St. Johns,
Cass City, Mich.
Portales, N.M.
2017
Garden City, Kan.
Kansas City, Kan.
Select product lines Batavia, N.Y.
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201
YOUR ROLE Our strategy exists for and because of the family farmers who own DFA. The individual roles and responsibilities of each Cooperative employee underpins the overall DFA strategy. Employees of the Cooperative are encouraged to complete the “How I Bring Value” section on the opposite page. This card can be removed and displayed at your workstation, in your locker or cab of your truck. It serves as a reminder, no matter where you sit in this large, diverse organization, that the strategy connects everyone across DFA to deliver value to our family farm-owners.
“OUR STRATEGY IS LIVING. IT DOES NOT WORK AS A BOOK ON THE SHELF. IT IS MEANT TO BE REVISITED AND TO BE TESTED. IT IS MEANT TO CONNECT ALL OF US ACROSS DFA EVERY DAY.”
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Field Representative Steve Scroggins, and Larry Hill, Hill Dairy, Mo.
HOLD FOR FARM IMAGE
HOLD FOR FARM IMAGE
MISSION
Deliver Value to Our Family Farm-Owners
VALUES
as a Global Dairy Cooperative
VISION
Enriching Communities and Consumers’ Lives Through All the Possibilities of Dairy
2019 STRATEGIC INITIATIVES
• Protect our family farm-owners’ opportunity to dairy • Ensure a strong, sustainable cooperative • Drive efficiency from farmer to consumer • Secure markets and create new demand through all the possibilities of dairy
• Deliver continuous improvement by working smarter to become a learning organization • Enrich our relevance with the communities that matter most, starting with our family farm-owners
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ENVIRONMENTAL ANALYSIS Before we began developing DFA’s strategic plan, we needed to understand our members, our Cooperative and what is happening in the current business environment around us. The following findings, plus extensive additional analysis, form the background to our strategic choices.
MEMBERSHIP • DFA’s membership is diverse in geography, farming model, farm size and business objectives • DFA’s membership will stay diverse – this is a strength for our cooperative
2017 DFA membership DFA quartiles 2017
Color
Quartile 1 2 3 4
Farms 115 232 604 7,448
Average Cows 4,825 2,413 923 75
Note: Based off of December 2017 member milk production
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demographic shifts 2007–2017 DFAMember Member demographics 1
2007
2017
Number of farms
Average cows
Number of farms
Average cows
Quartile 1
142
3,150
115
4,825
Quartile 2
374
1,178
232
2,413
Quartile 3
1,462
302
604
923
Quartile 4
9,473
41
7,448
75
Largest farm in quartile 4 is now nearly 500 cows 34
Callout text for chart: Largest farm in Quartile 4, now nearly 500 cows
U.S. annual milk production Annual Numbers Farms vs. Milk Production U.S. dairy farmsof U.S. vs.Dairy annual milk production Million pounds
225,000
120,000
200,000
Farms
100,000
175,000 150,000
80,000
125,000 60,000
100,000 75,000
40,000
0
• U.S milk production grows at 1.4 percent per year • U.S. dairy farm numbers decline at 4.6 percent per year • U.S. dairy farm numbers will continue to decline
50,000 Dairy farms
25,000
Milk production
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
20,000
MILK PRODUCTION
250,000
Milk production (million pounds)
140,000
• Farm consolidation will result in fewer, but larger farms
0 5
• Milk production shift from East to West continues, but the pace has slowed • Northeast, Mideast and Midwest production growth have been strong, creating milk surpluses in areas that traditionally were balanced or even deficit
20-year shift in U.S. milk production
20 year shift1998–2018 milk production To be updated with milk production
• The 20-year shift pattern is holding with the notable exception of California • The U.S. market remains very fragmented when compared to the largest global cooperatives that generally hold market shares over 85 percent in their home countries
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5-year shift in milk production
Dairy statistics
2013–2018 5 year shift milk production
2000–2018 Dairy statistics
2000
2018
U.S. milk per cow (pounds)
18,197
23,173
U.S. dairy herd size (cows)
9,199,00
9,385,000
Average butterfat test
3.66%
3.88%
Average protein test
3.02%
3.15%
Average DFA farm size (cows)
118
284
2
35
DFA Farm Services growth
MEMBER SERVICES
1998 1998 DFA Member Services include our FarmDFA’S Risk management program FARM Services Division, government and policy SERVICES Lending program activities and member information.
