New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing

Transcription

1 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing The New England Milkshed Assessment is sponsored by American Farmland Trust, with the collaboration of Tufts University s Agriculture, Food & Environment Program (AFE) at the Friedman School of Nutrition in Boston. This summary marketing report is part of that study, and was led by Hugh Joseph at the Friedman School. It includes input from the project s other team members - Tim Griffin (AFE), and Cris Coffin and Julia Freedgood at American Farmland Trust - as well as significant contributions from 11 Friedman School graduate students, including several background research reports with content incorporated in this document. Input was also derived from interviews by researchers with more than 40 key informants from across the dairy sector, including academics, dairy farmers, marketers, institutional food service personnel, government officials, and others. While the emphasis of the overall assessment is on New England s dairy producers, the geographic focus for much of the marketing analysis was Boston and Massachusetts as the largest consumer base in the region. Not all markets were addressed; the emphasis was on those where promotional and marketing strategies were not well understood and/or showed the most potential for expansion in ways that can benefit the region s dairy farmers. Contexts for this report: New England s dairy farming has been in a long-term decline. For example, the New England dairy herd (or number of cows in the region) has decreased by 25% from 1992 to 2007, a decline totaling over 75 thousand cows (although increased per cow yields have maintained overall milk output). In particular, small and midsized farms, defined as owning less than 200 dairy cows, decreased by 50% during this time period (although farms with over 200 dairy cows have increased by 35%). Land owned or rented that is used for dairy farm production in the region has also decreased from 982,000 acres in 1992 to 611,879 acres in In 1920, there were 25,356 dairy farms in Vermont, and the long decline has seen the number of its dairies drop just in the past 20 years from 2,272 to 977 this year. Indeed, the long-term viability of these farms remains uncertain, as many New England dairy farmers have still been operating at a loss in many years. The region now has about 2,100 dairy farms that play a valuable role economically, particularly in Vermont and Maine, generating more than $13,000 per cow annually in direct economic activity. They generate over $700 million annually in fluid milk sales, the largest percent of any New England agricultural commodity, and contribute more than $3 billion to the region s economy. Vermont remains the largest milk producing state in New England. Dairy products are valued at $584 million a year, or 83 percent of all agricultural sales in the state. Dairy farms also have important health and environmental /open space benefits. Sustainability of dairy producers: Given this scenario, stabilization and potential growth opportunities for dairy producers in New England is driven by multiple factors, including on-farm costs; milk yield efficiencies; external supply forces; downstream industry integration and consolidation; and policy and regulatory factors at the regional, state and national levels, including the Federal Milk Market Order. Overall demand for, and sales of, dairy products are shaped (or constrained) by these influences. To the most part, the survival and stability of dairy producers going forward will also rest on non-marketing strategies that include farmbased cost efficiencies; diversification of activities to generate more on-farm income; and other 1

2 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing economic and policy determinants. Still, the marketplace is an important element of the overall equation for producer sustainability. Within the marketplace, underlying factors include prices driven by regional, national, and global supply and policies and increasing price fluctuations and price instabilities driven varying production / supply. From a sales perspective, New England is a diverse marketplace. In particular, the different scales of local markets, and their distances from dairy producers, implies that a variety of approaches is warranted. Most dairy is produced in Vermont and Maine where the population (a. k. a. marketplace) is smaller, and thus alternatives such as direct marketing are more limited. The inverse is true for Southern New England. Dairy products similarly need differentiating. In particular, fluid milk is a very different market than products such as cheese, yogurt, and ice cream. Furthermore, the production source of New England dairy products, particularly fluid milk, is not always differentiated; it can be comingled with product from New York State in particular, and that has a particular impact on identity and branding strategies. 1. Demand for dairy products, particularly milk: Overall milk consumption continues a gradual decline extending over several decades. For example, among children ages 2-11 years, overall consumption was about 1/2 cup (3-1/2 fluid ounces) less in than in Most is within the whole milk category, due to, among other things, increased consumer awareness about fat consumption, substitution to other fat-containing foods, and public health campaigns about low-fat milk consumption, but milk consumption overall has fallen: total fluid milk total cheese total frozen dairy dry, evap. & cond. milk Figure 1: Servings/person/day (availability) of Different Dairy Products,

