Mid-America Dairymen, Inc. History

Company History:

Mid-America Dairymen, Inc. is one of the largest dairy cooperatives in the United States and is the country's second largest producer of mozzarella cheese. It serves more than 12,500 dairy farmer members via a vast network of manufacturing plants and such centralized services as marketing, research and development, and legislative lobbying. The co-op sells a large line of dairy goods--including Italian and American cheeses, butter, sour cream, coffee creamer, infant formula, whey, and dehydrated products--to wholesalers, retailers, restaurants, and other foodservice outlets under the Mid-America Farms and other labels. Recently, the company entered the value added consumer market with Sport Shake, a dairy-based beverage available in several flavors; the product symbolizes an attempt by Mid-America to recapture consumers it lost to the booming soft drink and juice markets during the 1980s. Future plans for this market include reduced fat cheeses, light butter, and a light version of Sport Shake. The company also supplies most of the nation's major food companies with custom-processed dairy ingredients.

Like industry leader Associated Milk Producers Inc. (AMPI), Mid-Am was formed through a series of mergers of smaller dairy cooperatives. In the late 1950s, the National Milk Producers Federation began to struggle against divisiveness in its ranks; according to historian James L. Reeves, "dairy leaders in the central United States were beginning to realize that there were regional problems that could only be attacked by a special organization. Superpool prices, intermarket movements of milk, health department regulations and other regional relationships needed to be addressed on a regional basis." In April 1964, a federated cooperative called Associated Dairymen was formed. This umbrella co-op consisted of 30 smaller co-ops, which together represented 35,000 dairy farmers in the Midwest and Southwest. For the next ten years, Associated provided a number of important services to its members; its greatest role, however, was as a forum for dialogue between local and regional dairy farmers, which led to the establishment of regional dairy cooperatives in the late 1960s and early 1970s.

In 1966 the St. Louis-Ozarks Marketing Agency (SLOMA) was formed by three co-ops in southwest Missouri: Sanitary Milk Producers, Producers Creamery Company, and Square Deal. SLOMA addressed pricing and marketing problems on a smaller scale than Associated Dairymen. By March of 1968 the SLOMA co-ops were close to an official merger. However, in light of their ongoing discussions with Producers Creamery Company of Chillicothe, Missouri, as well as with newly formed Mid-America Dairymen of Kansas City, the SLOMA merger was delayed until July in order to include all five co-ops. At that time, Mid-America Dairymen, rather than SLOMA, was adopted as the new regional co-op's title. This 15,000-member organization had several initial objectives. These included: ensuring a reasonable income for its farmers; bargaining with milk handlers for prices above the status quo; marketing customary and specialized products; developing member information programs; and initiating research and development practices to ensure the long-term health of the cooperative.

In addition to these tasks, Mid-America also focused on further mergers and acquisitions. The most important of these was the agreement between Omaha-based Central States Dairy Cooperative and St. Paul-based Twin City Milk Producers Association to merge with Mid-America in December 1969. Upon final approval in April 1970, the newly strengthened Mid-America could boast annual sales of $355 million. Twin City Milk's proximity to the North Star Marketing Cooperative of St. Paul generated another large merger that would give Mid-Am a solid marketing structure in Minnesota, Wisconsin, and North and South Dakota. North Star, consisting of 22 member co-ops with a combined $81 million in annual sales, was especially important to Mid-Am's future due to its specialty drying plant located at Bruce, Wisconsin, which produced dried cheese, dried butter, dried sour cream, and dried dairy mixes. A new state-of-the-art dehydration facility was underway at Zumbrota, Minnesota, while the North Star merger was being completed from mid-1970 through 1971. All told, more than a dozen mergers of varying sizes occurred during this early period of growth.

Because of such expansion--all brought about by the impetus of Associated Dairymen--Mid-America spent the next several years dealing with problems of internal restructuring. Adverse developments in farm legislation, as well as a 1973 antitrust suit filed by the U.S. Justice Department, also took a toll on the co-op. 1974 represented a singularly burdensome year for Mid-America. Record high feed prices, a weak economy, declines in consumer spending power, and a drastic downward tilt in cheese, butter, and nonfat dry milk prices all contributed to massive inventory losses for the cooperative. Mid-Am lost nearly $8 million that year on revenues of $625 million. At the beginning of 1975, price supports were still at a minimum and Mid-Am was faced with the difficulty of fairly allocating its recent losses among its members.

Amid the turmoil, Gene Baldi, then executive vice president and general manager, tendered his resignation; numerous farmers also left the cooperative. President William A. Powell and the other board members then elected senior corporate vice president Gary Hanman to oversee Mid-Am's day-to-day operations and effect a turnaround. "Within three months," according to historian Reeves, Hanman "had sold the company aircraft, withdrawn company vehicles from management and supervisory staff personnel, accepted the resignations of four top administrative management people and restructured the operating divisions." Hanman's goal in restructuring was to redirect much of the operational management to the six membership divisions: Central States, Kansas City, Iowa, St. Louis, Northern, and Southern. Mid-Am ended the year with earnings of over $1 million. More importantly, it had decided to act upon the marketing committee's recommendation to form a marketing subsidiary to increase name brand sales and reduce Mid-Am's dependency on commodity sales (commodities then represented around 82 percent of sales but contributed only 30 percent to the overall gross margin). The subsidiary was called Mid-America Farms, and it proved successful from its beginning in 1976, despite heavy competition in the branded products arena from Kraft, Land O'Lakes, Carnation, and others. A later move away from national to niche marketing, and a greater emphasis on food ingredient sales solidified Mid-America Farms' role for the cooperative.

