RBS Research Report 173
June 1999
Marketing Operations of Dairy Cooperatives
Abstract
The Nation's 226 dairy cooperatives marketed 127.4 billion pounds of milk, or 83 percent of all milk sold to plants and dealers, in 1997. These cooperatives were owned by 87,938 member-producers. Sixty-three cooperatives operated 203 dairy processing and manufacturing plants, 25 with milk-receiving stations only and 138 with no milk-handling facilities. Cooperatives sold 14 percent of the Nation's packaged fluid products, 6 percent of the ice cream, 61 percent of the butter, 76 percent of the dry milk products, 40 percent of the natural cheese, 48 percent of the dry whey products, and 10 percent of the cottage cheese.
Key Words: Cooperatives, dairy products, marketing, milk, structure.
Preface
Information for this report came primarily from a survey of all U.S. dairy cooperatives. In some cases, data were estimated for nonrespondents based on their financial statements or other sources.
Data covers cooperatives' fiscal year ending in calendar 1997. These fiscal years vary within the calendar year, so their data reflect some differences in time periods. This report updates ACS Research Report 133 based on cooperative operations for the fiscal year ending in calendar 1992.
Because of the rapid cooperative structural changes in recent years, some of the larger cooperatives have significant operations in regions other than where cooperatives are headquartered. Regional marketing data on cooperative operations based on where cooperatives are headquartered are no longer meaningful and are discontinued in this report.
The author acknowledges assistance from some State agencies for this study, plus USDA’s National Agricultural Statistics Service and particularly Federal milk market administrators for supplying data as authorized by some cooperatives.
Contents
Cooperative Concentration Ratios
While dairy products represented 30 percent of the value of all agricultural cooperative marketings during 1997, dairy cooperatives received or bargained for 83 percent of all milk sold by farmers to the Nation's plants and dealers.
Dairy cooperatives decreased 15 percent, from 265 to 226, between 1992 and 1997. Similarly, cooperatives that processed and manufactured dairy products dropped from 86 in 1992 to 63 in 1997. Following the same pattern, the number of cooperatives selling raw whole milk fell from 230 in 1992 to 204 in 1997. But cooperatives' share of total volume sold by farmers to plants and dealers inched up from 82 percent to 83 percent.
Sixty-one percent of total cooperative volume was sold as raw whole milk in 1997 versus 60 percent in 1992. The other 39 percent was manufactured at plants operated by cooperatives.
There were 87,938 member-producers delivering milk to 222 dairy cooperatives with direct members. Three regions-East North Central, West North Central, and North Atlantic-together accounted for 83 percent of all member-producers and 55 percent of cooperative milk volume.
Dairy cooperatives owned 298 plants in 1997, 91 for receiving and shipping milk only. They operated 62 plants for manufacturing American cheese, 30 for Italian cheese, 54 for packaging fluid milk products, 43 for manufacturing dry milk products, and 35 for churning butter.
While net sales of butter and dry milk products decreased from 1992 to 1997, those of cheese increased. However, cooperatives' share of these products all declined during this period.
Cooperatives' share of butter decreased from 65 percent to 61 percent during the half decade, as did dry milk products (nonfat dry milk, dry buttermilk, and dry whole milk), which went from 81 percent to 76 percent.
Cheese marketed by cooperatives grew 3 percent, from 2,820 million pounds to 2,907 million pounds, while nationally cheese production increased 13 percent. Cooperatives' share of the natural cheese market declined from 43 percent to 40 percent by 1997.
Sales of packaged fluid milk products by cooperatives decreased both in volume and in share of market. The 7,730 million pounds marketed was 14 percent of the Nation's production, down from 16 percent in 1992. Cooperatives' sales of cottage cheese as a percentage of national production, at 10 percent, was also lower than in 1992. Share of ice cream decreased from 10 percent to 6 percent. In 1997, cooperatives marketed 11 percent of the Nation's ice cream mix, 4 percent of yogurt, 65 percent of bulk condensed milk, and 48 percent of dry whey products.
Most dairy cooperatives continue to be relatively small business organizations. However, through consolidation and growth, an increasing amount of dairy products was sold by larger cooperatives. The 20 largest dairy cooperatives received 77 percent of all producer milk marketed through cooperatives. And 89 percent of cooperative milk processing and manufacturing was conducted by the 20 largest cooperatives with plant operations.
