Some things don’t change. Yogurt starts with milk, and that requires dairy farmers, cows and feed. However, creating a non-GMO dairy supply chain requires changing some long-held business arrangements. One of those is the producer-processor relationship.
When announcing its “Dannon Pledge” last spring, the company said it would begin the transition to non-GMO milk sources for three flagship brands of yogurt in 2017 with a goal of completing the transformation by the end of 2018.
In truth, the groundwork began to take shape years before.
Like most dairy product manufacturers, Dannon had historically worked with milk suppliers. Acquiring milk was a straight business transaction.
During the past six years Dannon has built direct and bilateral partnerships with independent U.S. dairy farmer partners. One of the longest-running partnerships is with Kansas-based McCarty Family Farms.
With dairy farming roots in Pennsylvania dating back to 1914, Tom and Judy McCarty moved to the Kansas plains in 1999 to allow four sons – Mike, Clay, David and Ken – to fulfill their dreams as dairy farmers.
The family started a dairy near Rexford, Kansas, in 2000. Over the years, they added dairy farms near Bird City and Scott City, Kansas, and Beaver City, Nebraska.
Today, the four sites house 8,200 milking cows producing about 248 million pounds of milk annually. About 1,350 acres of cropland provide a majority of the McCartys’ feed needs.
Business discussions between Dannon and the McCartys began in 2010, resulting in a multi-year agreement for the McCartys to become the sole supplier for fresh milk at Dannon’s yogurt plant in Fort Worth, Texas.
The McCartys built a milk processing plant at their Rexford dairy in 2011, enabling them to directly supply Dannon with condensed skim milk and pasteurized cream.
The partnership received recognition and accolades. The McCartys were named the 2013 Innovative Dairy Farmer of the Year by the International Dairy Foods Association (IDFA) and, a year later, the partnership was honored with an Outstanding Dairy Farm Sustainability Award by the Innovation Center for U.S. Dairy.
“We’re proud of the partnership we have with Dannon,” Ken McCarty says. “It’s uncommon in the dairy industry to have such a close working relationship with a milk buyer. Not only does it give us reliability in the market, it gives us reliability for our families and our community.”
“Given its unique nature and longevity, the arrangement with the McCartys has not been easy to duplicate; however, it has served as a model for Dannon to work with more than a dozen other independent dairy farmers on a sustained and ongoing basis,” says Michael Neuwirth, Dannon’s senior director of public relations.
“This model of working directly with farmer partners is still relatively new for us, and it has required a big change in how we operate our business. We now have a dedicated team to work directly with dairy producers,” Neuwirth says.
“Building that direct supply chain for milk has taken us years and requires a different way of working with dairy farmers, which is founded on trust and collaboration. We did it because we believe in the benefits for us and the farmers we work with.”
Under the business arrangement, Dannon and its farmer partners agree on a fixed margin under a “cost-plus” contract. While not going into financial detail, Neuwirth says Dannon pays for some inputs, including costs such as third-party validation of animal welfare practices.
“While we are not involved in changes on an operational level at the farms, we are very involved in the costing and forecasting of the production of our farmer partners,” Neuwirth says.
The McCartys and Dannon’s other direct dairy suppliers talk to one another almost every day and meet regularly to update one another on current operating conditions as well as longer-term planning. This November, Dannon hosted all of its direct supplier producers and other advisers for its annual Dairy Forum in Lexington, Kentucky.
“The new model is working very well for us, and we envision continuing to work this way because it allows us to be better partners to the producers, and it allows us to implement the goals for sustainable agriculture, more naturality and transparency that are important to us and our customers,” Neuwirth says.
One of the areas of concern is producing or purchasing non-GMO feed sources. When it announced the Dannon Pledge, Dannon estimated it would take about 65,000 acres of forages to feed cows necessary to produce the milk it needs.
For the McCartys, the transition to non-GMO feedstuffs has been less challenging than they expected.
“We’ve always been highly data-driven, even before we started to work with Dannon, so the production management process has not changed very much since we began to incorporate more non-GMO seed and feed into our systems,” says Ken McCarty.
“Initially, we thought it might be somewhat challenging to find the right seed varieties that work for us to be increasingly non-GMO, but so far that has not been a significant issue.”
The McCartys will begin to fully implement non-GMO feeds into their management system in 2017. Ken McCarty says it is too early to evaluate how that would impact ration changes, feed storage and handling, crop acreage and rotations.
Given geographical differences related to crops, climate, soil, agricultural practices and other factors, it’s almost certain a single non-GMO feed management system cannot be implemented nationwide. Each situation will be different.
“We are working with our farmer partners and other suppliers to develop the supply of non-GMO feed,” Neuwirth says. “We didn’t say it was easy. In fact, we said it would be very difficult, and we were not entirely clear how we would accomplish it, but we are learning along the journey with our partners along the supply chain.
We are confident that, together with forward-looking farmers, we can make this change happen as more crop growers and dairy farmers will embrace it and realize the benefits it can provide.”
Dannon is collaborating with Green America, a non-governmental organization advocating non-GMO agriculture, in an effort to increase the availability of non-GMO cow feed. It’s also working with the Non-GMO Project to achieve verification and labeling standards.
Dannon emphasizes it is not opposed to GMOs, and it will continue to use GMO ingredients in some products and accept GMOs in feed for some of its milk supply. It also believes sustainable agriculture can be achieved with or without GMOs.
“We believe the currently approved GMOs are safe,” Neuwirth says. “We also believe we can promote advanced sustainable practices with non-GMO crops as well.”
In creating a non-GMO supply chain, the company says it expects to increase biodiversity and expand the use of good agricultural practices.
“For us, sustainability is a process of continual improvement and involves the hard work of always seeking to improve environmental, social, economic and health impacts,” Neuwirth says.
Will other companies follow Dannon, leading to a separate non-GMO supply chain?
“We can’t predict what other companies may be planning or speculate about what the supply chain will look like in years to come, but we believe this consumer appetite for alternative models will continue to shape the dairy agriculture supply chain for the future,” Neuwirth says.
Ken McCarty shares that sentiment.
“I can’t predict the future, but what I can say is that we chose to work with Dannon as a dedicated customer because it provides a level of reliability we never had before,” he says. “We also have a dedicated partner in Dannon who we trust and rely on for stable pricing. But even more important is our shared vision for sustainability and animal welfare.”
PHOTO: Tom and Judy McCarty moved from Pennsylvania to the Kansas plains in 1999 to allow their sons to fulfill their dairy farming dreams. Today, the four sites house 8,200 milking cows producing about 248 million pounds of milk annually. Photos courtesy of Dairy Management Inc.
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