Dairy cooperatives, or more specifically milk marketing cooperatives, are a major institution in the milk industry in the United States. In 1992, 264 dairy cooperatives marketed producer milk in the U.S., and an estimated 82 percent of all producer milk was marketed through a cooperative in which the dairy farmer was a member-owner.1 The other 18 percent of producer milk was marketed by "independent" or "non-member" dairy farmers. In terms of dairy farm numbers, approximately 106,000 dairy farms of the 130,000 dairy farms defined as commercial dairy farms in the U.S. have a milk marketing cooperative affiliation.
Dairy cooperatives, like other farmer cooperatives, are for profit corporations which operate at cost by allocating net margins back to their producer members on a patronage basis. Dairy cooperatives are chartered by state statute in the state in which they are headquartered. In cooperatively marketing their products, farmers and their cooperatives enjoy a significant anti-trust exemption under the Capper-Volstead Act of 1922.
The structure of dairy cooperatives has reflected the same trends that have described dairy farms and processing plants in recent decades, i.e., fewer and larger. Table I reports these trends.
Even while 87 percent of the dairy cooperatives have disappeared during the 1950 through 1991 period, the share of producer milk marketed by cooperatives has increased markedly to the 82 percent level. While the 82 percent market share looks to be strong in the aggregate, there are some milk markets in the United States in which the cooperative movement is limited and the proportion of non-member producers is substantial.
|Table 1. Number of Dairy Cooperatives and Farm Level Share of Milk Marketed by Dairy Cooperatives, U.S., 1950-1991.|
|Year||Number of Dairy
|Farm Level Share of
|Source: Agricultural Cooperative Service, USDA.|
Almost all of the reduction in the number of dairy cooperatives is explained by merger-consolidation activities. A rapid transition to the present regional cooperative structure occurred mostly in the 1965-1975 period. A cooperative such as Associated Milk Producers Inc., for example, has scores of smaller predecessor cooperatives in its genealogy. At the present time, the top 25 dairy cooperatives in the United States which are only 9 percent of the total number, market more than 60 percent of all producer milk (see Table 2).
In some instances, cooperatives have federated to pursue some common marketing-pricing objectives. A federation is a cooperative whose membership includes individual cooperatives that maintain independent corporate status. Associated Dairymen, Inc. and Great Lakes-Southem Milk, Inc. were early versions of federated activity. Presently, most federated activity is reflected in organizations such as Central Milk Producers Cooperative in Chicago, which are primarily mechanisms for operating over-order price pools.
|Table 2. Top 50 Dairy Cooperatives, 1992.
|Rank||Dairy Cooperative||Member milk volume||Number of members|
|1||Associated Milk Producers, Inc.
San Antonio, Texas
|2||Mid-America Dairymen, Inc.
|3||California Milk Producers Assn.
|4||Farmers Union Milk Marketing Coop.
|5|| Darigold Farms
|6||Land O'Lakes, Inc.
|7|| Milk Marketing, Inc.
|8|| Dairymen, Inc.
|9|| Atlantic Dairy Cooperative
|10|| Dairvmen's Cooperative Creamery Assn.
|11|| California Cooperative Greamery
|12||Manitowoc Milk Producers Coop
|13||Michigan Milk Producers Assn.
|14|| Western Dairymen Coop., Inc.
|15||Wisconsin Dairies Coop.
|16*|| Dairylea Cooperative, Inc.
East Syracuse, New York
|18||Maryland & Virginia Milk Producers Assn.
|19|| Florida Dairy Farmers Assn.
Fort Lauderdale, Florida
|20||Milwaukee Cooperative Milk Producers
|21||San Joaquin Valley Dairymen
Los Banos, Cali'omia
|22|| Southern Milk Sales, Inc.
San Antonio, Texas
|23*|| Eastern Milk Producers Coop. Assn.
Syracuse, New York
|23*||United Dairymen of Arizona
|25|| Swiss Valley Farms Company
|26||Allied Federated Coop.
Canton, New York
|27||Danish Creamery Assn.
|28|| Alto Dairy Cooperative
|29||Carolina-Virginia Milk Prod. Assn., Inc
Charlotte, North Carolina
|30|| Independent Co-op Milk Prod. Assn., Inc.