Marketing Operations of Dairy Cooperatives
K. Charles Ling
RBS Agricultural Economist
Farmer owned and operated dairy cooperatives
continue to provide the most significant channel for marketing milk from the Nation's
dairy farms.
In line with industry and dairy farm trends,
the number of cooperatives is declining but those remaining are handling larger volumes.
In addition, cooperatives process, manufacture, and market a large or dominant proportion
of some of the Nation's dairy products.
This report, seventh in a series of periodic
appraisals of the scope and performance of dairy cooperatives, describes their continuing
adaptation to an ever-changing marketing environment.
Between 1992 and 1997, the number of dairy cooperatives decreased 15 percent, from 265 to 226, a faster decline than the 10 percent recorded from 1987 to 1992. In 1997, 187 cooperatives, or 83 percent of all dairy cooperatives, were headquartered in the North Atlantic, East North Central, and West North Central regions (table 1 and fig. 1). The North Atlantic region had 83 dairy cooperatives, the most among all regions.
Table 1
Figure 1
Cooperative numbers dropped in every region.
The greatest reductions by 1997 were 12 each in the North Atlantic and the West North
Central regions. In the East North Central region, 9 fewer cooperatives were counted.
In 1997, 63 cooperatives, or 28 percent of all
dairy cooperatives, processed and manufactured dairy products, down from 32 percent and 86
cooperatives in 1992. Seventy percent of the decline in the number of these cooperatives
occurred in the East North Central and West North Central regions. However, the East North
Central region still had the most (24) cooperatives in this activity.
Cooperatives that operated only milk-receiving
stations decreased from 44 to 25 by 1997. They represented 11 percent of all dairy
cooperatives. Twenty of the 25 cooperatives, or 80 percent, were in the West North Central
region.
Bargaining cooperatives (did not physically
handle milk and other dairy products) increased from 135 to 138. More than half (72) were
in the North Atlantic region. The only increase in the number of these cooperatives was in
the East and West North Central regions.
Nationally, the number of cooperatives
marketing selected major dairy products continued to decline (table 2). More cooperatives
(90 percent of 226 in dairy) continued to sell raw whole milk in bulk than any other
product.
The greatest decline among the decreasing
number of cooperatives marketing various dairy products was the 47 percent among those
marketing butter.
Cooperatives marketing natural cheese decreased
by 44 percent to 42 cooperatives in 1997. The story was similar in all cheese
categories-the 33 cooperatives marketing Cheddar cheese was down 44 percent; the 14
handling other American cheese was down 63 percent; the 12 in Mozzarella, down 56 percent;
the 7 in other Italian cheese, down 42 percent; and the 12 handling other cheese, down 48
percent.
The 13 cooperatives marketing cottage cheese
were down by 9 cooperatives or 41 percent. Similarly, the 12 selling yogurt dropped 37
percent; ice cream, dropped 35 percent to 13 cooperatives; and packaged fluid milk
products dropped 28 percent to 21 cooperatives.
The smallest decline in the number of
cooperatives was among those marketing dry whey products and nonfat dry milk (6 and 8
percent, respectively). In 1997, 16 cooperatives marketed dry whey products, while 24
marketed nonfat dry milk.
In 1997, cooperatives received or bargained
for 127.4 billion pounds of milk (net of inter-cooperative transfers), or 83 percent of
total volume sold by farmers to the Nation's plants and dealers (table 3). Cooperatives'
share was up one percentage point from 82 percent in 1992. Cooperatives' volume increased
4 percent in the period, while the Nation's milk sold to plants and dealers rose 3
percent.
Of the 127.4 billion pounds of milk received by
dairy cooperatives in 1997, 98 percent came directly from member-producers. The rest came
from nonmembers or noncooperative firms. Member milk deliveries to cooperatives increased
5 percent, but declined from other sources 38 percent (table 3).
Table 3
Total cooperative milk volume sold as raw whole milk was up 1 percentage point to 61 percent (table 4). In other words, cooperatives processed or manufactured 39 percent of the milk received in the plants they operated, down 1 percentage point from 1992, even though the volume processed or manufactured actually increased.
