May 2004
Learning in the CLA school of hard knocks
'Grass-fed' cooperative finds both promise and problems in developing market
Seymour, Wisconsin —Five years ago, Valerie Dantoin-Adamski was reading reports that milk and meat from grazed cattle consuming little or no grain had exceptionally high levels of congugated linoleic acid (CLA) and omega-3 fatty acids, both shown in animal trials to prevent cancer and other health problems. Valerie says the news was exciting to her, because producing quality food had long been a cornerstone principle at Full Circle Farm, which she operates with her husband, Rick.
"As farmers we have a responsibility to provide people with the most nutritious food we can produce," Valerie explains.
In 2000 she obtained a Wisconsin agricultural development grant to test her farm's milk for CLA during the grazing season, and found that it was far above conventional norms even with about 12 daily pounds of grain supplement and some haylage. By the following year, the Adamskis had invited four Wisconsin friends to join in the formation of Wisconsin Dairy Graziers Cooperative, and divert some of their grazing-season milk to a cheese plant. Their goal was to have that cheese sold at prices that would return $16 for each 100 pounds of milk going into that cheese. They required that pasture compose at least 50% of total dry matter intake during the cheese-making season.
With Wisconsin's unmatched dairy infrastructure, they were able to hire out work such as cheese making, cutting, wrapping, labeling and storage, thus leaving them time to tend their farms and families. The cooperative was able to tap cheese technology and marketing resources at the University of Wisconsin-Madison Center for Dairy Research to refine their products.
Weekly, USDA-funded testing conducted over four months in 2001 showed that the milk of WDGC farms —all feeding grain supplements —was higher in CLA compared to three confinement farms tested during the same period. CLA, omega-3 and vitamin content in the Cheddar made from WDGC milk was also substantially above industry standards, while sodium and cholesterol levels were lower. Those advantages were maintained as the Cheddar aged. Further analysis by a University of Wisconsin-Green Bay researcher showed a number of interesting and surprising results that bode well for efforts to differentiate "grass-fed" dairy products.
They labeled their Cheddar "Northern Meadows," and advertised the product's attributes on that label. WDGC hired a cheese broker who said he could arrange to sell substantial volumes, so they had 70,000 lbs. of Cheddar made in 2001, with visions of being in stores coast-to-coast. The goal was yearly sales of 100,000 pounds of grass-fed cheese within three years of launching their venture.
And this March, the cooperative gained one of the industry's top awards: a first-place in the Cold Pack Cheese category at the World Championship Cheese Contest. The publicity spawned by that award has boosted interest in their product and grass-fed cheeses in general, Valerie says. She was about to raise the group's Web site price for aged Cheddar. (The Web site price was $7.50/lb., plus shipping. The standard wholesale price for 10-pound boxes of medium Cheddar is $4.40/lb., while aged Cheddar lists for $4.90 wholesale.)
But Valerie and other WDGC members note that this has been a learning experience and, as with all real learning, mistakes have been made and problems have developed. Sales volumes have been far below initial projections, and pay prices to the co-op's members have not always reached $16. Initial plans to turn over all the marketing to an outsider did not pan out, leaving WDGC members with more work than they'd envisioned.
As of late April, Wisconsin Dairy Graziers Cooperative and its Northern Meadows cheese faced an uncertain future. The group was having new sales brochures made. Cheese experts at the University of Wisconsin were working to develop an aged Gouda cheese recipe and refine the make process for the co-op's Cheddar. Valerie hoped to capitalize on the world championship award, and was lamenting the fact that co-op members are unable to propel such an effort during calving season.
However, the four remaining WDGC members (one farm quit the co-op in 2003) are either shipping, or soon to start shipping, to the organic milk market, and thus face the prospect of a substantial price penalty for any milk diverted from organic to their grass-fed cheese. With the distinct possibility that their organic milk buyers would not allow such a diversion even if the WDGC farmers chose to do so, the co-op faced difficult decisions about what to do with their summer milk. Despite the glow of the world cheese championship honor, and the satisfaction of knowing that their marketing strategy is improved compared to three years ago, members said they need to think hard about how they should proceed - or whether they should continue to proceed at all. Should they just close shop, and accept the $20 organic milk checks that are coming without any marketing work and worry?
"That's a million dollar question," acknowledges member Kay Craig, who milks cows near New Holstein, Wisconsin. Even if they are allowed to divert milk, Kay said, "It's hard to give up four or five dollars per hundredweight. Are we going to take a price break to continue making this cheese?"
Graze intends to report on WDGC's decisions as they are made. Whether the cooperative proceeds, or disbands, its learning curve is of value to dairy graziers who are interested in trying to pursue a market niche based on the health and taste of their products. Below are some of those lessons of the past three years.
Start small
WDGC made a mistake in taking the advice of the cheese broker who promised
big sales volumes right away. During their first summer of operation, the
cooperative had 70,000 pounds of cheese made at Cedar Grove Cheese in Plain,
Wisconsin. The sales didn't happen. Members were forced to forego milk income,
and the cooperative is still paying to have a large volume of that cheese
stored in a warehouse. While forming the cooperative required only $500 in
up-front money from each farm, the cheese inventory and other efforts required
a fairly substantial line of credit and bank loan. The upside of all that
aged Cheddar is that some of it was used to make the Cold Pack cheese that
won the world championship award. WDGC pared cheese production to about 10,000
lbs. in both 2002 and 2003.
