Associated Milk Producers, Inc. History

Address:

315 North Broadway
New Ulm, Minnesota 56073
U.S.A.

Telephone: (507) 354-8295
Fax: (507) 359-8651

Private Company
Incorporated: 1969
Employees: 1,600
Sales: $1.2 billion (2001 est.)
NAIC: 422430 Dairy Products (Except Dried or Canned) Wholesalers; 311511 Fluid Milk Manufacturing; 311512 Creamery Butter Manufacturing; 311513 Cheese Manufacturing; 311514 Dry, Condensed, and Evaporated Dairy Product Manufacturing

Company Perspectives:

AMPI actively seeks to develop a comprehensive national agricultural policy, initiating discussion on farm policy issues whenever feasible and possible to achieve an effective farm bill that enhances farmer and rancher profitability while addressing key agricultural trade issues, environmental stewardship concerns, and other key problems impacting agriculture.

Key Dates:

1967:: Six dairy cooperatives merge to form Milk Producers Inc. (MPI).
1969:: MPI joins with 14 co-ops to form Associated Milk Producers Inc. (AMPI).
1971:: By now, AMPI has 45,000 members.
1974:: Two high-ranking AMPI officials plead guilty to charges related to campaign contributions.
1986:: AMPI's merges its Mid-States Region with Morning Glory Farms Cooperative and acquires Falls Dairy of Wisconsin.
1990:: AMPI records its first net loss when farm milk prices fall by 25 percent.
1998:: Four co-ops, including the southern region of AMPI, form Diary Farmers of America Inc.
2001:: Earnings reach $10.8 million on sales of $1.2 billion.

Company History:

Associated Milk Producers, Inc. (AMPI) is one of the ten largest dairy cooperatives in the United States with 4,600 members that market over five billion pounds of milk per year. The co-op runs one of the largest butter packaging plants in the country, is one of the largest cheddar manufacturers in the United States, packages nearly 60 percent of the instant milk consumed in the country, and operates 14 manufacturing facilities. Before 1998, AMPI's operations were divided geographically into three semi-autonomous divisions. The North Central Region, which included western Wisconsin, Minnesota, Missouri, Iowa, Nebraska, and South Dakota, processed most of its milk into cheese and other products that are marketed under the name State Brand and numerous other private labels. The Morning Glory Farms Region was comprised of member farms located in eastern Wisconsin, Illinois, Indiana, Ohio, and Michigan. AMPI's Southern Region supplied mainly Grade A drinking milk. Farms in Arkansas, New Mexico, Oklahoma, Texas, and several other states were also part of this region. In January 1998, AMPI's Southern Region operations joined with three other co-ops to form Dairy Farmers of America Inc. AMPI's North Central Region remained intact and continued to operate under the AMPI name.

Origins

Agricultural cooperatives emerged in the United States after the 1922 enactment of the Capper-Volstead Act, which gave small farmers the right to join forces, thereby obtaining greater control over the supply and price of their products. However, with the decline of both milk consumption and dairy farm income in the late 1960s, dairy co-ops began to band together into larger and larger entities. Six dairy cooperatives in Kansas, Texas, Arkansas, and Oklahoma merged in 1967 to form Milk Producers, Inc. (MPI). MPI acquired eight more southwestern co-ops in its first year. By 1969, MPI had expanded north, with member farms located in South Dakota and Minnesota. That year, MPI merged with 14 smaller co-ops in the Chicago area to form AMPI.

Harold Nelson had organized the consolidation. Nelson had been manager of the Texas Milk Producers Federation and the general manager of MPI before he became AMPI's first general manager. John Butterbrodt, a member from a Wisconsin cooperative, was elected president. AMPI set up headquarters in San Antonio, Texas. Two other large dairy cooperatives, Mid-American Dairymen, Inc. and Dairymen, Inc., were formed around the same time as AMPI through similar consolidation processes.

Because of economic pressures, smaller dairy cooperatives throughout the central part of the United States were eager to join the growing AMPI. Before it was two years old, AMPI was the biggest dairy cooperative in the country. By 1971, AMPI had 45,000 members, thanks in part to a merger that year with Pure Milk Products Cooperative, a fairly large Wisconsin organization.

Many of the largest markets in the central United States, including Chicago, Madison, Indianapolis, Houston, Dallas, San Antonio, and Memphis, were getting at least three-fourths of their raw milk supply from AMPI by the middle of 1972.