2018
Today
Risk management program
Lending program Insurance program
• DFA Farm Services offerings and usage continues to grow with more members using at least one service and more members using multiple services
Insurance program
• Farm margins remain under pressure with government programs historically providing disaster protection not financial security • Member information, communication and engagement tools are evolving to support our changing membership and our broadening target communities
* *DFA does not own or control any membership interests in Dairy One.
*Managed by DFA
DFA FarmDFAServices Users Farm Service users
Contributions (thousands)
Political Action Committee engagement DFADFA Political Action Committee engagement $400 $350 $300 $250 $200 $150 $100 $50 $0 36
2014
2015
2016
2017
2018
USDA milk feed margin $20 $18
Average Margin
Avg. Margin 2012-2017: $8.67
$9.50 Coverage
Dollars per hundredweight
$16
SPRING 2019
$14 $12
$10 $8 $6 $4
Jul-18
BEHIND THE MILKING PROCESS
EMPOWERED BY DAIRY
MICRO-WAVE GOODBYE
FLOUR POWER
pg. 14
pg. 30
pg. 35
pg. 64
Oct-18
Apr-18
Jan-18
Jul-17
Oct-17
Apr-17
Jan-17
Jul-16
Oct-16
Apr-16
Jan-16
Jul-15
Oct-15
Apr-15
Jan-15
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Apr-12
Jan-12
$0
Oct-12
$2
Farm margins getting squeezed Declining milk premiums paid by customers
Farm operating margins
Increasing costs to farmers (Regulatory, labor, insurance, compliance, etc.)
Margin Protection Program enrollment details announced On Tuesday, April 3, U.S. Department of Agriculture (USDA) released details regarding the Margin Protection Program for Dairy Producers (MPP-Dairy) sign-up period. Following changes authorized under the Bipartisan Budget Act of 2018, USDA’s Farm Service Agency (FSA) has set the MPP-Dairy enrollment period to begin Monday, April 9, and end June 1. Dairy producers must make a new coverage election for 2018, even if they enrolled during the previous 2018 sign-up period. All coverage elections made for this year will be retroactive to January 1. All dairy producers desiring coverage must sign up during the enrollment period and submit the appropriate form (CCC-782). For producers not interested in MPP coverage, no action is needed. As a reminder, dairy producers can participate in FSA’s MPP-Dairy or the Risk Management Agency’s Livestock Gross Margin for Dairy Cattle (LGM-Dairy), but not both. Producers with an active LGM-Dairy policy who have targeted marketings insured in 2018 will be allowed to enroll in MPP-Dairy by June 1, 2018; however, their coverage will start only after active target marketings conclude under LGM-Dairy. Key changes to MPP-Dairy, which were announced in February, include: • MPP-Dairy will now provide all operations $5 margin coverage for no cost on the first 5 million pounds of production (about 217 cows) enrolled in the program. Additionally, premiums for higher levels of margin protection for production under 5 million pounds have been reduced (see chart)
Member communications reach DFA Today subscribers Facebook followers
MemberUpdate subscribers Instagram followers
myDFA accounts
•
Margin calculations will be made monthly, instead of bi-monthly, to ensure the program is more accurate and responsive to challenging markets
•
The $100 administrative fee will be waived for underserved farmers, which include limited resource, beginning and minority farmers, as well as veterans
As a reminder, MPP-Dairy protects producers by paying them when the difference between the national all-milk price and the national average feed cost falls below a certain dollar amount set by the producer. To learn more, check out DFA’s online margin calculator or USDA’s release.
