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Dave Natzke
Published in Midwest Dairy Business (April 2008)

More vertical integration, what many consider the “evil empire” afflicting segments of food production, is headed toward dairy. As in other industries, most vertical integration pressure will come from the top down, in an effort to squeeze as much money out of incremental margins as possible. But in an evolving business climate, I think more dairy pressure will ultimately come from the bottom up.

As I mentioned previously (February 2008 Midwest DairyBusiness, “Who’s sustaining what?”), I attended the International Dairy Foods Association Dairy Forum ’08. I wish I would have counted how many times I heard the comment – or a variation of it – from a speaker who said “it is the responsibility of the cooperative/processor/marketer/retailer to protect the perception of the consumer.” It’s pretty tough to build a case against that comment, since consumers ultimately pay the bills and, if you believe conventional wisdom, “the consumer is always right” (purchasing imitation pet testicles for their neutered pets’ self esteem, aside).

Disheartening in my conversations was not once did I hear a single comment claiming any responsibility to protect the integrity and livelihood of the supplier/producer. I asked. That’s troubling at a time when producers are being attacked on so many fronts, especially in animal welfare, production technology and environmental areas.

The checkoff-funded Midwest Dairy Association and others are creating tools to “promote” producers. Some small dairy companies base their entire marketing programs on producer integrity. But many others have focused so hard on the products that they have lost sight of producers and, in my 30 years in ag journalism, I have never heard from so many producers who believe they are being hung out to dry by their business and organization leaders. I guess it’s a cruel world.

So my first case for more bottoms-up vertical integration is that, if those on top are throwing you under the bus, why not get your own bus?

Second, playing into bottoms-up vertical integration is the emerging trend of consumers seeking locally sourced food from someone they know and trust. Numerous studies show farmers rank among the highest on the consumers’ reputation meter. What better way to put a face on a product than to put your face on your product?

Third, each step in the food chain – from production of the raw product to processing, packaging, marketing and transporting – adds value, costs and friction. As producers become more savvy marketers and are able to manage volume processing and packaging, it enables them to embrace those steps, instead of outsourcing them.

That ties in with a final ingredient – capital. Many “artisans” strive to make a direct connection to consumers on a small scale, but often lack the financial resources. As larger producers combine knowledge with capital, vertical integration becomes possible. Throw in the ability to reduce transportation costs and generate energy from manure, and the path becomes even smoother, with social and environmental pluses.

There are reasons why processing, packaging and marketing have become specialized. It’s a tough business, compounded by competition, policies and regulations at every level. Bottoms-up vertical integration takes work and money, and undoubtedly many will fail. It adds risks at every level. There are business cemeteries full of people who have already tried. It will take the right people, with the right products, in the right markets.

But I’m hearing from more entrepreneurs who, when push comes to shove, would rather press their noses up against their own bottoms, and not against someone else’s.

Posted with permission.

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Dave Natzke
Published in Midwest Dairy Business (February 2008)

The buzzword at the International Dairy Foods Association’s Dairy Forum ’08 was “sustainability.” While the word gives everyone a warm and fuzzy feeling they’re doing something – anything – to make the world a better place to live, the definition of “sustainability” can be elusive and confusing. Many Dairy Forum speakers used the term to cover environmental and social aspects of milk and dairy product production, packaging and transportation.

While such goals are admirable and, like objects in our rearview mirror – closer than they appear – one of the messages I took home was that everyone needed to jump on the bandwagon, not only to be good global citizens, but also to capture the “value-added” premiums the marketplace is apparently willing to pay for a “sustainable” label.

Hey, I’m a capitalist, and if it ended there, great. But it doesn’t. While many find “sustainability” hard to define, they are sure they know it when they see it. Many of these same people want to impose their enlightened vision of “sustainability” on others. In many cases, the inconvenient truth is that the push for “sustainability” has more to do with market share than it does with being environmentally and socially conscious.

As I write this, there is an outgrowth of this dilemma. Under pressure to be more “sustainable,” several universities are in the “Catch-22” position of losing commercial markets – and much-needed funding from the sale of milk or crops – or give up researching approved technologies. Who wins there?

No doubt about it, we can all do better when it comes to caring for the present and future condition of our planet. But when it comes to “sustainability,” I left the Dairy Forum with some unanswered questions:

• Where does the balance of efficient, economic production – using available knowledge and applying technology to produce food in quantities to feed a world population rushing headlong toward 7 billion people – fit in our definition of “sustainability?”
• Isn’t that what modern agriculture is about – sustaining life in a responsible manner?