Grand Rapids, Michigan
|31|| Upstate Milk Cooperative, Inc.
LeRoy, New York
|32||First District Association
|33|| Golden Guernsey Dairy Coop.
|34||Tampa Independent Dairy Farmers' Association, Inc.
|36|| Prairie Farms Dairy, Inc.
|37|| St. Albans Cooperative Creamery, Inc.
St. Albans, Vermont
|38|| Magic Valley Quality Milk Producers, Inc.
|39||Gulf Dairy Association, Inc.
|40*||Tilmook County Creamery Assn.
|40*||Cass-Clay Creamery, Inc.
Fargo, North Dakota
|42|| Valley of Virginia Coop. Milk Prod. Assn.
Mt. Crawford, Virginia
|43|| Central Pennsylvania Milk Marketing Co-op
|44||Farmers Cooperative Creamery
|45||Cal-West Dairymen, Inc.
Walnut Creek, California
|46*||Huntington Interstate Milk Producers
Hungington, West Virginia
|46*||Tri-State Milk Cooperative
West Salem, Wisconsin
|48|| Plainview Milk Products Cooperative
|49||Humboldt Cooperative Creamery Assn.
|50||Ellsworth Cooperative Creamery
Source: Hoard's Dairyman, October 10, 1993.
The Agricultural Cooperative Service of the USDA estimates that dairy cooperatives in the United States hold $4.4 billion in assets. Member equity or net worth totals $1.7 billion. Much of the $2.7 billion liability represents loans from the Farm Credit System bank for cooperatives-- Cobank.
Activities of Dairy Cooperatives
The 264 dairy cooperatives in the United States vary widely in size, marketing functions pursued, and impact in the market served2. Several of the dairy cooperatives have fewer than 50 members, while a large regional cooperative like Associated Milk Producers, Inc. has over 16,000 producer members. Some cooperatives are essentially bargaining associations that maintain an office and may offer members field services. Others have extensive facilities for handling and manufacturing reserve milk through processing and marketing operations. Similarly, some dairy coopera- tives do not have enough control over the supply of milk in their market to have any bargaining power. Others have substantial market power and are able to implement effective and coordinated marketing-bargaining programs.
|Table 3. Total Dollar Business Volume of Dairy Cooperatives and their Business Volume as a Percentage of all Marketing Cooperatives, 1987- 1991.|
|Year|| Dollar business volume
| Dairy co-ops as a percent of all
marketing co-op's $ business volume
|Source: Agricultural Cooperative Service, USDA, Farmer Cooperatives, November 1989, November 1991 and October 1992.|
Table 3 shows the business volume of dairy cooperatives and this business volume as a percentage of total business volume for all types of marketing cooperatives for 1987 through 1991. Annual business volume ranged from a low of $16.37 billion for 1987 to a high of $20.72 billion for 1990 before declining to $18.83 billion in 1991. The decline in 1991 was due to lower milk prices rather than a decline in milk volume. Dairy cooperatives account for more than a third of total business volume of all marketing cooperatives.
In most dairy cooperatives, the milk producer signs a one- to three-year membership agreement (contract) which commits the producer to marketing all milk through the cooperative and which commits the cooperative to doing various things for the producer. The basic objectives or reasons for joining a dairy cooperative from a producer standpoint are:
Financing of dairy cooperatives is handled somewhat differently by each cooperative. Some dairy cooperatives acquire equity (member) capital by retaining a portion of the net income as allocated or unallocated patronage. Another approach is to utilize an assessment per cwt. from the producer milk check. The assessment, which is usually referred to as a per unit capital retain, often in the range of 1 percent to 2 percent of the gross blend price, may cover operating expenses as well as member investment in the cooperative. The member investment portion (equity capital) of the assessment or allocated patronage is generally revolved back to the member in a specified time period, usually seven to ten years.