37
U.S. milk production and domestic consumption U.S. milk production and domestic consumption
MARKET TRENDS
110,000
• World population growth supports higher dairy consumption
100,000
• The U.S. is a key part of the global dairy market
C Th cu
90,000
• Global protein prices have converged
80,000
• Global fat prices have increased but prices are not fully converged
70,000
• Value-added dairy product trade is growing fast
60,000
Source: USDEC
U.S. dairy processing U.S. dairy processing facilitiesfacilities
Class I sales Class Itrends sales trend Annual U.S. Fluid Milk Sales
Billion pounds 58
Forecast
56
52 50 48
46 44
42
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
38
2006
40
2005
Billion pounds
54
4
Dairy impostors are growing
38
DFA sales and U.S. production by class Percent processing capacity
Class
Percent DFA sales
Percent U.S. milk production
By cooperative
By proprietary company
Class I
33%
22%
22%
78%
Class II
10%
10%
17%
83%
Class III
47%
54%
26%
74%
Class IV
10%
14%
90%
10%
TOTAL
100%
100%
33%
67%
Global dairy trade flow Global dairy trade flow
Class III price Class III price Class III vs Class IV Price
Dollars per pound
Onbasis, a milk On a milk equivalent 2016equivalent basis, 2016
$28.00 $26.00
$24.00
Dollars per pound
$22.00 $20.00 $18.00 $16.00
$14.00 $12.00
Jan-19
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
$8.00
Jan-97
$10.00
5
U.S. vs Oceania powder prices Bi-Weekly
Largest global dairy importers
Dollars per pound
Billion pounds
Dairy importers
18
Japan
Southeast Asia
Mexico
China
Russia
16 14 12
Billion pounds
$2.80 $2.60 $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
U.S. vs. Oceania powder prices
10 8 6
U.S. NFDM price (CME)
4
Oceania SMP price (USDA)
2
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Dollars per pound
s US vs Oceania powder prices
0
2008
2009
7
2010
2011
2012
2013
2014
2015
2016
2017
13
US vs Global butter prices U.S. vs Oceania butter prices Bi-Weekly
U.S. vs. global butter price
imports ChineseChinese dairydairy imports Million pounds
3,500
3,000
Million pounds
2,500
2,000 1,500 1,000
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
1999
500
1998
Oceania Butter price (USDA)
1997
U.S. Butter price (CME)
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Dollars per pound
U.S. dollar per pound $3.60 $3.40 $3.20 $3.00 $2.80 $2.60 $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
Chart Title
Source: OECD FAO
8 China over bought in 2013 and 2014 and the resulting inventory build led to record global milk prices in 2014 and a subsequent price crash.
39
MARKET TRENDS
DFA
CONTINUED
Top 10 global dairy dairy companies – 2018 2018 top 10 global companies
World population growth 2015–2050
Data provided by:
19
8
IFCNTop Top10 10Milk MilkProcessors Processorsby by IFCN er capita dairy consumption correlates strongly withintake GDP milk intake milk Dairy consumption correlates to Top 10 milk processors by milk intake 8
er capita
middle class growth
EU
Russia Mexico
USA
Japan S. Korea
China
Rank Rank 2018 2018
Company Name Company Name
1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10
Milk intake Est.Est. turnover Market Market share Milk intake turnover share Origin, main Origin, main % of world milk operation countries Million Million tons, USD milk % of world milk operation countries tons, MEMEUSD perper kgkg milk production production
Dairy Farmers of America USA Dairy Farmers of America USA Fonterra New Zealand, others Fonterra New Zealand, others Groupe Lactalis France, others Groupe Lactalis France, others Foods Denmark, Sweden, others ArlaArla Foods Denmark, Sweden, others Nestle Switzerland, others Nestle Switzerland, others FrieslandCampina Netherlands, others FrieslandCampina Netherlands, others Saputo (incl. MG) Canada, USA, others Saputo (incl. MG) Canada, USA, others Dean Foods USA Dean Foods USA Amul (GCMMF) India Amul (GCMMF) India Danone France, others Danone France, others Sum of top Sum of top 10 10 * indicates IFCN estimation * indicates IFCN estimation
29.20 29.20 23.70 23.70 19.60 19.60 13.90 13.90 13.70 13.70 13.6* 13.6* 9.8*9.8* 9.40 9.40 9.30 9.30 8.60 8.60 150.80 150.80
0.50 0.50 0.60 0.60 1.10 1.10 0.80 0.80 1.80 1.80 1.0*1.0* 1.1*1.1* 0.80 0.80 0.70 0.70 2.00 2.00 10.40 10.40
3.5% 3.5% 2.8% 2.8% 2.4% 2.4% 1.7% 1.7% 1.6% 1.6% 1.6% 1.6% 1.2% 1.2% 1.1% 1.1% 1.1% 1.1% 1.0% 1.0% 18.0% 18.0%
1
FAO and World Bank; CLAL
What doesWhat thepeople world eat eat?