Speaking of questions, one of the fundamental questions of any geographically based industry is this: once weakened or lost, can it be regained? In my lifetime, that question has arisen in Detroit’s auto industry and across steel country – now the Rust Belt. It is also a question faced by the Midwest dairy industry in the 1990s, as investment, cows and young brilliant minds moved elsewhere. In some cases, dairy producers were unable to sustain against activists with a different vision of animal agriculture and the regional geography. That impact was probably felt nowhere more so than Minnesota.

Can the Midwest dairy industry be sustained and grow? That remains to be seen. Years ago, I probably would have said “no.” But as Minnesota Milk Producers Association executive director Bob Lefebvre details in the February 2008 issue of Midwest DairyBusiness (see “A change from within”), it takes more than changing downward spirals in cows and infrastructure, but also a change in mindset and leadership, before it’s too late. It’s happening in the Midwest.

We’re in a dairy era some say has a “triple bottom line” – economic, environmental and social. Whether for the sake of future food production, or the health of a regional dairy industry, the only sustainable “sustainability” is built on practicality; not on a single definition, and not in a rush for market share based on whatever social tail that is wagging the dog.

Posted with permission.

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Comments are closed.

buyers-beware

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Leave a Comment

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Dave Natzke
Published in Midwest Dairy Business (April 2008)

More vertical integration, what many consider the “evil empire” afflicting segments of food production, is headed toward dairy. As in other industries, most vertical integration pressure will come from the top down, in an effort to squeeze as much money out of incremental margins as possible. But in an evolving business climate, I think more dairy pressure will ultimately come from the bottom up.

As I mentioned previously (February 2008 Midwest DairyBusiness, “Who’s sustaining what?”), I attended the International Dairy Foods Association Dairy Forum ’08. I wish I would have counted how many times I heard the comment – or a variation of it – from a speaker who said “it is the responsibility of the cooperative/processor/marketer/retailer to protect the perception of the consumer.” It’s pretty tough to build a case against that comment, since consumers ultimately pay the bills and, if you believe conventional wisdom, “the consumer is always right” (purchasing imitation pet testicles for their neutered pets’ self esteem, aside).

Disheartening in my conversations was not once did I hear a single comment claiming any responsibility to protect the integrity and livelihood of the supplier/producer. I asked. That’s troubling at a time when producers are being attacked on so many fronts, especially in animal welfare, production technology and environmental areas.

The checkoff-funded Midwest Dairy Association and others are creating tools to “promote” producers. Some small dairy companies base their entire marketing programs on producer integrity. But many others have focused so hard on the products that they have lost sight of producers and, in my 30 years in ag journalism, I have never heard from so many producers who believe they are being hung out to dry by their business and organization leaders. I guess it’s a cruel world.

So my first case for more bottoms-up vertical integration is that, if those on top are throwing you under the bus, why not get your own bus?

Second, playing into bottoms-up vertical integration is the emerging trend of consumers seeking locally sourced food from someone they know and trust. Numerous studies show farmers rank among the highest on the consumers’ reputation meter. What better way to put a face on a product than to put your face on your product?

Third, each step in the food chain – from production of the raw product to processing, packaging, marketing and transporting – adds value, costs and friction. As producers become more savvy marketers and are able to manage volume processing and packaging, it enables them to embrace those steps, instead of outsourcing them.

That ties in with a final ingredient – capital. Many “artisans” strive to make a direct connection to consumers on a small scale, but often lack the financial resources. As larger producers combine knowledge with capital, vertical integration becomes possible. Throw in the ability to reduce transportation costs and generate energy from manure, and the path becomes even smoother, with social and environmental pluses.

There are reasons why processing, packaging and marketing have become specialized. It’s a tough business, compounded by competition, policies and regulations at every level. Bottoms-up vertical integration takes work and money, and undoubtedly many will fail. It adds risks at every level. There are business cemeteries full of people who have already tried. It will take the right people, with the right products, in the right markets.

But I’m hearing from more entrepreneurs who, when push comes to shove, would rather press their noses up against their own bottoms, and not against someone else’s.

Posted with permission.

Permalink

Comments are closed.

