Location: West Madison Ag Research Station, 8502 Mineral Point Rd., Verona, Wisconsin

Join us for this timely workshop on how to take advantage of storage crops to improve your farm’s bottom line. Topics will include best varieties, storage conditions and structures, and the labor demands and economics of winter sales. Speakers will include experienced growers and University faculty and staff. Cost: $35.

For more information and a registration form, see the workshop flyer.

Location: Phipps Center for the Arts, 109 Locust St., Hudson, Wisconsin

Join us for this timely workshop on how to take advantage of storage crops to improve your farm’s bottom line. Topics will include best varieties, storage conditions and structures, and the labor demands and economics of winter sales. Speakers will include experienced growers and University faculty and staff. Cost: $35.

For more information and a registration form, see the workshop flyer.

“Organic Valley is a social experiment disguised as a business.” — CEO George Siemon

Orgins of Organic Valley

In 1988, a small group of organic vegetable growers in Wisconsin formed a cooperative to provide stable and fair prices to its members. With the addition of dairy farmer members and an explosion of consumer interest in organic dairy products, the dairy segment of the co-op grew rapidly. It evolved into Organic Valley, the largest organic, farmer-owned cooperative in North America. With 1,300 members in 30 states and the Canadian province of Ontario and more than $500 million in gross sales, Organic Valley member farms represent about 10 percent of the certified organic farms in the U.S. Currently, dairy farmers make up 75 percent of the co-op’s members and their products account for 85 percent of Organic Valley sales. This Research Brief focuses on Organic Valley’s dairy business.

Beyond providing economic stability to its members and ensuring that its products and farms meet USDA organic standards, Organic Valley seeks to achieve a broad range of other ambitious goals—regional farm diversity, ecological and economic sustainability, energy conservation and increased use of renewable energy, good tasting and nutritious food, healthy livelihoods and communities and advancement of cooperative principles. One example of how Organic Valley furthers these goals is its humane livestock care requirements that exceed national organic standards.

Key characteristics

Organic Valley has expanded rapidly with the growth of demand for organic milk and is well-positioned to benefit from consumer interest in products that can be traced back to family farms. From its base in the Upper Midwest, Organic Valley now operates in eight regions across the U.S. and has developed a regional identity in each. The cooperative employs more than 500 people, most working in a newly constructed headquarters and distribution center in rural southwestern Wisconsin. The professional staff handles day–to-day management under the guidance of a seven-person, farmer-elected board of directors.

Organic Valley follows a set of strategies to accomplish its central goal of maintaining relatively stable farm prices that, over time, are above commodity dairy prices. First and foremost, the co-op carefully manages the supply of products. The co-op only adds new members when excess market demand warrants it. Prices paid to Organic Valley farmers are based on production costs and vary from region to region.

In order to keep supply and demand in balance, Organic Valley has in the past maintained a reserve pool of non-member, waiting list farmers who sell organic milk to the co-op when demand outstrips supply. Organic Valley’s reserve pool policy is being revisited and revised. Organic Valley also processes some fluid milk into dried milk powder when supply exceeds market demand.

Organic Valley’s rapid growth over the last decade means that a significant proportion of both members and employees are relatively new. The co-op understands the importance of selecting new members and staff who fit not just in terms of production and logistics, but also beliefs and ethics. Once the co-op selects new members and employees, it devotes significant energy to ensuring they learn and embrace the co-op’s culture.

Organic Valley requires that entering farmers make equity investments equal to 5.5 percent of their annual sales to the co-op. These investments earn returns for the farmer owners. Employees are also able to buy co-op shares, and Organic Valley has raised capital by selling non-voting shares to the public.

The co-op places a priority on preparing for the future by providing both an exit strategy for current farmers and a means of entry for the next generation of producers. As Chief Financial Officer Mike Bedessem puts it, “We know what our job is: It’s to get to the point where our farmers have a choice—they can farm, they can retire, they can sell to the kids. That’s the exit strategy for our current farmers—it’s a future for their kids.”

In a more fundamental sense, all of Organic Valley’s operations and objectives relate back to three broad principles: sharing knowledge, assuring transparency and developing trust in dealing with members, employees and supply chain partners. These principles set it apart from many competitors in the marketplace.

Strategic supply chain partners

Organic Valley focused from the start on selling its products through multi-stage supply chains rather than through direct marketing channels. It credits much of its early success to contracting out the key parts of its processing and distribution systems rather than sinking money into bricks and mortar and performing these supply chain functions itself. Today, Organic Valley owns only a single processing facility.

Organic Valley has made significant internal investments in supply chain logistics, and leaders view excellence in this area as critical to the co-op’s success. In fact, Organic Valley has spun off its logistics arm as a full subsidiary of the main business. Organic Valley now operates its own distribution center in the Upper Midwest and may build additional distribution centers in the East and West. Its distribution capacity is also available to smaller organic food enterprises across the country.