Legal Troubles: 1970s

Despite its economic success, AMPI spent much of the next few years embroiled in a series of legal controversies. Shortly after AMPI was formed, the company established a political trust called TAPE, an acronym for Trust for Agricultural Political Education, which later became C-TAPE. In 1972, consumer advocate Ralph Nader began to argue that recent increases in federal price supports for dairy products (a reversal of a previous decision) were the result of illegal contributions by TAPE and the political arms of the other large diary co-ops to President Nixon's re-election campaign. Suits were filed against the Commodity Credit Corporation and Agriculture Secretary Earl Butz, asking for a rollback of the increases on the grounds that they were illegal because they were made on the basis of political rather than economic considerations. A month later, a civil antitrust suit was filed in federal court charging AMPI with a number of monopolistic practices. The suit alleged that AMPI had, among other things, manipulated the milk supply to control prices and conspired with milk haulers and processors against independent competitors.

AMPI's situation got much worse; its political operations were soon tied in with the Watergate investigation. In 1974, two high-ranking AMPI officials pleaded guilty to a range of charges concerning campaign contributions. First, David Parr, special counsel to AMPI, admitted that he had authorized illegal contributions to Hubert Humphrey's unsuccessful 1968 presidential campaign. Parr also admitted authorizing payments to several other lesser campaigns, as well as allowing co-op employees to work on these campaigns while on the AMPI payroll. Nelson pleaded guilty to a series of campaign-fund violations shortly thereafter. While the company's legal entanglements were unfolding, Nelson was succeeded as general manager of AMPI in 1972 by George L. Mehren, a former assistant secretary of agriculture under President Lyndon Johnson.

The most widely-publicized episode of this period was the charge that representatives of AMPI, specifically attorney Jake Jacobsen, had bribed Treasury Secretary John Connally. The charges against Connally and Jacobsen alleged that AMPI had paid Connally in return for special consideration in dairy price support issues. Litigation involving AMPI eventually forced the co-op's top managers to spend as much as a quarter of their time in hearings and depositions. By 1975, Connally was acquitted of the bribery charges. Ironically, Jacobsen, the chief witness against him, was convicted by a different jury of paying the bribe. As a result of the scandal, AMPI owed over $16 million in unpaid taxes and fraud penalties from 1972 and 1973.

AMPI was damaged by the scandal's negative publicity as well as by an industry slump but remained a leading force in the American economy. Between 1971 and 1974, AMPI lost about 12 percent of its members, some leaving in response to the company's political complications. Eighteen percent of all dairy farms folded over the same period, victims of a periodic slump in the industry. Nevertheless, by 1974 AMPI ranked 155th on Fortune magazine's list of America's largest industrial corporations. The company was supplying 12.5 percent of the nation's wholesale raw milk and was running the largest cheese-processing plant in the country. C-TAPE, despite a drop in contributions in the wake of Watergate, was the second richest special-interest lobbying group in the United States, just behind an American Medical Association-headed coalition.

During the late 1970s, AMPI worked to revive its image. The company reorganized its corporate structure, establishing a system of semi-autonomous regional groups under separate management teams. In spite of all the scandals and convictions, C-TAPE continued to operate successfully and was instrumental in winning further price supports for milk as soon after the turmoil as 1976.

By the early 1980s, AMPI appeared to be back on track. The co-op had about 32,000 members in 20 states and Canada by 1981, and its annual sales had reached $2.4 billion. In 1982, the suit for monopolistic practices originally filed in 1971 finally made it into the federal courts. The case, which had been initiated by the National Farmers' Organization, was decided in favor of AMPI and two fellow cooperatives. However, within months, an appeals court ruled that AMPI and the others had conspired to eliminate competition, and the decision was reversed. The U.S. Supreme Court later upheld the appeals court ruling in 1989. The case did not harm AMPI's ability to sway the industry, however. In 1983, C-TAPE helped in the defeat of a bill in Congress that would have cut price supports for dairy farms.

Mergers and Acquisitions: Mid- to Late 1980s

AMPI dropped in membership by 1985, but its revenues remained about the same. AMPI's 23,300 member farms were delivering about 15.7 billion pounds of milk by 1985, and the company's revenue remained around $2.4 billion. Growth for the co-op came through mergers and acquisitions. In 1986, AMPI strengthened its position in the Great Lakes area by merging its Mid-States Region with the Morning Glory Farms Cooperative, a 2,200-member group based in Shawano, Wisconsin. The combined unit was dubbed the Morning Glory Farms Region. In September of 1986, AMPI's North Central region acquired the largest cheese plant in the country, Falls Dairy in Jim Falls, Wisconsin. The plant had an annual cheese output of 84 million pounds, mainly for Kraft, processed from about a billion pounds of milk. Together, AMPI's plants in all three regions produced 126 million pounds of butter (ten percent of the U.S. output), 218 million pounds of nonfat dry milk (17 percent), 334 million pounds of American cheese (12 percent), and 160 million pounds of dry whey (16 percent) in 1986. By 1988, the co-op marketed well over 17 billion pounds of milk, compared with 7.5 billion pounds for its closest rival, Mid-America Dairymen.