3 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Thus New England consumers overall are not getting the recommended servings of (low-fat) dairy in their diets. The recommended number of servings for children aged 2-9 is two servings (cups) per day, and for children, adolescents, teenagers and adults aged 10 and above, it is 3 servings (cups) per day. The breakdown among the different groups is given in the table below, relative to overall supply. Dairy product: Current availability per person per day Total servings per day: Boston Total dairy ,029,984.5 Whole milk , % milk , % milk ,046.9 Skim milk ,308.6 Total fluid milk ,696.5 Yoghurt ,202.0 Cheese ,386.4 Ice cream ,332.8 Dry, evap., cond ,696.5 Dairy Hypothetical availability per person Total servings per day: product: per day Boston Total dairy 2-3 1,774, Therefore, the increase in dairy product demand relative to currently recommended consumption would equal percent. Ideally, these increases would occur in the low-fat dairy categories: 1 percent milk, skim milk, low-fat yoghurt, and low-fat cheese, for example; and come from New England producers. While these are averages, milk and dairy product consumption, especially low-fat dairy product consumption, is even lower in low-income groups. Besides cost and nutrition factors, demand is influenced by cost factors and competition from cheaper beverage options. Household consumption is further shaped by increasing trends towards eating away from home. Government and institutional policies also influence demand; these include a reduction in the dairy proportion of the WIC benefit; lower than desirable participation in school lunch and in breakfast programs; new rules for a la carte sales in public schools in Massachusetts, and strict food budgets at schools and hospitals. Recommendations: Strive to maintain overall product demand and reverse current trends. In particular, support broad-based efforts to address pressures on dairy consumption among children and youth categories. 3

4 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Focus on trends such as low fat content, premium products, and on specific sectors and demographics, such as educational institutions and children, where pressures on consumption exist and policy-related influences are common and can be effective. Build demand for New England dairy products: Support strategies that can expand the production and sales of dairy products with New England content. These will benefit most as part of producer-driven niche marketing. 2. Niche marketing: As with most of the food supply chain, producers are the segment that is losing money or are the least successful. The overall food sector is economically quite healthy. In dairy, farmers need alternatives to being the price takers with over-reliance on wholesaling as their main outlet. The overall direction of farming in New England is away from direct competition within an increasingly global marketplace, and toward niche marketing strategies. This is most salient in the produce sector; however, it is spreading across all commodities and products, but still weak in dairy. Niche marketing combines multiple strategies to veer away from reliance on the mainstream marketplace. These include: Alternative processing - on-farm processing of milk, cheese, ice cream, and butter; Diversified dairy animals goats and sheep, as well as cows; Non-dairy diversification and value added producing other farm animals for meat; adding other farm activities besides straight dairy production; Moving to organic production and products; Product differentiation from the mainstream or conventional competition via branding and related promotion; Direct marketing to restaurants, small stores, and via farmers markets, CSA, and farmstands. To the extent that producers can continue to move in these directions will shape much of the future of dairy. Niche marketing can bring increased sales and better prices for producers who have a direct involvement or investment in developing unique or special products and markets that stand out from the conventional dairy sourcing options available to consumers. Other farms that are already producing a value-added product may look to expand or collaborate as partners with other farms. Recommendation: Support niche marketing diversification as an essential strategy to the sustainability of many, if not most dairy producers. Better understand what models are working best, and share this information among producers. 3. Farm-sourced products: While the price of raw milk is a key barrier to the sustainability of dairy producers, there is of milk, cheese, ice cream, and butter, where demand is growing in the marketplace for products that have local identities and perceived high or better quality. Farmers that can profit directly from the production and sales of cheese, yogurt, ice cream, 4

5 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing butter and other items can add considerable revenue through such value-added activities. An example here is cheese: There are essentially two markets for cheese one for the more generic types that are used for making popular items such as pizzas, and are sought at the lowest prices by restaurants, schools, and other large users. The other is specialty or artisanal cheeses, for which there are hundreds and brands and varieties. New England cheese producers, such as Cabot, make such cheeses that are world-class. In Vermont, demand has led to new dairyrelated processing plants including Swan Valley Cheese, Commonwealth Dairy, Kingdom Creamery of Vermont, Vermont Farmstead Cheese and cheese production at the Vermont Food Venture Center. Cheese production is expanding among dairy producers and small processors across the entire region. Massachusetts now has an estimated 25+ small and artisanal cheese producers, including those made from includes sheep and goat milk. However, the marketing potential is not keeping up, particularly through direct sales. Recommendations: Support local cheese promotional efforts, such as the emerging yogurt and cheese makers Massachusetts Cheese Guild. Encourage and assist non-farm cheese making business to buy direct from New England producers or processors and coops that represent them. Encourage more local / regional cheese distribution and marketing at farmstands, farmers markets, and CSAs. Promote use of more local / regional cheese at restaurants and by food service purveyors. 4. Organic dairy: In 2010, Maine had 72 organic farms (out of 330 total) and Vermont had 200 (out of 1010 total). In 2008, the National Agricultural Statistics Service (NASS) began tracking organic farms as part of the Census of Agriculture. State Inventory- Farms Inventory-Peak Cows ME MA NH VT ,100 Number of Organic Dairy Farms and Certified Organic milking cows in The benefit of organic production for producers is the need for higher prices for raw milk. Organic Valley pays New England producers $30 per CWT +/-; and MOO pays its members $33 per CWT compared to the price paid for conventional raw milk hovering between $15-$18 per 5

