Land O'Lakes, Inc. History

Company Perspectives:

We are a market- and customer-driven cooperative committed to optimizing the value of our members' dairy, crop, and livestock production.

Company History:

Land O'Lakes, Inc. is the leading agricultural supply and food marketing cooperative in the United States, providing both its members and the public with food products and production materials. Best known for its butter and other quality dairy products, the cooperative also manufactures feeds, seeds, fertilizers, and other chemicals to meet the needs of more than 300,000 farmers and ranchers. Included in the cooperative are more than 950 member associations and more than 11,000 individual members in 27 states. Land O'Lakes has also increasingly sought out growth opportunities outside the United States, and includes among its foreign operations feed mills in Taiwan and Poland and marketing functions in Mexico, East Asia, and the Pacific Rim.

Early History

On June 7, 1921, 350 farmers from all over Minnesota gathered in St. Paul to vote on the organization of a statewide dairy cooperative. With a unanimous vote, the Minnesota Cooperative Creamery Association, Inc., forerunner to Land O'Lakes, was born.

Unlike investor-owned corporations, cooperatives work for and answer to their member-patrons, who benefit in direct proportion to the amount of business they do each year with the cooperative--how many products they supply, or how many they buy. Because each member-patron has one vote, cooperatives are democratic enough to have appealed to the independent American farmers who first joined.

Still, as the St. Paul Pioneer Press was to write 25 years later, skeptics of farm cooperatives existed everywhere in 1921. "Nobody would ever induce American farmers to work together," they claimed, because a farmer was "too individualistic by nature and too firmly set in his own ways to adapt his operating methods to the machinery of any organization." What they did not count on was the energy and dedication of the men who had the vision behind Land O'Lakes.

Beginning with a meager financial stake of $1,375, $1,000 of it borrowed from the Farm Bureau, the cooperative's directors launched a statewide membership campaign. Their project was given a boost when in 1922, after a long fight, the U.S. Senate passed the Capper-Volstead bill, which legalized the marketing of farm products through cooperative agencies. The first year's returns showed a slender profit.

John Brandt, one of the original 15 directors elected to run the organization, became president of the association in 1923. He believed that by working together, competing creameries could raise their profits and offer a better product to their patrons. He urged cooperation among farmers, engineered joint shipments of butter, and proposed a common standard of quality. Most importantly, he and the other directors of the cooperative decided to concentrate on the quality production and aggressive marketing of "sweet cream" butter, butter made from cream before it soured. Although more costly to make and not as familiar to the public, sweet butter tasted better and kept longer.

In February 1924 the cooperative announced a contest to capture the public's attention: its high-quality product needed a catchier name than "Minnesota Cooperative Creamery Butter." First prize was $500 in gold. An overwhelming response brought in over 100,000 entries; the contest was tied between two winners who both thought of "Land O'Lakes." Soon thereafter an Indian maiden appeared on the butter's packages, completing the familiar image. The origins of this Indian maiden, however, remain a mystery.

In April 1924 the cooperative won a contract with the U.S. Navy for 430,000 pounds of the new sweet cream butter and soon thereafter met with a growing demand from American housewives for its conveniently packaged quarter-pound sticks. As Land O'Lakes was already becoming a household name, only two years after the contest, the cooperative changed its name to Land O'Lakes Creameries, Inc. in 1926.

Sought New Markets and Diversified During the Great Depression

Land O'Lakes first ventured outside of the dairy business two years later, when it organized egg and poultry divisions. This step toward diversification was to prove crucial during the Great Depression, when dairy businesses throughout the nation suffered enormous losses. In 1930 dairy production was the lowest it had been in two decades, and by December 1933 butter prices had declined to 15¢ a pound, the lowest figure for that month in 25 years. Excess production and surplus holdings were making it almost impossible for American farmers to get back their cost of production, and dozens of creameries held meetings to decide whether they should continue operating. Although Land O'Lakes suffered setbacks due to these market forces between 1929 and 1940, highly imaginative management and a willingness to fight economic trends cut the cooperative's losses considerably. In fact, for much of the Depression Land O'Lakes sales actually grew because of two central strategies.

The first of these strategies was to seek new markets for its products. Before the Depression Land O'Lakes had dealt mostly with large store chains and other nationwide distributors. But with many of these large accounts retrenching or vanishing altogether in the crunch, Land O'Lakes began to set up smaller sales branches that could sell directly to groceries and other small outlets. Partly as a result of this marketing strategy, and partly because Land O'Lakes Sweet Cream Butter was being advertised nationally for the first time, Land O'Lakes was able to sell a record 100 million pounds of butter in 1930.

The second strategy was to diversify the products the cooperative offered both to its member farmers and to the public. Seeking to spread the risks of operation, Land O'Lakes began an Agricultural Services Division in 1929 to try to reduce member costs for feed, seed, and other farming supplies. In 1934 the cooperative joined three large cheese cooperatives in the operation of 95 cheese factories, and in 1937 Land O'Lakes opened its first milk drying plant, completing a decade of experimentation which pioneered the production of dry milk. As early as 1926, several individual creameries had begun producing powder from buttermilk, previously a waste product. So, when World War II called for milk in a form which did not require refrigeration and had a fraction of the bulk, Land O'Lakes was prepared. All of these changes were ultimately successful expansions and contributed to Land O'Lakes' relative prosperity in difficult times.