There were 87,938 member-producers delivering milk to 222 dairy cooperatives with direct members (table 5). Most (35,240 producers) were in the East North Central region, followed by the West North Central region (22,343 producers) and the North Atlantic region (15,394 producers). Together, these regions had 83 percent of total member-producers, but only 55 percent of member milk delivered to dairy cooperatives.
Reflecting national milk production trends,
the Western region replaced the East North Central region as the top source of cooperative
milk volume. Cooperatives in the Western region received 36.2 billion pounds of milk
directly from member-producers. This represented 29 percent of the milk received direct ly
from member-producers and marketed by all cooperatives, up from 26 percent in 1992 (table 5). The East North Central region accounted for 26 percent of
total cooperative member milk volume, down from 29 percent in 1992.
Farms in the West North Central and North
Atlantic regions each supplied about 15 percent of the total U.S. cooperative member
volume. The Western, South Central, and North Atlantic regions increased milk volumes from
cooperative members, up almost 5.5 billion pounds in the Western region. Volume in the
other three regions declined. The greatest decline was in the East North Central region,
down about 2.2 billion pounds from 1992 to 1997.
In 1997, cooperative marketings of milk for
member-producers totaled 125.1 billion pounds or a market share of 81 percent of all milk,
up from 80 percent in 1992. The proportion of milk marketed by cooperatives varied from 69
percent in the North Atlantic region to 93 percent in the West North Central.
Quantities marketed increased significantly in
the Western region, but cooperative milk market share declined from 80 to 73 percent.
Cooperative milk volume was up in the South Central region, and regional market share was
up 22 percentage points to 89 percent in 1997. The North Atlantic region also had higher
milk volume and gained 7 market share points. The South Atlantic region lost 2 market
share points, while East North Central's market share was constant, even though milk
volume declined in both regions from 1992 to 1997. Volume also declined in the West North
Central region, but cooperatives gained 8 market share points.
Following the national trend of decreasing
dairy farm numbers, dairy cooperatives reported a 20-percent decline in the number of
member-producers in 5 years, from 110,440 to 87,938 in 1997. Most of the decline was in
the East North Central region, with 13,775 fewer member-producers in 1997 than in 1992, or
down 28 percent. The Western region had a 26-percent decline or 1,331 fewer
member-producers. The West North Central region saw more decrease in member-producers
(5,033) than the Western region, although percentage-wise, it was a less steep decline of
18 percent. The only region to increase member-producers was South Central, up 425 or 6
percent.
Milk delivery per member-producer was highest
in the Western region at 9.4 million pounds. It was about 12 times the milk delivery per
member-producer in the West North Central region and 10 times the East North Central
region rate. Milk delivery per member-producer increased in all regions. Nationally, it
increased 27 percent from 1.1 million pounds to 1.4 million pounds. The Western region
increased from 5.9 million pounds to 9.4 million pounds per member-producer or 59 percent.
The 298 cooperative plants performed a variety of marketing functions in 1997, 83 fewer than in 1992 (table 6). Seventy-one percent of them were in the East and West North Central regions . The Western region had 33 plants, for the first time surpassing the 28 in the North Atlantic region.
Ninety one plants (31 percent) served only
as milk receiving and shipping stations, compared with 81 (21 percent) in 1992.
Manufacturing operations were carried out in 203 plants, down 96 plants (32 percent) from
1992.
Most manufacturing operations were devoted to
cheesemaking-62 making American, 30 Italian, and 8 process cheese. Most cooperative cheese
plants were in the two North Central and the Western regions.
Butter was manufactured in 35 plants, down from
48 in 1992. Cooperative butter plants were concentrated in the Western and East and West
North Central regions. Forty-three plants manufactured dry milk products. Drying
operations showed the same regional concentration. Dry whey products were made in 40
cooperative plants, again mostly in the same three regions. The number of plants making
dry whey products was the only category that remained the same as in 1992; the number of
plants making other dairy products all declined.
