Select Milk Producers building through innovation

Editor's note: The following article appeared in the August issue of Dairy Herd Management.

It's 8 a.m. on a beautiful Thursday in Fair Oaks, Ind. Mike McCloskey, CEO of Select Milk Producers, Inc., walks in the front door of his favorite café, shakes my hand, and heads to get a cup of coffee. He's dressed in jeans and a collared shirt that could work in either a downtown Chicago board room or at a palpation rail. He is a veterinarian, after all.

"Como estas (How are you)?," he asks the pair of young Hispanic women behind the counter.

They exchange words and prepare his dark roast coffee, another for me, and some yogurt and fruit for McCloskey.

"Is this your normal routine?" I ask.

Half laughing, McCloskey replies, "I don't have a routine. I used to."

His wife, Sue, walks in a few moments later, greeting the staff before sitting to join us. As we chat, friends, neighbors and even strangers walk in the front door and greet them.

"You've got a great place here, thank you. Keep it up," someone says halfway through our conversation, as he grabs Mike's hand and pats him on the back, walking out with a cup of yogurt.

"That's just interesting," Mike said, shaking his head about the stranger who just interrupted us. It's obviously happened before, but his face shows he still can't believe it. "I don't even know that guy."

Family matters

It's likely you've heard their name, or are familiar with some of their products. Or, maybe you were driving on I-65 between Indianapolis and Chicago and stopped at the same shop where we met — the Fair Oaks Farms Cowfé &; Gift Shop.

Mike and Sue McCloskey are the faces and names on one of the largest dairy empires in America. The McCloskey, Bos, den Dulk, Schakel and Van Ravenswaay families own the farms surrounding Fair Oaks Farms, which has become the site and brand synonymous with agritourism. Their market, bakery, café, Mooville play area, garden, and Dairy and Pig Adventures draw about a half-million visitors per year.

If you try to give the McCloskeys the credit, they quickly defer to their cooperative, Select Milk Producers, and employees and staff. The idea was a natural evolution of the cooperative family at Select Milk Producers, a group of 92 larger dairies located mostly in New Mexico, Texas, Indiana, Michigan and Wisconsin.

Celebrating 10th anniversary

Fair Oaks Farms celebrates its 10-year anniversary in 2015, but the full story starts long before that.

Mike McCloskey was born in Pittsburgh, but his family moved to his mother's native Puerto Rico when he was 6. By age 8 or 9, he became fascinated with his uncle's farm, and his career path was determined.

"I knew I was going to be a farm animal veterinarian," he said. "And I was always partial to dairy."

McCloskey moved to Mexico when he was 17. He earned his Doctorate in Veterinary Medicine (DVM) degree in 1976 from National Autonomous University of Mexico, Mexico City. He opened a veterinary clinic there, while simultaneously teaching at the university. He stayed three years, then completed a two-year post-doctorate food animal reproduction and herd health residency at the University of California-Davis.

Next, McCloskey started his own 42-dairy veterinary practice, and a company called Herd Technologies, Inc., Chino, Calif., which specialized in data gathering and handling routines, laboratory support, advice and pharmaceutical trials.

While in California, Mike began renting a property he owned to a city woman originally from New Jersey.

"I figured out how to pay less for rent," Sue joked.

The two worked side-by-side at the veterinary practice, and eventually married. Mike was hired as veterinarian at a dairy owned by Tim den Dulk. Soon after, the McCloskeys started with two dairies of their own in Southern California.

"Tim already had his own dairy," Mike said, "But after being in practice for a short time, I realized I wanted to be on the dairy side, so Tim helped us get started by partnering with me on a 300-cow dairy in 1984, and we have been partners ever since."

The couple moved in 1989 to two 2,500-cow dairies with double-25 herringbone parlors in New Mexico. Several of his California veterinary clients headed east, too. When a group of them started talking about how they wanted more out of their cooperative, about a dozen formed Select Milk Producers.

Mike was picked as CEO, a post he still holds along with serving as CEO of a handful of related ventures, covering everything from manure to fluid milk.