In 1938, workers at the main plant in Minneapolis went on strike for a wage increase and a closed shop policy. The strike was amicably settled when the closed-shop demand was withdrawn and a new wage agreement was approved, but there were $400,000 in losses.

During World War II, Land O'Lakes was required by federal order to set aside 30 percent of its butter for sale to the government. The cooperative also had a quota of dry milk for the war effort, stepping up production from 22 million pounds in 1941 to 119 million pounds in 1945. By the war's end, Land O'Lakes was producing dried milk and dried eggs in 22 different plants, and eventually became the world's largest manufacturer of dry milk products.

In 1946 Land O'Lakes celebrated its Silver Jubilee under the banner "Pioneers for 25 Years." It prepared for a prosperous future by entering the ice cream and fluid milk markets for the first time, and by developing the world's first successful milk replacement, a dry meal for nursing calves. This meal, a substitute for the skim milk calves were usually fed, overcame opposition to the use of skim milk as a dry milk base.

In 1952 John Brandt, known as "Mr. Land O'Lakes," died after serving as president and general manager for nearly 30 years. Frank Stone became general manager, and M. H. Mauritson became president. Later, a restructuring of the management changed these positions to president and chairman of the board.

Postwar Acquisitions Sparked Rapid Growth

To develop its ice cream line, Land O'Lakes acquired Bridgeman Creameries, a chain of soda-grills in Minnesota and Wisconsin, and the operator of fluid milk businesses in North Dakota and Minnesota. The cooperative also expanded three turkey processing plants in 1954.

During the 1960s, the cooperative continued to grow at an astonishing rate. It acquired Terrace Park Dairies of Sioux Falls, South Dakota, a full-line dairy, and H. C. Christians Company, a Chicago manufacturer of butter, and merged with Dairy Maid Products Cooperative of Eau Claire, Wisconsin. In addition, management responded to the broadening scope of Land O'Lakes' interests by making 60 new assignments and by restructuring the cooperative's internal organization. By the decade's end, Land O'Lakes' sales had reached $400 million and assets totaled nearly $100 million, figures double those of 1960.

Another key merger occurred in 1970, as Land O'Lakes was joined by the Farmers Regional Cooperative, also known as Felco. This move increased Land O'Lakes' capacity to produce and market agricultural production goods (such as fertilizers and insecticides) for its member-patrons, and also brought Ralph Hofstad, Felco's president, to Land O'Lakes, where he later served as president. Also in 1970 Land O'Lakes Creameries, Inc. changed its name to simply Land O'Lakes, Inc. to better reflect its diverse business.

Expansion and diversification continued at a rapid rate as the 1970s drew to a close. In 1978 the cooperative entered the red meat business for the first time with the acquisition of Spencer Beef, the country's 17th largest meatpacker, and in 1980 Land O'Lakes began soybean processing in conjunction with Dawson Mills. The cooperative also produced new products such as "But-R-Cups" and Country Morning Blend, a spread made of 40 percent sweet cream butter and 60 percent corn oil margarine, offering more options to American households and food service businesses. Introduced to the food service market in 1975 after 10 years of development, "But-R-Cups" were single servings of butter packaged entirely by machine ensuring portion control and standardized freshness. Country Morning Blend appeared in 1981 and was aimed at consumers who preferred the taste of butter but could not afford it. It was cleverly designed to make a dent in the margarine market while keeping converts from butter, always Land O'Lakes' mainstay, to a minimum.

Difficulties in 1980s Led to Retreat from Diversification

In 1981 Land O'Lakes moved into its new corporate offices in Arden Hills, Minnesota, just north of the Twin Cities, with facilities for research, testing, sales, and training.

At the end of fiscal 1982, too much supply, too little demand, escalating production costs, and excessive interest rates on existing debts resulted in losses in excess of $19 million. Land O'Lakes had moved too fast and taken on too much in the 1970s and early 1980s, critics said, pointing to the cooperative's ventures in beef, agronomy, petroleum, and soybeans. A merger with Midland Cooperative that year did eventually bring savings in excess of $4 million, and Land O'Lakes' fiscal health was never seriously threatened.

In 1985 a class-action suit brought against Land O'Lakes by 96 turkey farmers claimed that the cooperative had overcharged the farmers for their participation in a marketing pool in 1980. Land O'Lakes eventually settled out of court for approximately $1.5 million.

In the late 1980s, Land O'Lakes showed a continued willingness to expand, while carefully monitoring its less-established commodities. In January 1987 Land O'Lakes launched an extensive joint venture--Cenex/Land O'Lakes Ag Services--with Cenex Cooperative to market feed, seed, farm chemicals, and petroleum. Later in the year it embarked on a more limited venture with Mid-America Dairymen (taking advantage of the fact that Mid-America's regional offices and Land O'Lakes' corporate headquarters were both located in Arden Hills) to operate dairy plants together. Land O'Lakes also left the petroleum resources business in 1987 and soon thereafter divested turkey and red meat businesses, reflecting a concern that industry overproduction, widely fluctuating market prices, and increasing operating costs would continue to make their operation unprofitable.