Fifty-four cooperative plants packaged fluid
milk products, down from 75 in 1992. West North Central region had the most plants, with
19, followed by 13 in the East North Central and 9 in the Western region. Twenty-two
cooperative plants made ice cream and 14 made cottage cheese. Forty-two plants had
activities not shown in table 6.
This section and the tables that follow describe the net volumes of major dairy products marketed by cooperatives after subtracting transactions among cooperatives. Comparisons are made between the net volumes marketed by cooperatives and total U.S. production. Other tables show the number of cooperatives marketing dairy products and the volume marketed by selected size groupings. The tables by size groupings show both the pounds marketed and the percentage of total cooperative sales without adjustments for intercooperative transactions.
Dairy cooperatives most often sold raw whole milk. In 1997, net raw milk sales by 204 cooperatives amounted to 78 billion pounds or 61 percent of net total volume received (tables 2 and 4). This represented an increase of 4.3 billion pounds in milk volume marketed from 1992, and also an increase in the raw milk sales as a percentage of total receipts.
Excluding inter-cooperative transfers, cooperatives marketed a net volume of 698 million pounds of butter in 1997, down 21 percent from 1992 (table 7). U.S. butter production was down 16 percent over the same 5-year period. As a result, cooperatives' share of U.S. production decreased from 65 percent in 1992 to 61 percent in 1997.
Table 7
The number of cooperatives marketing butter continued to decline-from 68 to 36 between 1992 and 1997 (table 8). Thirteen cooperatives, each handling 20 million pounds or more, marketed 90 percent of the volume marketed by cooperatives, compared with 15 in the same size group marketing 92 percent of the volume in 1992. The six cooperatives, each marketing 40 million or more pounds of butter, accounted for 64 percent of cooperative butter sales, down from 69 percent marketed by 8 cooperatives in the same size group in 1992. Volume of those marketing less than 20 million pounds increased by about 2 percent from 1992 to 1997 and accounted for 10 percent of volume marketed by cooperatives in 1997 versus 8 percent in 1992.
Table 8
Cooperatives marketed 1,054 million pounds of dry milk products, up 17 percent from 1992 (Table 9) - nonfat dry milk, dry buttermilk, and dry whole milk. However, U.S. production grew by 25 percent in the same 5-year period. Cooperatives lost share of U.S. production as a result, from 81 percent in 1992 to 76 percent in 1997.
Table 9
The number of cooperatives marketing dry milk products declined from 29 to 25 (table 10). Eighty-one percent of cooperatives' dry milk products was marketed by nine cooperatives in the 40-million-pounds-and-greater size group, compared with 66 percent marketed by the six cooperatives in the size group in 1992. The volume marketed by cooperatives in the largest and smallest size groups increased, while the volume marketed by the two intermediate size groups declined.
Table 10
In 1997, cooperatives marketed 2,907 million pounds of natural cheese, excluding cottage cheese, up 3 percent from 1992 (table 11). During this period, the volume of total cheese made by all U.S. firms increased 13 percent. As a result, cooperatives' share of the national cheese market decreased from 43 percent to 40 percent.
Table 11
Among the 2,907 million pounds of natural
cheese marketed by cooperatives, the vast majority (1,844 million pounds or 63 percent)
was Cheddar cheese. Cooperative Cheddar cheese sales were 70 percent of the nation's
production. Cooperatives marketed 576 million pounds of Mozzarella cheese or 26 percent of
U.S. production in 1997. Other American cheese, at 275 million pounds, was the third major
cheese category of cooperatives' sales, accounting for 43 percent of U.S. production.
Cooperative shares in the three major
categories of cheese all declined from 1992, while their shares of other Italian cheese
and other cheese increased.
Sales of other Italian cheese by cooperatives
was 112 million pounds or 18 percent of U.S. production. Cooperatives also marketed 100
million pounds of natural cheese other than American or Italian, a 9 percent share of U.S.
total production of this category of cheese.
The number of cooperatives marketing cheese
declined from 75 in 1992 to 45 in 1997, reflecting consolidations in the cooperative
sector (table 12). Cooperatives marketing less than 10 million pounds annually declined
from 51 to 26, while those marketing 10 million or more pounds dropped from 24 to 19.
Ninety-two percent of all cooperative cheese sales in 1997 was conducted by the largest 13
cheese marketers.