Dave Natzke
Published in Midwest Dairy Business (February 2008)

The buzzword at the International Dairy Foods Association’s Dairy Forum ’08 was “sustainability.” While the word gives everyone a warm and fuzzy feeling they’re doing something – anything – to make the world a better place to live, the definition of “sustainability” can be elusive and confusing. Many Dairy Forum speakers used the term to cover environmental and social aspects of milk and dairy product production, packaging and transportation.

While such goals are admirable and, like objects in our rearview mirror – closer than they appear – one of the messages I took home was that everyone needed to jump on the bandwagon, not only to be good global citizens, but also to capture the “value-added” premiums the marketplace is apparently willing to pay for a “sustainable” label.

Hey, I’m a capitalist, and if it ended there, great. But it doesn’t. While many find “sustainability” hard to define, they are sure they know it when they see it. Many of these same people want to impose their enlightened vision of “sustainability” on others. In many cases, the inconvenient truth is that the push for “sustainability” has more to do with market share than it does with being environmentally and socially conscious.

As I write this, there is an outgrowth of this dilemma. Under pressure to be more “sustainable,” several universities are in the “Catch-22” position of losing commercial markets – and much-needed funding from the sale of milk or crops – or give up researching approved technologies. Who wins there?

No doubt about it, we can all do better when it comes to caring for the present and future condition of our planet. But when it comes to “sustainability,” I left the Dairy Forum with some unanswered questions:

• Where does the balance of efficient, economic production – using available knowledge and applying technology to produce food in quantities to feed a world population rushing headlong toward 7 billion people – fit in our definition of “sustainability?”
• Isn’t that what modern agriculture is about – sustaining life in a responsible manner?

Speaking of questions, one of the fundamental questions of any geographically based industry is this: once weakened or lost, can it be regained? In my lifetime, that question has arisen in Detroit’s auto industry and across steel country – now the Rust Belt. It is also a question faced by the Midwest dairy industry in the 1990s, as investment, cows and young brilliant minds moved elsewhere. In some cases, dairy producers were unable to sustain against activists with a different vision of animal agriculture and the regional geography. That impact was probably felt nowhere more so than Minnesota.

Can the Midwest dairy industry be sustained and grow? That remains to be seen. Years ago, I probably would have said “no.” But as Minnesota Milk Producers Association executive director Bob Lefebvre details in the February 2008 issue of Midwest DairyBusiness (see “A change from within”), it takes more than changing downward spirals in cows and infrastructure, but also a change in mindset and leadership, before it’s too late. It’s happening in the Midwest.

We’re in a dairy era some say has a “triple bottom line” – economic, environmental and social. Whether for the sake of future food production, or the health of a regional dairy industry, the only sustainable “sustainability” is built on practicality; not on a single definition, and not in a rush for market share based on whatever social tail that is wagging the dog.

Posted with permission.

Permalink

Comments are closed.

buyers-beware

Permalink

Leave a Comment

You must be logged in to post a comment.

Dave Natzke
Published in Midwest Dairy Business (April 2008)

More vertical integration, what many consider the “evil empire” afflicting segments of food production, is headed toward dairy. As in other industries, most vertical integration pressure will come from the top down, in an effort to squeeze as much money out of incremental margins as possible. But in an evolving business climate, I think more dairy pressure will ultimately come from the bottom up.

As I mentioned previously (February 2008 Midwest DairyBusiness, “Who’s sustaining what?”), I attended the International Dairy Foods Association Dairy Forum ’08. I wish I would have counted how many times I heard the comment – or a variation of it – from a speaker who said “it is the responsibility of the cooperative/processor/marketer/retailer to protect the perception of the consumer.” It’s pretty tough to build a case against that comment, since consumers ultimately pay the bills and, if you believe conventional wisdom, “the consumer is always right” (purchasing imitation pet testicles for their neutered pets’ self esteem, aside).

Disheartening in my conversations was not once did I hear a single comment claiming any responsibility to protect the integrity and livelihood of the supplier/producer. I asked. That’s troubling at a time when producers are being attacked on so many fronts, especially in animal welfare, production technology and environmental areas.

The checkoff-funded Midwest Dairy Association and others are creating tools to “promote” producers. Some small dairy companies base their entire marketing programs on producer integrity. But many others have focused so hard on the products that they have lost sight of producers and, in my 30 years in ag journalism, I have never heard from so many producers who believe they are being hung out to dry by their business and organization leaders. I guess it’s a cruel world.