Expanded Market Area Domestically and Internationally in the 1990s

Land O'Lakes entered the 1990s under new leadership, as John E. ("Jack") Gherty, a 19-year cooperative veteran, was named president in September 1989, replacing Hofstad. The Gherty-led Land O'Lakes of the 1990s--while hampered somewhat by the inefficient ways of many of its conservative, cash-strapped Midwestern farmers--posted steadily rising sales and earnings thanks largely to efforts to extend the cooperative's sales area both in the United States and abroad.

In part to counter the maturing of the U.S. market in such cooperative staples as butter, livestock feed, and fertilizers, Land O'Lakes became much more aggressive overseas in the 1990s. The groundwork for these moves began to be laid in 1981, when Land O'Lakes formed an International Development division. This division worked as a subcontractor on projects that are funded through grants from the U.S. Agency for International Development and international development banks and that aim to build local farm and food economies. Land O'Lakes' involvement in these efforts helped to build business ties that later evolved into joint ventures, as well as developing new customers for exports in the region. By the mid-1990s Poland was turning into one of the International Development division's real success stories as Land O'Lakes entered into joint ventures to operate a feed milling business and a cheese plant there. Exports to Mexico increased in this period led by the 1996 introduction of the Great Start line of swine starter feeds. And in March 1996 a feed mill began operating in Taiwan that was part of a joint venture between Land O'Lakes and a Taiwanese firm.

Meanwhile, Land O'Lakes was involved in activities at home that brought it closer to being a truly nationwide cooperative. The cooperative's Pacific Northwest region was bolstered through a joint venture with the Seattle-based Darigold Feed Co. cooperative, which was fully operational in 1993 and served to link the Pacific Northwest feed operations of the two cooperatives, bringing gains from the larger scale of the combined operations. Also in 1993 Land O'Lakes acquired the assets of the Waldron Feed Co., the only commercial feed manufacturer in the Hawaiian Islands. This purchase not only gave Land O'Lakes a U.S. presence that stretched from Michigan to Hawaii but it also brought with it Waldron's exports to the Pacific Rim. In early 1997 Land O'Lakes merged with Southampton, Pennsylvania-based Altantic Dairy Cooperative, which had been one of Land O'Lakes' largest dairy cooperative members and which was owned by 3,600 dairy farmers in the Middle Atlantic region. The merger made Land O'Lakes the third-largest processor of dairy foods in the country (with $2.1 billion in annual processing), enhanced the cooperative's butter supply near to its strongest market area, and extended its membership base into a new region and into seven new states, thereby giving Land O'Lakes a coast-to-coast presence.

Land O'Lakes celebrated its 75th anniversary in 1996 with record net sales of $3.49 billion and near record net earnings of $118.9 million (second only to the $120.5 million of 1995). Its dairy operations continued to lead the way, with the cooperative holding about 30 percent of the U.S. butter market in the mid-1990s. Despite the maturation of several of Land O'Lakes' principal product lines, the cooperative's future was considerably brightened by the merger with Atlantic Dairy and the prospect for significant growth outside the United States. Already a leader in the dairy and agricultural services industries in the United States, Land O'Lakes was looking to the early 21st century as its time to become a worldwide leader in these sectors.

Principal Subsidiaries: Alex Fries; Indiana Seed Co., Inc.; Land O'Lakes Finance Co.; Northfield Foods; Research Seeds, Inc.; Union Seed Co.; Wilson Seeds Inc.; Cenex/Land O'Lakes, Inc. (50%).

Further Reading:

• Cook, James, "Dreams of Glory," Forbes, September 12, 1983, p. 92.
• Egerstrom, Lee, "Execs from Land O'Lakes Gearing Up to Deal with Uncertain Future," Saint Paul Pioneer Press, July 25, 1993.
• Ruble, K. D., Men to Remember: How 100,000 Neighbors Made History, Chicago: Lakeside Press, 1947.
• Smith, Rod, "LOL Notes 'Exhilarating Year'; Reports Second-Best Earnings," Feedstuffs, March 5, 1990, pp. 8, 39.
• ------, "LOL Sets Goal to be 'Dominant' Dairy, Agricultural Supply Cooperative," Feedstuffs, March 5, 1990, p. 8.
• ------, "LOL Commits Itself to Be Best Dairy Company in U.S.," Feedstuffs, March 11, 1991, pp. 6, 17.
• ------, "LOL Getting Members Ready for Major Push to Global Size," Feedstuffs, March 8, 1993, pp. 6, 27.
• ------, "LOL Positions Cooperative for Business-Driven Farming," Feedstuffs, March 3, 1997, pp. 10, 11.
• Stern, William M., "Land O'Low Returns," Forbes, August 15, 1994, p. 90.

Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.