Maintain control
Another mistake came when co-op members believed they could entrust their
broker with marketing responsibility. Valerie says co-op members knew nothing
about the cheese marketing business, and figured this person with contacts
in the industry could do the job far better. It didn't turn out that way,
as the broker's contacts were not familiar with a new market category such
as Northern Meadows cheese. "He was used to selling commodity cheese," Valerie
explains. By several months into the venture, WDGC had sold only 10% of its
initial summer production run.
Think locally first
Early on, the co-op landed opportunities to sell cheese in stores on the West
Coast. While this was an "ego booster," Valerie says the farmers did not have
the ability to support these sales. With a mountain of unsold cheese, WDGC
members changed strategies by initiating their sales efforts locally, and
expanding gradually outward. They hired a friend of Valerie's — someone
with a farm and marketing background, and "a belief in the product," Valerie
says —to make sales contacts in the Upper Midwest. Through their own
efforts, WDGC members landed an agreement with Blooming Prairie, an Iowa-based
company that distributes food products to hundreds of small stores —
largely health food outlets. Today Blooming Prairie accounts for roughly half
of Northern Meadows cheese sales. Co-op members Altfrid and Sue Krusenbaum,
Elkhorn, sell a substantial share of the remaining volume through their contacts
in southeastern Wisconsin,
Marketing new products takes
time
Altfrid Krusenbaum says the farmers thought they had the marketing end of
it figured out. "None of us were going to do any phase of the work," he describes.
That dream ended with the failure of the original broker relationship. Valerie
says she learned a lesson: "The amount of cheese you sell is almost directly
related to the amount of push the farmer puts into it."
They hired Valerie to work about 10 hours a week on such items as orders, billing and inventory control. "I know my cheese like I know my cattle," she says. WDGC members started doing more planning and decision-making, and attended trade shows and other events when they could find the time. The commitment has proven difficult for a group of full-time farmers with families to raise. "We never really appreciated the amount of time it would take," says Kay Craig. "It's infinitely harder than we thought. The stores and distributors are very much their own little world. You can't just sell the product to them. They need care and feeding."
Altfrid believes that if such an effort is to be successful, a full-time manager is required. Kay agrees: "We're shooting at a whole new category here. Creating a new (product sales) category takes a tremendous amount of face time, especially with a start-up product. You really need someone out there who is calling on customers and knocking on doors full time."
Some sales channels are better
than others
Valerie originally envisioned selling large volumes of cheese through the
Internet and other direct-market channels. That theory ran into the realities
of the marketplace, and the amount of time available to WDGC in cultivating
markets. WDGC used grant money to analyze the cost/benefit ratios of a variety
of promotional events, including national and regional food shows, farmers
markets, distributor shows, local retail demonstrations, Web site and farmer-direct
sales. Costs to attend events were included, as was a $10/hour charge for
the time the farmers spent at the events. Sales volumes produced from each
effort were also recorded.
For WDGC, the big national and regional events were not cost-effective. With one major exception, the closer to home they stayed, the better the return. The exception: farmers markets. "You end up competing with some people who don't fully value their time," Valerie says. Efforts to reach small distributors have produced the most bang for the buck, while the Internet/Web and farm-direct channels have also been good, albeit at lower sales volumes. (For a report on the analysis, contact Mike Vandli at the Wisconsin Department of Agriculture, Trade and Consumer Protection: 608-224-5136.)
It's tough to grow with no dough
WDGC members chose not to invest large amounts of personal assets or take
out a very large loan in starting the cooperative. While this approach limited
their risk, it also limited growth opportunities to a degree. "We're still
operating on a shoestring," Kay complains. Altfrid thinks that such a venture
should be somewhat bigger, with more capital available for marketing and management.
Be flexible and spread the risk
Valerie says the mistake of making too much cheese "could have sunk Rick and
I alone," and that having several farms available to shoulder the burden was
important. She advises against investing in manufacturing capacity if at all
possible. It's also a mistake to jump in too quickly. "Pace yourself. Don't
tie up all your capital in one place. Expect to fail occasionally, but learn
to fail cheaply," she urges. She also recommends flexibility in market and
business plans. "Don't be single-minded," Valerie cautions. "Look around and
see which strategies are working, so you can change if you need to."
Taste is important, too
While the health aspects of grass-fed are important, and WDGC is seeing a
growing number of contacts from sources promoting grass-fed health, taste
qualities have sold more Northern Meadows cheese. Valerie says, "We found
that people liked the taste of our cheese, and that we can charge a higher
price based on taste." Indeed, WDGC has designed some new labels for the high-end
food trade that do not mention CLA content.
"We all still believe in (the health aspects), but we've got to get the story out to the customer," Kay says. "That takes time."
Such efforts offer promise
Despite its missteps, Altfrid and Valerie feel WDGC has played a role in showing
the potential for marketing grass-fed dairy products. "Even with the little
work we did over the years, we raised the interest level of cheese buyers
and other people in the business. With what we know now, someone could start
(a similar cooperative) in a way that would be more successful," Altfrid says.
He wants the concept to continue for the sake of the grass movement. Kay and
Valerie would love to see grass-fed tied in with organic marketing. Says Valerie,
"Organic sells the things it doesn't have, but grass-fed can sell on what
it does have."
Kay wants to see WDGC's grass-fed marketing venture continue in some form, perhaps with non-organic farms shipping the milk sold under the Northern Meadows label. "It's hard to give up something you believe in," she says. "It would be a shame to let it die, especially with this award."
WDGC members agree that perhaps they are just a bit ahead of the times. "Maybe 10 years from now (grass-fed) will be like the organic story," Kay says.
