By Madeline Schultz, Value Added Agriculture Program, Iowa State University, schultz@iastate.edu.
Written June 2006.
Background
A quote from an Organic Valley Family of Farms brochure reads, “The earth’s most delicious most healthful foods are made when farmers work in harmony with nature.” That notion inspired seven original farmers in 1988 when they set out in a cooperative partnership to produce organically and to market farm-fresh premium foods. Since then the cooperative has grown to include over 800 member growers who nurture nearly 100,000 aces of organic land. Today, the Cooperative Regions of Organic Producer Pools (CROPP), headquartered in the rural town of La Farge, Wisconsin, is one of the most successful farmer owned food cooperatives in the country.
The Organic Valley (OV) Family of Farms brand name was established to market the cooperative’s fresh produce, eggs, dairy products, orange juice and soy beverages. A subsidiary and distinct brand name, Organic Prairie Family of Farms, markets the cooperative’s meat. The main reason for this product line extension and subsidiary is to separate the high meat industry liability from the rest of the company.
Early on in OV’s history, dairy products became the major business segment and account for 90 percent of all sales today. This is due to many factors, including the strong dairy infrastructure, favorable weather and land conditions in Wisconsin, and demand growth for organic dairy products that has averaged 25 percent per year over the last ten years. The cooperative extended its OV brand to include soy milk and orange juice in order to gain logistical efficiencies in stocking stores with refrigerated beverages. This efficiency was possible because The Roper Supply Cooperative, an orange grower cooperative from Florida, and QMPC, a soybean grower cooperative from Iowa, joined forces with OV to market products.
Organic Valley of Family Farms is led by a Board of Directors elected from among CROPP’s farmer-members. This board sets strategic direction for the company and chooses the CEO. The CEO is responsible for managing several departments including marketing, finance, cooperative affairs, local operations, product development, and sales.
Marketing Overview
The marketing department enjoys the third floor of OV’s new 49,000 square foot “green” OV/CROPP headquarters building. Many of the company’s marketers were drawn to the cooperative because of its commitment to stable, sustainable farmer pay prices and agricultural practices in harmony with nature, the rural community and the future. The marketing team studies customer profiles, tracks organic trends, helps design packaging and creates promotions for new stores or regions. The team is enthusiastic about helping family farms remain viable and providing consumers with premium quality food and beverages.
The slide below is an example of the secondary consumer research conducted by the team. They track data from the Hartman group, NMI SPINS, the Organic Trade Association and others.
The marketing team also conducts primary research but on a very limited basis due to the small marketing budget. OV is especially concerned about tracking response to promotions. For example, if they place an advertisement in a magazine, they will list a unique web address and track how many hits the ad generated. Similarly, coupons are coded so the marketing team can track how many of the coupons that they passed out at the state fair booth, for example, resulted in sales at the store. Jamie uses this response data to help her decide where marketing dollars are most effective.
The cooperative measures its success through the number of family farms sustained. Typical family farm member size is 260 acres with 60 cows. To sustain the farmers, OV must maintain strong prices by closely matching supply with demand. The marketing team helps track, monitor and forecast demand on a regional basis. OV has 24 different producer pools in the United States, and OV strives to market products as locally as possible to reduce transportation costs. The marketing department works closely with the Producer/Membership department to develop strategies to maintain and match supply and demand. Currently, organic milk sales represent 3.2 percent of all fluid milk sales. OV believes the potential is somewhere between 5 percent and 8 percent, which is on par with the European Union.
Major Challenge
One of the cooperative’s major challenges is how to compete effectively with much larger companies. They face major competition from Silk soy milk (purchased by Dean Foods in 2002) and Horizon Organic (purchased by Dean Foods in 2003.) Stonyfield Farms (purchased by Group Danone in 2003) is another top competitor. OV is a distant fourth in organic milk sales to these large corporations. The growing and highly attractive industry has attracted many new competitors. While there is no shortage of dairy cows, a barrier to entry is the 3 years it takes for a farm to become organically certified. An issue that may become a barrier to entry is the controversy over large-scale dairies not providing enough pasture for their cows to satisfy many supporters of organic farming methods. The National Organic Standards requires pasture access for all organic dairy cows, but the regulation is highly subjective. OV family farmers utilize large amounts of pasture, but many large-scale Horizon and Stonyfield farmers do not.
Decision Focus
Organic Valley is trying to compete in the organic foods industry in two major ways. First they are focusing their financial resources on marketing. The cooperative outsources and partners with others to process and transport products and other necessary services. They have very little debt and very little “bricks and mortar.” Financial resources are focused on increasing their market share while maintaining core cooperative values. Secondly, the cooperative is considering a local foods strategy. They know that organic consumers are interested in the farmers who produce their food and in local food sustainability. By developing localized marketing strategies and focusing on the farmer to consumer connection, the marketing team at OV hopes to differentiate themselves from their much larger competitors. The team must help decide how the challenge of localizing marketing messages can best be accomplished with the limited marketing budget the cooperative has.
Jamie Johnson and Joe Pedretti show a group of international visitors examples
of OV packaging and products at the company headquarters in La Farge, Wisconsin.