The federal dairy price support program has become highly market oriented since the mid-1980s. Most of the time, market forces instead of federal support prices now determine dairy product prices and in turn farm milk prices. As a result, dairy product prices and farm milk prices have become much more variable. Although changes in dairy product prices and farm milk prices are closely related, normally there is a time lag between these price changes. These variable prices and the time lag have made operating margins more variable for those dairy cooperatives manufacturing members' milk into cheese, butter and nonfat dry niilk. Further, variable product prices have adversely affected coop- eratives' inventory values of dairy products when prices take a sudden downturn. The financial conditions of dairy cooperatives have been adversely impacted by product price and inventory value changes. Table 4 reports net incomes of dairy cooperatives during 1987 through 1991. Net income declined more than 40 percent from 1989 to 1990 ($270.0 billion to $161.3 billion) as unexpected sharp declines in cheese prices during mid-summer resulted in substantial inventory losses. Net income only partially improved in 1991.
|Table 4. Net Income of Dairy Cooperatives, 1987-1991.
|Year||Net Income ($ millions)|
|Source:Agricultural Cooperative Service, USDA, Farmer Cooperatives, November 1989, November 1991 and October 1992.|
Market Operations and Market Shares of Dairy Cooperatives
In pursuing both their market guarantee objective and their bargaining objective, the leaders in many dairy cooperatives concluded early on that cooperative owned and controlled milk plant operations would be required. Until 1950, cooperative plants in fluid milk markets engaged primarily in butter-powder processing as a means of balancing supplies in fluid milk markets. Prior to 1950, dairy cooperatives in manufactured dairy product regions such as the Upper Midwest had been very active in plant operations. For example, in 1936, 39 percent of the butter in the United States, 25 percent of the natural cheese, and 17 percent of the dry milk products were manufactured at cooperative plants (but only 5 percent of fluid milk products).
In research reports published in 1984 and 1994, the Agricultural Cooperative Service (ACS) of the USDA reported product manufacturing activity by dairy cooperatives over time. Market shares are reported for 1957 and 1980 with estimates for 1990 in Table 5. The ACS report also indicates that in 1991, cooperatives manufactured other dairy products including (1) bulk condensed milk, with a 27 percent market share, (2) dry whey products, with a 48 percent market share, and (3) yogurt, with a 3 percent market share. Over 20 percent (81) of the total 381 plants owned by cooperatives in 1992 operated only as milk receiving stations.
In the recent years, there appears to have been some retreat from fluid milk processing by cooperatives. The sale by Michigan Milk Producers Association of their McDonald plants to a cooperative grocery chain (Country Fresh), and the attempt by Dairymen, Inc. to go joint venture on several fluid processing plants that were owned are symptoms of the retreat. Joint ventures in manufactured dairy products, particularly cheese, as illustrated by the several Leprino joint venture activities with cooperatives, have become a more significant activity in the milk industry in the past couple of years.
|Table 5. Market Shares of Dairy Products Distributed by Cooperatives, 1957, 1980 and 1992, and Number of Cooperative Plants in Operation, 1992|
|Dairy Product||1957||1980||1992||# of Co-op owned
|Dry Milk Products||57%||87%||81%||52|
|Ice Cream/Ice Milk||4%||10%||10%||37|
|Fluid (packaged)||(1964) 9%||16%||13%||25|
|*The Agricultural Cooperative Services reports that 43 dairy cooperatives
operated 80 plants making American
cheese, 46 plants making Italian cheese, and 10 plants making process cheese in 1992.
Source: Agricultural Cooperative Service, USDA, Report No. 40, July 191 84, and Report 1 33, April 1994.