"I don't really need to do much," he said. "Our board provides me direction, and I carry it out. No one's afraid to talk; no one's afraid to throw their ideas on the table; and no one's afraid to challenge the next guy, because everyone knows we're in this together, and for each other."

"We believe in always doing the right thing," Mike said, noting the co-op was founded on honesty, trust, transparency, service and quality. "Because we were founded on those principles, I'll tell my fellow cooperative CEOs that I have it easy. We got to pick our members."

Select Milk members were in New Mexico and west Texas, servicing H.E.B., Dean Foods and Dannon. They merged with a group from central Texas, called Elite Milk Producers, picking up Kroger as a client.

The larger cooperative – at least in terms of milk volume – started selling into the Southeast and up the East Coast.

Risk and innovation

Select's biggest innovation – and risk – was reverse osmosis, or membrane filtering, which allowed dehydration of milk and removal of lactose. The original aim was to find a way to balance their milk, and they quickly realized it was a winner with Wisconsin plants running at a milk deficit. The cooperative was able to ship 3 pounds of solids for every 1 pound typically found in a tanker, bringing distant markets within economic reach.

"We were able to get a premium of $3.50/cwt. in Wisconsin, and our transportation costs were already covered with the 3:1 advantage with membrane filtering," Mike said.

They also began feeding the lactose from filtered milk to the cows as a substitute for corn.

Eventually, den Dulk wanted to return to the Midwest, moving to Michigan to start a 2,400-cow dairy. Mike termed it as an "immediate success" due to the region's efficiency, and others soon followed.

They theorized the eastern portion of the Midwest was nearly as good as the western portion for dairy, and much closer to the East Coast population. The group created a new home in Michigan, Indiana and Ohio.

With a large-and-growing milk supply, and focus on the customer and end-consumer, they quickly gained steam in developing a national footprint for fresh milk.

"We wanted a block of milk in the Midwest," Mike recalled, "and to be more national."

With some strategic planning, cooperative members thought they could keep growing. Those that moved to the Midwest formed Continental Dairy Products cooperative, organized and marketed by the same cooperative staff in New Mexico. Continental eventually merged with the original Select co-op in 2014. At the time of the merger, 212,000 milking cows made 6.3 billion pounds of milk annually on the 97-member farms in Ohio, Indiana, Michigan, New Mexico and Texas.

Creating Fair Oaks

In 1998 and 1999, the McCloskeys and several other families listed as founders of Fair Oaks Farms found Northwest Indiana as their new home straddling I-65. In just 24 months, 30,000 cows arrived in Northwest Indiana in a development Mike called "fun," while Sue winced remembering the process.

"We never missed a beat," Mike said of the collaboration. "We were already very close and good friends, but once the dust started to settle, we started talking about other things."

The neighbors realized how interested people were in their dairies, how close they were to Chicago, and that there were 40,000 to 50,000 cars passing by every day.

"You didn't see a lot of large animal agriculture here, besides pigs," Sue said. "When we started coming in with these large dairy farms, we opened our doors like we always had — even with our 300-cow dairy back in California — to the church groups, Rotary Clubs, and other groups. We quickly realized there was an even bigger opportunity."

The area had easy access to Chicagoland and Indianapolis, and after the governor helped the group build an even easier-access exit from the interstate, the potential was beginning to be realized.

"There were a lot of people in the industry who thought we were nuts," Sue remembered.

"But within our Continental group, we were all in favor of building something like Fair Oaks Farms," Mike said. "We all sat around a table and said ‘Should we do this? Why should we do this?""

A big reason: Animal rights activists could make up a story that 98% of the public might believe. There were risks that came with allowing people to literally drive through their farms, but hoping it could become a profitable enterprise tipped the scales toward a green light.

"There are 28 million people within a 200-mile radius," Mike said. "We'll do this, open a brand with it, and see if people can associate with a brand that cares with the values on which Select Milk was based. It just evolved from where we started."

On the farm, they had to "up their game," as Mike described it. Mike had five nearly identical dairies. He quit tail-docking at one to improve perception, and soon realized there was no difference in somatic cell count, mastitis or culling rates, and adopted it at all his dairies.