Table 12
The 100-million-pounds-and-larger size group had seven cooperatives, accounting for 2,254 million pounds (77 percent) of total cooperative cheese volume. That volume was 14 percent higher than the 1,977 million pounds marketed by the five cooperatives in the same size group in 1992.
Cooperatives marketed 7,730 million pounds of packaged fluid milk products in 1997, down in volume and share of total sales of all U.S. firms (table 13). Cooperative volume of packaged fluid milk products decreased 13 percent in 5 years. At the same time, U.S. total beverage milk decreased only a fraction of a percent. This lowered cooperative market share to 14 percent, a drop of 2 percentage points.
Table 13
The number of cooperatives marketing packaged fluid milk products decreased from 29 to 21 in the 5year period (table 2).
In 1997, cooperatives marketed 122 million pounds of cottage cheese, down 27 percent from 1992 (table 14). Cooperative share of total U.S. production declined from 13 to 10 percent. The cooperative market share drop resulted from a 10 percent decline in U.S. cottage cheese production, which was slower than decline in cooperative production. Cooperatives marketers of cottage cheese dropped from 22 to 13 during the half decade (table 2).
Table 14
Cooperatives were a minor player in the ice cream business. Their share of the Nation's production decreased from 10 to 6 percent (table 15). Ice cream sales by cooperatives decreased 33 percent while U.S. production increased 11 percent. Only 13 cooperatives marketed ice cream versus 20 in 1992 (table 2).
Table 15
In 1997, cooperatives reported sales of 78 million gallons of ice cream mix or 11 percent of U.S. production (table 16). This does not include mixes used by cooperatives to make ice cream or ice milk.
Table 16
Dairy cooperatives played an even smaller role in yogurt than in ice cream. Although the volume of yogurt marketed by cooperatives increased 59 percent since 1992, cooperative market share was only 4 percent in 1997 (table 17).
Table 17
In 1997, U.S. firms produced 1,248 million pounds of bulk condensed milk products, down 23 percent since 1992. Simultaneously, cooperatives had an 86-percent production increase to 817 million pounds. Cooperative share was 65 percent of total U.S. production, up substantially from 27 percent in 1992 (table 18).
Table 18
The percentage of dry whey products sold by cooperatives dipped from 52 percent to 48 percent of total U.S. production (table 19). In 1997, cooperatives marketed 907 million pounds of dry whey products, net of inter-cooperative transfers. Dry whey products production by Cooperatives was down 1 percent from 1992 to 1997, while U.S. production increased 7 percent in the same period.
Table 19
Cooperative Concentration Ratios
The largest cooperatives' proportion of all cooperatives' receipts of milk from farmers (both members and nonmembers), milk processed or manufactured, and sales of selected products for 1992 and 1997 are shown in table 20. The larger cooperatives' proportion of receipts, processed or manufactured volume, and sales are also shown as a percent of total U.S. production. However, the cooperatives in each size group are not necessarily the same for each product.
Table 20
The 20 largest cooperatives, in terms of
receipts of producer milk, received 63 percent of the total U.S. volume of milk sold to
plants and dealers, up from 58 percent in 1992. Their volume represented 77 percent of
producer milk marketed by farmers through cooperatives, up from 71 percent.
The 20 largest cooperatives with processing and
manufacturing operations accounted for 89 percent of cooperative processing milk volume,
up from 85 percent in 1992. The volume was 34 percent of the total U.S. milk volume sold
to plants and dealers, down from 36 percent 5 years ago.
In 1997, the 20 largest cooperatives had an
overwhelming share among cooperatives of these products: packaged fluid milk distribution,
100 percent; butter, 99 percent; dry milk products, 100 percent; and natural cheese, 98
percent.
However, compared with the Nation's total
production, their shares were less significant. The 20 largest dairy cooperatives sold
only 13 percent of the Nation's packaged fluid milk and 39 percent of cheese. They
dominated only in marketing the so-called last resort products: butter and dry milk
products, even though their market shares of these two products declined.
The four largest cooperatives in each product
line continued to sell a significant proportion of total cooperative volume. Their shares
of total U.S. production of butter increased somewhat, while their shares of U.S. cheese
and dry milk products have declined.