A lot of consumers today avoid dairy, whether due to concerns about allergies and intolerances or because they regard it as insufficiently healthy. As a result, the dairy supply chain has undergone some extensive, radical changes (e.g., retail-led supply chains, as we described in a previous abstract, “Can Farmers and Processors Keep Milking Profits out of a Market in which Grocery Retailers Process Milk?”). The latest move comes from Land O’Lakes, the well-known cooperative of approximately 2,000 dairy farmers, whose products appear on store shelves throughout the world. Its goal is to ensure they continue to do so, by collaborating more closely with other supply chain members, as well as introducing new products and services.

In particular, Land O’Lakes recognizes the challenges faced by the producers at the head of the supply chain, who confront increasing price pressures, international trade difficulties due to newly imposed tariffs, and changing customer demand. To support their attempts to remain in business and profitable in their upstream position, Land O’Lakes is leveraging its role as an intermediary to work with downstream retailers and manufacturers.

For example, in collaboration with Frito-Lay, it developed a new cheese powder to be used in Cheetos, with less sodium than previous versions. In doing so, it helped this manufacturer meet end consumers’ demands for reduced sodium in their snacks, while also expanding the business it earns from selling powdered cheese products.

With retailers, Land O’Lakes has adopted a revised approach, with the recognition that “just showing up at retailers and saying, ‘I have this butter’ or ‘I have cheese’ or ‘Now I have this cinnamon butter,’ that’s not going to get you there.” Instead, it proactively asks retailers what sorts of products they would like to make available to their shoppers. Noting that some retailers were requesting specific flavors for goat cheese for example, Land O’Lakes acquired an artisanal cheese producer, which allowed it to accommodate those requests.

At the same time, the cooperative undertook its own internal innovation efforts to devise products that might appeal to consumers, even if consumers had not expressed an explicit or clear need for them yet. For example, it was familiar with an everyday complaint: People hate it when the crumbs from their toast get stuck in the stick of butter. So Land O’Lakes devised a squeezable butter, spending several years and significant monetary investments to ensure the resulting product had the right consistency and taste, while greatly increasing the convenience for users.

Beyond products, it also is investigating the possibilities of providing expanded services to farmers. It maintains sophisticated crop forecasting and analysis technologies, such that farmers can predict what kinds of output they will obtain, depending on weather conditions, pesticide use, and other such factors. A newly introduced online platform also enables farmers to interact with local retailers to make that segment of the supply chain more efficient and effective.

Discussion Questions:

1. What roles does a cooperative like Land O’Lakes take in the dairy supply chain? That is, where in the supply chain is it located?
2. Are these efforts by Land O’Lakes sufficient to address the changes in the dairy market? Too much? Not enough? Just right?

 

Source: Heather Haddon, “Land O’Lakes Looks Beyond Plain Butter,” The Wall Street Journal, February 21, 2019