In 2005, the cafe and the Dairy Adventure center were opened for the first time, and everything at Fair Oaks Farms has gone through several evolutions since.

"We've learned a lot," admitted Sue, who works as one of the main architects of the consumer side of Fair Oaks. They visited many museums to figure out what drew people's attention. They are currently updating interactive components to keep families interested for longer time periods.

After their success with showing off their cows, swine producers asked if they could create a Pig Adventure, which they have. They also broke ground on a small chicken egg-laying facility, a combination of enriched and cage-free housing, in the first week of June.

Building a brand

The McCloskeys both consider themselves farmers, and do not see themselves out to compete with other dairy farmers.

"We're about all boats rising," Mike said. "If you look at our environmental stuff, it's all public. We explain to dairy farmers our mistakes and where we went wrong. We, as farmers, need to work with each other to protect our license to operate in the public eye."

The McCloskeys admit transparency does not translate into sharing the economic competitive advantages into producing milk, and especially not their intellectual property rights. Instead, they argue, farmers should think collectively about competing against juice, soda and the other beverage options on shelves today.

Interest in Select's membrane-filtered milks grew, and in 2011 they created the Fairlife brand as a subsidiary, with Coca-Cola joining as a partner in Fairlife, LLC in 2012. The high-protein, low-lactose milks – produced through a cold-filtration process to concentrate milk's best nutrients – are now sold in stores nationwide. 

Mike and Sue are somewhat reluctantly the face of the brand and the signature on the back of every product.

"First, it's about taste," Mike said about Fairlife. "It's a protein that functions and was never denatured, never from powders, compared to other products in the category. It came just as it was produced from the cow. Then, it's about all the other things people should care about, things they associate with being sustainable."

Not Disneyland

With all the cows, the consumers, and now the chickens, I had to ask: Why? Why keep going? Despite the potential financial rewards, the risk seems ever greater.

"The canvas isn't complete," Mike calmly explained. "When I was a little kid, my uncle had a multiple-species operation, a humble farm. At 10-years-old, I understood how to kill a chicken, milk a cow, that the beef cow went to slaughter, why we castrated the bull calves, how to breed and skin rabbits, and we just knew these things.

"Today, at Fair Oaks Farms we want to present to the public what modern agriculture is about," he continued. "I think we've done that with dairy and pigs, we'll do that with poultry, and our new addition with WinField Solutions to explain crops is a phenomenal add-on. It's all about, how are we feeding ourselves?

"If 98% of people aren't seeing that, but a dad can go someplace for three days with their kids and see all that, that's a big opportunity."

Hotels?

"We have to," Mike answered, and quickly went on to explain his plans for systems relating to hydroponic greenhouses, broilers, beef, you-pick apples, a garden, bees, aquaculture, and more.

Is this the Disneyland of agriculture?

He winces. "It has to be through entertainment, it has to be through fun," Mike said. "We made the mistake of being too tutorial in the beginning. But Disneyland may create the wrong image. This is a Disneyland, but it's real. It's not a fairy tale, but a real way things are happening and it's fun and entertaining. So, it has that component of Disneyland; but it's better than Disneyland."

Fair Oaks Farms is not a big draw on the Select Milk Producers" balance sheet. Their powder plants, cheese and other processing ventures like Fairlife look to continue to be the major assets of the cooperative. They see the Fair Oaks brands growing, but the furthest stretch from production agriculture that Select Milk will get.

They have no goal for a percentage of market share or cows they want to control in the dairy industry. Instead, they just want to keep growing strategically.

"The menu is open," Mike explains about future opportunities for the cooperative. "But, we'll remain rooted in agriculture. Vertically, we could continue to grow, but horizontally Fair Oaks is about as far as we could get."

As for the future of the McCloskey family farms and those of their partners, Mike said most cooperative members have at least one child wanting to go back into farming, including his. So while this chapter of the McCloskeys and their fellow cooperators is nowhere near over, it's their sons and daughters raised in the shadows of this extreme innovation that will soon write the next story. 

 
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