So my first case for more bottoms-up vertical integration is that, if those on top are throwing you under the bus, why not get your own bus?

Second, playing into bottoms-up vertical integration is the emerging trend of consumers seeking locally sourced food from someone they know and trust. Numerous studies show farmers rank among the highest on the consumers’ reputation meter. What better way to put a face on a product than to put your face on your product?

Third, each step in the food chain – from production of the raw product to processing, packaging, marketing and transporting – adds value, costs and friction. As producers become more savvy marketers and are able to manage volume processing and packaging, it enables them to embrace those steps, instead of outsourcing them.

That ties in with a final ingredient – capital. Many “artisans” strive to make a direct connection to consumers on a small scale, but often lack the financial resources. As larger producers combine knowledge with capital, vertical integration becomes possible. Throw in the ability to reduce transportation costs and generate energy from manure, and the path becomes even smoother, with social and environmental pluses.

There are reasons why processing, packaging and marketing have become specialized. It’s a tough business, compounded by competition, policies and regulations at every level. Bottoms-up vertical integration takes work and money, and undoubtedly many will fail. It adds risks at every level. There are business cemeteries full of people who have already tried. It will take the right people, with the right products, in the right markets.

But I’m hearing from more entrepreneurs who, when push comes to shove, would rather press their noses up against their own bottoms, and not against someone else’s.

Posted with permission.

Permalink

Comments are closed.

Dave Natzke
Published in Midwest Dairy Business (February 2008)

The buzzword at the International Dairy Foods Association’s Dairy Forum ’08 was “sustainability.” While the word gives everyone a warm and fuzzy feeling they’re doing something – anything – to make the world a better place to live, the definition of “sustainability” can be elusive and confusing. Many Dairy Forum speakers used the term to cover environmental and social aspects of milk and dairy product production, packaging and transportation.

While such goals are admirable and, like objects in our rearview mirror – closer than they appear – one of the messages I took home was that everyone needed to jump on the bandwagon, not only to be good global citizens, but also to capture the “value-added” premiums the marketplace is apparently willing to pay for a “sustainable” label.

Hey, I’m a capitalist, and if it ended there, great. But it doesn’t. While many find “sustainability” hard to define, they are sure they know it when they see it. Many of these same people want to impose their enlightened vision of “sustainability” on others. In many cases, the inconvenient truth is that the push for “sustainability” has more to do with market share than it does with being environmentally and socially conscious.

As I write this, there is an outgrowth of this dilemma. Under pressure to be more “sustainable,” several universities are in the “Catch-22” position of losing commercial markets – and much-needed funding from the sale of milk or crops – or give up researching approved technologies. Who wins there?

No doubt about it, we can all do better when it comes to caring for the present and future condition of our planet. But when it comes to “sustainability,” I left the Dairy Forum with some unanswered questions:

• Where does the balance of efficient, economic production – using available knowledge and applying technology to produce food in quantities to feed a world population rushing headlong toward 7 billion people – fit in our definition of “sustainability?”
• Isn’t that what modern agriculture is about – sustaining life in a responsible manner?

Speaking of questions, one of the fundamental questions of any geographically based industry is this: once weakened or lost, can it be regained? In my lifetime, that question has arisen in Detroit’s auto industry and across steel country – now the Rust Belt. It is also a question faced by the Midwest dairy industry in the 1990s, as investment, cows and young brilliant minds moved elsewhere. In some cases, dairy producers were unable to sustain against activists with a different vision of animal agriculture and the regional geography. That impact was probably felt nowhere more so than Minnesota.

Can the Midwest dairy industry be sustained and grow? That remains to be seen. Years ago, I probably would have said “no.” But as Minnesota Milk Producers Association executive director Bob Lefebvre details in the February 2008 issue of Midwest DairyBusiness (see “A change from within”), it takes more than changing downward spirals in cows and infrastructure, but also a change in mindset and leadership, before it’s too late. It’s happening in the Midwest.

We’re in a dairy era some say has a “triple bottom line” – economic, environmental and social. Whether for the sake of future food production, or the health of a regional dairy industry, the only sustainable “sustainability” is built on practicality; not on a single definition, and not in a rush for market share based on whatever social tail that is wagging the dog.

Posted with permission.

Permalink

Comments are closed.