Under general manager Ira Rutherford, the co-op earned over $12 million in 1989, triple the previous year's figure, on sales of just under $3 billion. A total of $42 million was invested in new property, facilities, and equipment during the year, much of it at the new Stephenville, Texas, plant, a 96,000-square-foot facility capable of making cheese and whey from 1.4 million pounds of milk a day.

As the 1990s began, things took a turn for the worse at AMPI. In 1990, farm milk prices took a 25 percent plunge. AMPI lost $27 million for the year, its first net loss. Attrition of dairy farms continued to erode AMPI's membership numbers, and this decline accelerated during the early 1990s. Furthermore, AMPI's total milk deliveries began to shrink year by year. Although the company managed to record sales of $3.06 billion for 1990, the outlook was bleak. In 1991, Ira Rutherford resigned as general manager, a post he had held for 12 years. He was replaced by Noble Anderson, head of the company's Southern Region. That year AMPI managed to turn a modest profit ($698,000), although membership and deliveries continued to decline.

In 1992, AMPI recorded its second largest loss in three years. Most of the damage resulted from the bankruptcy of Hawthorn-Mellody, a major customer to whom AMPI had extended a great deal of credit over the years. For the year, the company posted a loss of $12.6 million, absorbed mostly by the Morning Glory Farms Region. In spite of the problems, AMPI managed to devote $31 million to the purchase of new property and equipment. In the summer of 1992, the company opened a new cheese plant south of Roswell, New Mexico. The plant, able to produce 190,000 pounds of cheese a day, was to become the largest in the AMPI system.

By 1993, the finances of AMPI had improved but membership had dropped. AMPI member farms numbered 13,400, nearly a 50 percent decrease over ten years. However, the company had improved its results dramatically over the previous year, posting a net margin of $10.8 million on sales of $2.7 billion. In an effort to keep costs in check, a number of plants were closed, sold, or leased, as the company concentrated on cash management policies.

The Formation of Dairy Farmers of America: 1998

Into the mid-1990s, the trend toward fewer and larger dairy farms continued and was reflected in AMPI's membership figures. While AMPI's dominant position among dairy suppliers remained intact, the co-op soon began merger talks with three other large dairy concerns. By the end of 1997, AMPI's Southern Region operations, along with Mid-America Dairymen Inc., Milk Marketing Inc., and Western Dairymen Cooperative Inc., decided that joining forces was perhaps the best option for future growth. An October 1997 Denver Business Journal article commented on the reasoning behind the deal, suggesting that "the relaxation of international trade barriers on dairy products has given the co-ops an opportunity to take advantage of world milk markets, and the end of the dairy price support program forced the groups to realize how many services and service territories they duplicate." The article went on to claim that "by combining resources and assets under one name and one vision, they could build better, more efficient and dynamic opportunities for members." The deal was approved, and in January 1998 Dairy Farmers of America Inc., the largest milk marketing cooperative in the United States, was formed from the merger of the aforementioned dairy concerns.

After the deal, AMPI's operations included that of its North Central Region, which manufactured value-added products. While the co-op produced nearly five billion pounds of milk per year, nearly 85 percent was used for manufactured products such as cheese, butter, and powdered milk. This diversification protected it from price fluctuations and allowed its plants to shift focus to higher profit products when necessary. AMPI's sales in 1998 were $964 million.

A smaller, leaner AMPI entered the new millennium as one of the top ten dairy co-ops in the United States. Its 93,000-square-foot New Ulm butter factory was one of the largest butter facilities in the region, producing approximately 20,000 pounds of butter per hour. AMPI was well positioned to capitalize on increased demand for butter products. In fact, butter was an expanding market with per capita consumption growing from 3.6 pounds in 1989 to over four pounds in 2000, according to industry magazine Dairy Foods.

During 2002, Paul Toft was elected to serve a second term as president of the co-op while Mark Furth remained its general manager. During the group's annual two-day delegate meeting in March 2002, Furth reported that AMPI's earnings, sales, and return on equity had surpassed 2000 figures and claimed that AMPI's promising results were directly related to the success of its consumer-packaged dairy products, which accounted for over half of its $1.2 billion sales in 2001.

AMPI's strategy at this time continued to revolve around remaining competitive in the ever-changing dairy industry. Through the AMPI Political Action Committee (AMPI PAC), the group communicated with the federal government on issues related to the dairy industry. It also supported the Midwest Dairy Coalition and encouraged its members to be actively involved in agricultural campaigns. Having overcome the financial problems of the 1990s, AMPI appeared to be on track for future success in the dairy industry.

Principal Competitors: Dairy Farmers of America Inc.; Foremost Farms USA Cooperative; Land O'Lakes Inc.

Associated Milk Producers, Inc. History

Company Perspectives:

Key Dates:

Company History:

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