All for One

Kansas dairy becomes sole supplier to Dannon yogurt plant

In what may be a unique arrangement in this country, The Dannon Company, Inc., is contracting with a single dairy operation to supply all the milk for its Fort Worth, Texas, yogurt plant.

McCarty Dairy, in northwest Kansas, will supply 500,000 lb. of milk equivalent daily to the plant. The dairy currently milks 3,500 cows on two farms and plans to have a third dairy with another 3,600 cows on line by the first of the year to meet the required volume.

Before the milk leaves the dairies in Rexford, Kan., it will be processed in a new condensing plant that is also being built. That will eliminate two-thirds of the liquid volume and weight, resulting in huge hauling and environmental savings as the condensed product makes its way 600 miles south, through Oklahoma to Texas.

 

The one-dairy, one-plant arrangement offers benefits to both the McCartys and Dannon, says Michael Neuwirth, senior director of public relations for Dannon. "Price volatility is an issue for producers, processors and consumers. This arrangement offers more stability for everyone
involved," he says.

Neuwirth and Clay McCarty, one of four brothers involved in McCarty Dairy along with their parents, won’t share much detail on the financial arrangement. But the arrangement limits, though it does not eliminate, price volatility. The contract, they say, is based on a cost-plus model in which the McCartys’ cost of production plus a margin is paid.

The Dannon plant will be considered a nonpooling plant under Federal Order 126, and will therefore not be required to pay Class II minimum prices. At the same time, the plant will not be entitled to pool draws and will have to make up the difference on its own to pay a competitive price for the milk it buys from the McCartys.

"The pricing is part of the agreement, but not all of it," McCarty says. The dairy will be expected to meet contract-specified quality parameters that are more stringent than the current Grade A minimum.

The other big benefit for Dannon is that it will be dealing with a single source for its milk supply. That will allow the Fort Worth plant to fully document its carbon footprint from the McCartys’ cows to the yogurt containers it delivers to stores. Dannon has contracted its milk from Dairy Farmers of America (DFA) and will transition to McCarty Dairy beginning in 2012.

The DFA arrangement "limited our ability to work directly with individual farms," Neuwirth says. Working with an individual farm will allow Dannon to collaborate with the McCartys to drive down the number of miles traveled, water used and energy consumed—and, hopefully, to drive costs out of the system as well.

"For our part, we’ve already done a carbon life-cycle analysis on our dairies, and we’ve grabbed the low-hanging fruit such as higher-efficiency motors and pumps, lighting and trying to eliminate Freon from our milk cooling," McCarty says.

Partnering with Dannon should allow the McCartys to go further by tapping into the company’s engineering expertise. Tying a methane digester into the equation might also be on the horizon.

No partnership is perfect, however. Dannon realizes that sourcing milk from a single dairy has its own set of risks. "We are committed to fulfilling the needs of our customers," Neuwirth says. "So we have business contingency plans in place to acquire additional milk should the McCarty dairies fall short on supply."

For the foreseeable future, Dannon will continue to source milk from DFA for its plants in West Jordan, Utah, and Minster, Ohio.