Dairy Cooperatives and Federal Milk Orders
The federal milk marketing order program interfaces closely with dairy cooperatives. Federal milk orders operate in 40 fluid milk markets and regulate 80 percent of the grade A milk in the United States. During 1990, 83.7 percent of the 100,400 dairy farmers shipping milk in federal order markets belonged to one of about 200 dairy cooperatives qualified in the program.4 Frequently questions arise as to what cooperatives do versus what the order does in federal order markets. Dairy cooperatives must qualify or be certified as legitimate organizations in order to gain some privileges from the order program. These privileges include:
The U.S. Secretary of Agriculture has given the Dairy Division of the Agricultural Marketing Service (AMS) responsibility for determining whether a dairy cooperative qualifies to be certified as an organization entitled to these privileges. Qualifying cooperatives need to meet the following five conditions:5
Marketing orders are not a substitute for effective cooperatives. As noted in federal order publications contrasting the programs, "An order cannot assure that a market will be found for every producer's milk at all times. It cannot secure the most economical utilization of milk. Nor can it perform many of the other marketing functions such as procurement of supplies, economical transportation of milk, and other services which are among the normal functions of milk producers' associations."6
Table 6 indicates the member-non-member proportions in the Federal order by regions in the United States in December 1990. The North Atlantic region reflected the lowest proportion of dairy fanners belonging to dairy cooperatives, 66.9 percent; and the West North Central region showed the highest at 96.7 percent.
|Table 6. Percentage of Federal order producers belonging to
cooperative associations by region, December 1990.
|Federal order region||Cooperative members (%)||Cooperative members as a percent
of total milk marketed (%)
|East North Central||88.1||88.9|
|West North Central||96.7||96.8|
|East South Central||74.3||62.8|
|West South Central||84.2||84.4|
|All Federal order markets||83.4||83.7|
|Source: Correspondence with USDA, Agricultural Marketing Service, Washington, D.C., November 1992.|
Table 7 indicates that, on average across the federal order program for May 1990, dairy farmers who were members of cooperatives delivered more milk per farm than did dairy farmers who were not members of cooperatives. On average, cooperative members marketed 95,730 pounds of milk, about 7 percent more than non-members. However, in 22 of the 42 states that had both cooperative members and non-members delivering milk, non-member dairy farmers were larger. For some states, non-members were substantially larger.
|Table 7. For Dairy Farmers Marketing Milk Under Federal Orders, Average Milk Delivery per Producer for all Producers, Producers who are Members of Dairy Cooperatives, and Non-Member Producers, by State, May 1990.|
|Average delivery per producer1|
|State||All producers||Cooperative Members2||Non-members|
|All States Combined3||94,405||95,730||89,661|
1 Producer deliveries divided by the number of producers. Dashes indicate that there were no producers of that type marketing milk under Federal orders.
2 These figures for some states may be understated to the extent that the milk of a cooperative member is more likely to be marketed under more than one federal order than is the milk of a non-member.
3 The figures for these states have been adjusted for producers marketing milk under more than one federal milk order during the month.
4 Restricted, pertains to the marketings of fewer than three producers. Data are included with cooperative members.
Source: USDA, AMS, 'Federal Milk Order Market Statistics for April 1992," FMDS-383, p.49.
For example, in Arizona non-members shipped more than twice the amount of milk as did cooperative members. In Califomia, non-members shipped more than two and one-half times more milk than did cooperative members.
Dairy cooperatives, as voluntary membership organizations, face the continuing problem of non-excludable benefits. Non-excludable benefits are programs or benefits established by a cooperative for its members and at a cost to the cooperative, but these benefits cannot be excluded from producers who are not in,the cooperative. Two examples illustrate how this occurs.
Historically, dairy cooperatives were very supportive of the generic advertising and promotion programs financed by dairy farmers. In many cases, cooperatives made promotion assessments mandatory for their membership. In the 1940s, 1950s, and 1960s, the American Dairy Association and the National Dairy Council drew their fundamental producer support from dairy cooperatives. By 1970, dairy cooperatives were instrumental in creating the United Dairy Industry Association, which brought regional promotion and education association into one federation so as to make program production and delivery more efficient. The stronger demand for milk and dairy products and higher price levels that presumably were stimulated by the various promotion-research programs benefitted all dairy farmers, not just those supporting the programs. One outgrowth of this fact, and one which effectively resolved the non-excludable benefits problem in the promotion area, was the creation of the National Dairy Promotion and Research Board through passage of the Dairy Production Stabilization Act of 1983, which mandated a 15-cent per cwt. promotion assessment on all milk producers.