The standard arrangement followed by the co-op is to have milk processed on contract with dairy manufacturing plants located close to the regionally organized milk pools. Organic Valley prefers working with family-owned independent processors when possible. It also contracts for transportation of both its raw milk and finished products. Organic Valley owns some trucks, but the bulk of its milk hauling is done by independent trucking companies, many of which are smaller, family-owned firms.

Organic Valley recognizes that it must clearly communicate product standards and develop a strong brand identity to succeed in the marketplace. Early on, Organic Valley products were primarily available through natural food stores. With the mainstreaming of organic food, the majority of sales are now in conventional supermarkets. Organic Valley works hard to support both types of stores and has not allowed the development of relationships with larger supermarkets to negatively impact sales through smaller natural food stores. Says Theresa Marquez, Chief Marketing Executive, “Yes, we’re growing in the mass market, but our love and devotion is still in the natural market … That’s the group we cater to. They are the core organic shopper. They are the pioneers.”

Organic Valley farmer ambassadors reach out to supply chain partners and final consumers to tell the Organic Valley story. The co-op recognizes that it can have an impact in the overall functioning of the organic milk market, since it is a significant player.

Response to market conditions

The organic dairy sector has been hit hard by the current economic recession. Organic Valley has responded to weakening markets in a variety of ways. It has reduced both pay prices and production levels for all of its dairy farmer members rather than drop the farmers with least seniority, or those in specific regions. Excess milk is sold to the conventional market.

The cooperative believes it has an obligation to all of its members, and that sticking together will allow all members to prosper once the economy rebounds.

A longer version of this case study (and related research) is available at two locations:
http://www.cias.wisc.edu/economics/case-studies-profile-mid-scale-food-enterprises/
http://www.agofthemiddle.org/

The Organic Valley web site is:
http://www.organicvalley.coop

For more information, contact:
Steve Stevenson, UW-Madison CIAS, gstevenson@mailplus.wisc.edu, 608-262-5202
Larry Lev, Agricultural and Resource Economics, Oregon State University, larry.lev@oregonstate.edu, 541-737-1417

Origins of Country Natural Beef

In 1986, 14 Oregon ranchers formed a cooperative—Country Natural Beef—to escape the roller-coaster cycles of the commodity cattle market and achieve predictable, relatively stable, premium prices. For its rancher members, simply changing their mindset from producing for a commodity market to producing for a final consumer was a major challenge that paid off.

For the past 23 years, Country Natural Beef has negotiated prices with the retailers and institutions it supplies to cover its members’ costs of production, a return on investment and a reasonable profit. In most years, the cooperative achieves this goal.

Country Natural Beef sets a priority on maintaining “every possible bit of independence” for its member ranches. Still, independence does not mean isolation. Internally, the cooperative’s members meet twice a year and reach consensus decisions. Externally, Country Natural Beef has developed close relationships with a diverse set of supply chain partners.

Country Natural Beef grew slowly for its first 14 years and expanded more rapidly starting in 2000. By 2008, the cooperative included more than 100 member ranches in several states that were raising more than 100,000 brood cows, managing more than 6 million acres of land and selling almost $50 million of products.

Key characteristics

Country Natural Beef distinguishes itself by the quality of its products and the story behind its production system. Country Natural Beef cattle are raised from birth on its members’ ranches without growth hormones, antibiotics or animal byproducts. The cattle spend less time in the feedlot (90 to 95 days versus 120 to 150 days for conventional beef ) and are fed rations that are, to the extent possible, sourced locally and forage based, including potatoes, alfalfa, barley and some corn. As a result, Country Natural Beef ’s meat is leaner than that of its competitors, reaching USDA grades of “high select” and “low choice” versus the fattier “high choice.”

The rancher members share a strong environmental ethic and are passionate about developing pasture management practices that maintain grass, plant and wildlife diversity, water resources and healthy streams. All Country Natural Beef ranches are third-party certified under the Food Alliance’s environmental and social standards.

The cooperative prides itself on its internal operations and low administrative costs. Money earned from the sale of cattle flows directly to individual ranching families, with few middlemen. All Country Natural Beef families are involved in making major decisions and can knowledgeably discuss both the cooperative’s products and procedures. Member ranches do not invest equity in the cooperative, and all financing relies on the proceeds of annual cattle sales. The cooperative owns no bricks, mortar, or trucks and therefore has no debt. It hires no staff, instead employing members who act as independent consultants and “internal partners” to handle key functions including production planning, sales and accounting. This approach allows the cooperative to keep management costs to less than four percent of gross revenue, but it requires a strong commitment to a participatory decision-making process.

