Dairy Management Checkoff Update Letter - July 2011

Dear dairy producer organization leader,

DMI and the dairy checkoff have helped generate some very exciting sales results that directly impact you, all U.S. dairy farmers and in fact, the entire industry. Here are some key points:

1. For the 12 months ending February 2011, incremental dairy sales were up 7.8 billion pounds (yes, seven billion, eight hundred million incremental pounds). That is a record.
2. For the 12-month period ending in March, that number is just over 7 billion pounds, reflecting a slight slowdown of some exported products – but still, a very large number.
3. For the 12-month period ending in April, incremental cheese sales were up 453 million pounds. Of this, 60% was sold right here in the USA.

Let’s look at some specifics:

So what has DMI and the checkoff had to do with these results? Just about everything.

1. We have worked with pizza companies and suppliers to create a dramatic turnaround in pizza and the amount of cheese sold through pizza. Pizza constitutes most of the other-than-American cheese category above. We have:

a. Taken a category that makes up 25% of all cheese sales and was on a steep multiple-year decline and turned it around to produce 24 straight months of unparalleled growth.
b. Stimulated the industry to invent a better tasting and more nutritious pizza for schools, one that kids love and health professionals support.
c. Helped convert cheese purchases by the big three chains for their Pacific Rimoutlets to U.S. sources, resulting this year in 60 million new pounds of cheese sourced here at home.
d. Invested, on average, $14 million dollars a year for three years through 2012 on these efforts. Our partners have invested more than $100 million per year. That does not include similar investments by the rest of the pizza industry.

2. Domestic American cheese sales growth is coming from food service, not retail, and guess what? That again is due to DMI and the checkoff. Cheese at breakfast and other day parts, on cheeseburgers and other sandwiches, are spurring growth. Did you know:

a. DMI has a multiple-year partnership with McDonald’s (serving 26 million people in the U.S.each day, every day) to develop, test and provide marketing research and consultation for new product development. We have three full time DMI food formulators, one full time marketer and one part time registered dietician located at McDonald’s corporate headquarters as part of their menu development team to create new, innovative and dairy friendly products. This puts dairy in a unique position when McDonald’s considers new product development.

b. Our investment in this relationship is multiplied several times over by McDonald’s, and multiplied even further when you consider the copycat efforts by other food service companies.

3. The predominantly farmer-funded U.S. Dairy Export Council (USDEC) has facilitated most of the growth in export sales of cheese and beyond, though the CWT export assistance program has also helped. USDEC has grown to 100+ members paying roughly one million dollars in dues. The Foreign Agricultural Service and others add about $7 million to the $10 million farmers put into this effort. The membership knows the value of USDEC; the sales impact for farmers is evident.

There is much more to tell and I will tell it in future notes to you. I want to put good information in your hands: Brief enough that you want to read it; meaty enough that you get something out of it and pass it along to others who should better understand the enormous return on investment the checkoff is achieving for farmers.

My next note will address the myth that the U.S. is not a growth market for milk. Nothing could be further from the truth!

Let me know if you have any thoughts. Feel free to call me on my cell at 847-980-2872 or on my office phone at 847-627-3200.

Tom Gallagher,
Chief Executive Officer of Dairy Management Inc.