A new array of problems faced dairy farmers during the 1980s, particularly the replacement of milk by soft drinks as the leading American beverage. Nevertheless, the decade was begun auspiciously, with sales exceeding $1 billion for the first time and net savings up 44 percent from 1979. Furthermore, in 1982, Mid-America was named dairy processor of the year by the industry's foremost journal, Dairy Record; Mid-America was the first co-op ever to receive the honor. Although the number of dairy farms in the nation continued to shrink during the decade, Mid-America's membership losses were less severe, in part due to several new acquisitions. The co-op also entered into joint arrangements with other large dairy producers, including East Coast leader Agway. One of Agway's subsidiaries, H. P. Hood, agreed in 1982 to sell a half-interest in its Clearfield Cheese Company to Mid-America. In 1985 Mid-America bought H. P. Hood's remaining interest but then quickly sold the processor to Schreiber Food Company, the nation's second largest cheese business, in order to realize a $1.2 million gain on the investment. Other expansions into cheese-processing, however, continued to preoccupy Mid-America. Around this time, the cooperative also began to increase its fluid milk processing capabilities.

During the mid-1980s, cost-cutting and profit enhancement became key to the survival of farmers in general, and the dairy industry in particular. Among cooperatives with a national rather than regional focus, it was apparent that considerable overlap in manufacturing, distribution, and marketing existed. If such co-ops were to compete with the large corporate food producers--and there was no reason they shouldn't--further consolidations were necessary. The problem with consolidation, of course, was the complexity of most co-op arrangements: large boards, large memberships, varying systems for financial remuneration, and varying obligations to suppliers and purchasers. In 1986 AMPI and Mid-Am discussed a possible merger, but soon agreed that their structural differences posed too great an obstacle to consolidation.

Land O'Lakes, however, whose corporate headquarters were based in Arden Hills, Minnesota, the same city as those of Mid-Am's Northern Division, seemed amenable to such a joint venture. Although a far more diversified agribusiness than Mid-Am, Land O'Lakes was and is a powerhouse in the dairy industry and, because of its high profile and leadership in joint-marketing, represented an important potential ally for the smaller Missouri-based co-op. In January 1987 the two agreed to link plant operations in southeastern Minnesota for the production and marketing of milk and whey. Cost savings for the joint venture were supposed to have approached $1.5 million. Because of the venture's success, Land O'Lakes and Mid-Am entered into discussions of further mergers which, had they been ratified, would have created a $4 billion food and dairy company. Proper capitalization for the proposed consolidation became the primary stumbling block, however, and all discussions were halted in October 1989.

By the early 1990s Mid-Am was successfully operating no less than 16 joint ventures in the Midwest--four alone in Wisconsin, the nation's number one dairy state. Its service territory effectively covered all of North Dakota, South Dakota, Wisconsin, Iowa, Illinois, and Missouri as well as portions of Kentucky, Tennessee, Arkansas, and Texas and much of Oklahoma, Kansas, and Nebraska.

Yet, as in all commodity-oriented businesses, Mid-Am still suffered from production and pricing swings. During the first half of 1990, the cooperative lost $6.1 million due to a market saturated by such products as milk and cheese. Part of the problem could be traced to a federal herd buyout program initiated in 1988 which engendered higher prices and, ultimately, overproduction. Mid-Am closed 1991 with a $2.5 million loss before the cost of a litigation settlement. A huge decrease in selling and administrative expenses for fiscal 1991 allowed Mid-Am to recoup its momentum and report net savings of $11.5 million (after an antitrust settlement with the National Farmers Organization). At the core of Mid-Am's increased profitability was a consolidation of its six divisions into two: the Western and Eastern Groups. The elimination of 122 positions, the disposal of surplus real estate, and the sale of certain operating facilities also contributed to Mid-Am's lowest year for capital expenditures since 1986. Other important developments for the company included a merger with Glenn Milk Producers Association of Willows, California, and the launching of a joint marketing venture with Southern Milk Sales to handle some two billion pounds of milk annually. In addition to these businesses, Mid-Am's current joint ventures--several of which fall outside Mid-Am territory--include those with Golden Valley Cheese, Raber Foods Inc., Spring Valley Cheese, Western Food Processing, Golden Harvest Popcorn, Hiland Dairy, Roberts Dairy, and Sinton Dairy.

In his President's Message for 1991, Ivan Strickler reiterated the company's commitment to profitability and growth: "Dairy cooperatives must increase their scale of operations through consolidations, mergers, joint ventures and marketing agencies in common, in order to more effectively and more efficiently market fluid milk and manufactured dairy products." Strickler's "mixed picture" for the future also pointed out Mid-America's need to enter the global market. Operating in a competitive industry and faced with the unpredictability of new legislation, Mid-America nonetheless has its high reputation to rely upon. The cooperative received a Select Supplier Award from Campbell Soup Company in December 1991 as well as several quality awards from the National Milk Producers Federation. An attention to developing new products, such as D-Lite, a low-fat, low-cholesterol American cheese made with the fat substitute Simplesse, should also aid Mid-Am as it faces an uncertain future. The challenges, though, are much the same as they were when Mid-Am was first born: to "grow with the food industry; inform the public and consumers about our products, the unique nature of cooperatives as businesses and the need for stability in agriculture."

Principal Subsidiaries: Mid-America Farms.

Source: International Directory of Company Histories, Vol. 7. St. James Press, 1993.

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