During mandatory semi-annual business meetings, Country Natural Beef uses a sophisticated format to ensure equal access in participation and decision making for all members. From the beginning, the cooperative has been strongly committed to the full participation of women. Female candidates for organizational positions are common. In addition, conscious efforts are made to encourage and support the entrance of young and/or beginning ranchers into the cooperative, including second generation Country Natural Beef families. According to founder Connie Hatfield, “My definition of sustainability is when more than 25 kids below the age of five require daycare at our semi-annual meetings.”

New members are only recruited when demand for Country Natural Beef exceeds supply. Each potential member must be nominated by an existing member and pass a two-year trial membership.

Strategic supply chain partners

Country Natural Beef has forged business partnerships based on the Japanese model known as “Shin Rai,” or mutual support and mutual reward. The cooperative works with business partners that provide complementary services and expertise, and share basic values such as humane animal treatment and land stewardship. Country Natural Beef and its partners are engaged in a values-based supply chain where everyone reaps the benefits of market premiums and price stability associated with an identity-preserved, high-value product.

Excellent products and service are central to the culture of Country Natural Beef. The cooperative achieves high sales volumes and serves geographically dispersed customers through collaboration with like-minded supply chain  partners, eliminating the need for internally or externally generated capital and post-production expertise. This strategy enables Country Natural Beef to focus on what it does best—raising cattle and providing a differentiated product with a story behind it.

A key production partner is Beef Northwest Feeders, which preserves the identity of the Country Natural Beef cattle and provides humane animal handling and non-antibiotic first treatment of ill cattle. AB Foods, another important partner, serves as both Country Natural Beef ’s butcher and financial/logistical associate. The co-op’s rancher members individually sell live cattle to AB Foods, and Country Natural Beef buys back boxed beef cuts that the cooperative then seeks to sell. Any Country Natural Beef cuts that the cooperative does not buy back are retained by AB Foods at commodity beef prices.

Country Natural Beef has selected retail partners who share an interest in marketing high-quality, natural beef products to health- and eco-conscious consumers who are willing to pay premium prices. These partners maintain Country Natural Beef ’s identity on its products through to the final consumers. Retail partners include Whole Foods, New Seasons Market, Burgerville and Bon Appétit Management Company. The cooperative faces a significant challenge in balancing its mix of retail partners to ensure sale of the entire animal, rather than just the most sought-after cuts. All Country Natural Beef ranchers are required to participate in three events per year where they interact directly with meat cutters, chefs and consumers.

Response to market conditions

Country Natural Beef recognizes that it must be nimble in responding to changing market conditions that favor its production systems and product. Says co-founder Doc Hatfield and spouse of Connie, “Where food service and the institutional trade are heading today is sustainability and social justice. Consumers want to know that the people raising the products are making a decent living. They also want to know if the carbon footprint caused by the food they’re eating makes environmental sense.”

The cooperative responded to weak market conditions in the current recession by lowering their prices so that, in the short run, the ranchers only covered variable and family living costs and did not earn a profit. Doc Hatfield sees this as the best way to maintain long-term viability: “We’ve lived off our equity before and can do it again. But we all must keep figuring out ways to better communicate to customers and consumers the values behind our products.”

A longer version of this case study (and related research) is available at two locations:
http://www.cias.wisc.edu/economics/case-studies-profile-mid-scale-food-enterprises/
http://www.agofthemiddle.org/

The Country Natural Beef web site is:
http://www.oregoncountrybeef.com/

For more information, contact:
Steve Stevenson, UW-Madison CIAS, gstevenson@mailplus.wisc.edu, 608-262-5202
Larry Lev, Agricultural and Resource Economics, Oregon State University, larry.lev@oregonstate.edu, 541-737-1417

Join fellow farmers and university specialists at Growing Home’s Les Brown Memorial Farm in La Salle County, Illinois, for an in-depth look at their soil fertility management strategies and practices. Larry O’Toole will discuss his use of cover crops, rotations, tillage and purchased inputs on this 10-acre farm. Growing Home grows certified organic produce at three sites (two in Chicago) for CSA, wholesale and farmers’ market customers. University staff will be on hand to discuss the results of a survey of organic growers and their fertility management, and to help answer questions. Please join us!

Join fellow farmers and University specialists for an in-depth look at the fertility management strategies and practices at Spring Hill Community Farm in Barron County, Wisconsin. Mike Racette will discuss his use of cover crops, rotations, mulch, tillage and purchased inputs. Spring Hill is a 20 year-old CSA farm growing a wide variety of vegetables on approximately 5 acres. University staff will be on hand to discuss the results of a survey of organic growers and their fertility management, and to help answer questions. Please join us! For more information, view the field day flyer.

This report is intended to provide guidance for future grass-fed dairy marketing efforts. The lessons that pioneering graziers have learned will help the grazing community create a premium market for their products. If grass-fed dairy products command a premium price, more farmers may adopt this environmentally friendly farming system.

Grass-based dairy products: challenges and opportunities (PDF, 625 KB)