Source: OECD FAO
40
Top 10 U.S. dairy cooperatives – 2018 Member milk volume (Billion pounds)
Member Farms
Dairy Farmers of America
50.2
8,551
California Dairies Inc.
16.2
384
3
Land O’Lakes
13.0
1,959
Rank
Cooperative
1 2 4
Edge Dairy Farmer Cooperative
10.1
762
5
FarmFirst Dairy Cooperative
10.1
3,520
6
Northwest Dairy Association
8.7
431
7
Select Milk Producers Inc.
7.5
99
8
Foremost Farms USA
6.2
1,273
9
Associated Milk Producers Inc.
5.7
2,000
10
Michigan Milk Producers Association
4.9
1,100
14Source: Hoard's Dairyman (Oct. 10, 2018 edition)
DFA milk dispositions DFA milk dispositions Total milk sales for 2018
DFA capital
DFA capital
$2.2 billion in total capital Noncontrolling Interests 3%
Fluid sales, longterm agreements 18%
Fluid sales, third party 55%
Preferred Equity 17%
DFA commercial 15%
Debt 51%
Fluid sales, equity partners 12%
Member Capital* 29%
10
billion in totalearnings capital and other *Member$2.2 capital plus retained comprehensive loss
Return on member capital – 2017 Return on member capital – 2017
* Member capital plus retained earnings and other comprehensive loss
one
DFA milk markets DFA milk markets map
• Of DFA’s active members, the average member has invested 53 cents per hundredweight of his/her own money Capital Retains
Allocated Capital
Total Active Capital
$0.53
$0.49
$1.02
(dollars per cwt.)
Average DFA Member
(dollars per cwt.)
(dollars per cwt.)
$0.10 patronage dividend
Return on invested capital
Return on total DFA investment
18.9%
9.8%
11
18 adj. EBITDA 2018 adjusted ebitda Other Commercial Manufacturing 12%
Title DFA share USChartMilk
DFA share of U.S. milk supply
share of U.S. milk production Percent share ofPercent U.S. milk production 35% 33%
Consumer Retail Farm Services 4% 4% DFA’s diversified business model creates a natural hedge for our financial results.
25% 23% 21% 19%
12
2018
2017
2016
2015
2014
2013
2012
All milk marketed by DFA
2011
2009
2008
2007
2006
2005
2004
DFA member milk 2003
15%
2010
17%
2002
Fluid Milk & Ice Cream 27%
27%
2001
Dairiconcepts 19%
29%
2000
Beverage & Dairy Foods 18%
Fluid Areas 29%
Percent share of U.S. milk production
31%
41
DFA
CONTINUED
DFA Area map
Dairy Farmers of America Area Map
Western Area
Northeast Area
Mountain Area
Syracuse, N.Y.
Salt Lake City, Utah
Ripon, Calif.
Central Area Kansas City, Kan.
Mountain Area
Mideast Area Medina, Ohio
Windsor, Colo.
Southeast Area Knoxville, Tenn.
Southwest Area Grapevine, Texas
Our Cooperative structure DFA governance structure
42
DFA statistics – 2018 $13.6 billion
Total DFA revenue
$9.1 billion
Milk Marketing revenue
$4.4 billion
Commercial Investment revenue
$0.2 billion
Farm Services revenue
$3.8 billion
Total DFA assets
$1.1 billion
DFA-member equity
46
DFA-owned plants
6,757
Total staff
24
DFA office locations
A global community of 1 billion 133 million
Dairy farms
600 million
Family members living on dairy farms
100 million
Jobs created
400 million
Family members supported by jobs created by the dairy industry
1 billion
People whose livelihoods depend on the dairy industry 43
dfamilk.com 44