The second example concems marketwide services. Marketwide services include activities such as transporting milk and balancing market supplies by a handler, usually a cooperative, in ways that benefit the total market but the costs of which are bome by the organization providing the service. Marketwide services therefore have historically been a part of the nonexcludable benefits area. As a result of some authorizing language in the Food Secunty Act of 1985, cooperatives as well as other handlers can petition to have federal market orders amended to have costs of such services at least partially covered out of the monthly pool. As a result, all producers who benefit pay a share of the cost. Such provisions were enacted into the Chicago Regional Order in November, 1987.
Schrader, Babb, Boynton and Lang did extensive research comparing the performance of cooperatives and proprietary, agribusinesses.8 Grade A and grade B dairy farmer perceptions of milk buyers' performance were obtained.. Proprietary handlers were judged superior to cooperatives for the level of prices paid to farmers. However, in general, dairy cooperatives handling grade A milk were thought to perform better than proprietary Handlers in guarantee of market and payment, cost.,eductions and voice in decisions of the firm that affect farmers. Fewer statistically significant dif- ferences in perceived performance of cooperatives and proprietary milk buyers were found among grade B producers.
ln "measured" rather than perceived performance, Schrader et al. found few significant differences between the prices offered by cooperatives and proprietary firms. Cooperative cheese plants were foutid to be more efficient and had lower operating costs than their proprietary counterparts. Retums on total assets were high for cooperative cheese plants. Cooperative cheese plants and cooperative fluid milk plants performed more services for farmers than proprietary plants.
Influencing Public Opinion
Aproximately 40 of the larger dairy cooperatives are affiliated in a nonprofit corporation known as the National Milk Producers Federation, with offices in Arlington, Virginia. The main purpose of NMPF is to advance the interests of dairy farmers and their cooperatives in the United States. Primary areas of attention have included:
Dairy cooperatives individually also attempt to provide input and influence national legislation through their own political action committees. Funds for these comn-tittees are obtained by voluntary contributions from me,-nber dairy producers. Exam. ples of pol;.t;.cal action committees includes the Land O'Lakes PAC of Land O'Lakes, Inc.; TAPE of Associated Milk Producers, Inc.; ADEPT of Mid-Amefica Dairyman, Inc.; and SPACE of Dairymen, Inc. NMPF does not operate a political action committee. At the state level many states have trade associations that are supported by and represent the interests of cooperatives, including dairy cooperatives, on state issues.
The dairy cooperative movement is healthy and dairy cooperatives are in a relatively
strong market position. Among major farm commodities, milk ranks first in total
dollar value of products marketed by farmers through cooperatives-$18.8 billion in
1991. The $18.8 billion value of milk marketed is approximately 34 percent of the
$56 billion worth of all farm commodities sold annually through one of the 2,519
agricultural marketing cooperatives in the United States. The major challenges
confronting dairy cooperatives continue to be those of operating efficiently and
resolving membership problems. The trends toward fewer and larger dairy farms is
forcing dairy cooperatives to find new ways of treating their members equitably as
compared to treating them equally. The development of a more market-oriented
dairy sector gives all the more reason for effective cooperative marketing.
2 This paragraph is adopted from "Who Will Market Your
Milk?" by Robert Jacobson, et al., Texas Agricultural Extension Service, D-1058,
March, 1978, p. 15.
3 For example, during November 1992 the average premium
obtained by dairy cooperatives on class 1 (beverage) milk was $1.09 per
hundredweight for all federal milk marketing orders. These premiums ranged from
no premium for Phoenix, Arizona to $3.07 for Chicago, Illinois (Dairy Market
News, Vol. 59, Report 46).
4 USDA, AMS, Federal Milk Order Market Statistics, April
1992, FMOS-383, p. 38 and correspondence with the Agricultural Marketing
5 Agricultural Marketing Service, USDA, The Federal Milk
Marketing Order Program, Marketing Bulletin No. 27, Jan. 1989, p. 31.
6 Questions and Answers on Federal Milk Marketing
Orders, AMS-559, AMS-USDA, March 1975, p. 12.
8 Lee F. Schrader, E. M. Babb, R. D. Boynton, and M. G.
Lang, Cooperative and Proprietary Agribusinesses; Comparison of Performance,
Research Bulletin 982, Purdue University, Agricultural Experiment Station, April