6 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing CWT during Vermont, which had only 2 certified organic dairies in 1993, had 179 organic dairies producing a combined total of over 156 million pounds of milk in Nearly 100 farms in Vermont switched to organic just in the year. Organic now about 15% of Maine s milk output, about 10% of New Hampshire s. Maine had 25 organic dairies in 1997, and 61 in 2008 with a total production of over 47 million pounds. But more recently the trend in most states has slowed because the economics are not as compelling. Many factors influencing conversion are on-farm related or are connected to contracts, both of which are beyond this report to address. But marketing also plays a role. When HP Hood stopped buying organic milk from many Maine farmers in 2009, many would have gone out of business had they not formed their own collaborative Maine s Own Organic Milk Company (MOO). Further pressure on prices comes large buyers such as Stonyfield Yogurt that struggle to stay competitive with the conventional yogurt marketplace. And there is similar retail consumer resistance to significantly higher organic premiums since the economic downturn in However, some of this is attributable to the perception of milk as a fungible commodity. Organic marketing should emphasize quality differences and other distinguishing characteristics that can build preferential demand, particularly where the market is affluent enough to pay a premium for this. Recommendations: Support a more stable organic marketplace to reduce risks for producers who convert to organic production. To decrease variable demand and price volatility for organic milk, longer-term sustainable contracts by key customers, such as yogurt and ice cream producers, other businesses using organic dairy products, and institutions, are warranted to support the producers. Promote more niche organic products that can sustain demand for organic producers and often bring higher revenues. These include yogurts, cheeses, and manufactured products containing organic dairy content. Improve promotional messages to emphasize premium qualities of organics that justify higher prices. This includes environmental and buy local messaging. Have milk marketing fees applied specifically to promote organic dairy, at least proportional to sales volumes. 5. Promoting and branding of New England dairy producers: Promotion is a major aspect of marketing any product. Because there is a public interest element to dairy farming and dairy consumption, promotional campaigns fall into the realms of businesses, government, and non-profits, often working together. However, promoting New England products has complexities that provide advantages and disadvantages to scale. In particular, buy local messaging seems inherently on target for dairy, since most dairy consumed in New England (with some notable exceptions such as commodity cheeses and foods containing dairy content) comes from the region, or close by (e.g., New York state). Further complicating the messaging is the use of local by large processors. Garelick, for example, displays From Local Farms to Local Families across its milk tanker tracks that crisscross the region. This makes it challenging for smaller operations to make distinguishing 6

7 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing claims. Finally, the concept of local varies to business and consumers depending on the product, their knowledge of its provenance, and how it is promoted. Local can be a backyard or a region. This can cause confusion where individual dairies or coops, states, processors, states and regional messages overlap with their local terminologies. Finally, while this is an effort to support New England dairy producers, and New England has a clear regional identity, consumers generally do not care if the source of their dairy is from neighboring New York state, and still consider that within the realm of local and regional. They also comingle the New England and the Northeast as regional identities. Large vendors, including Cabot and organic dairy companies like Stonyfield, have had to stop or limit use of New England on their packaging because some of their product is sourced from outside New England itself (typically New York). 5.a: Regional promotion and branding: New England may be a great region to have a regional brand for dairy since the geographic area is relatively small, dense, and a regional identity already exists. While desirable, multi-state efforts, like the Dairy Compact, are unlikely to be revived anytime soon. Nonetheless, there are valuable regional options that include efforts by academic institutions and by NGOs to collect and share relevant data, to develop a regional framework for dairy stabilization / support that incorporates important marketing elements; and by smaller dairy producers and businesses to share models and support each other across state lines. The Keep Local Farms (KLF) campaign provides a supportable example of regional dairy promotion. KLF is a partnership between the Vermont Dairy Promotion Council, the New England Family Dairy Farm Cooperative with Cooperative Development Institute, and the New England Dairy Promotion Board. Launched in 2009, KLF aims to bring more money directly to dairy farmers while creating stronger connections between farmers and their customers. The KLF campaign provides a supportable example of regional dairy promotion. Keep Local Farms has three core goals: Drive dairy sales particularly sales of local milk; Educate consumers about dairy farmers as stewards of the land and the economic troubles they face today; Provide contributions to the Keep Local Farms fund. They also strive for farmer sustainability, including: help New England dairy farmers stay in business by helping them help themselves ; treat farmers fairly by helping to provide consistent and reliable income; use the fair trade model to offer the producer additional funding. AN example of successes with this is Harvard University, which has contributed $0.10 to KLF with the purchase of every serving of milk sold in their retail outlets. They hang KLF banners and signs at purchasing points, and have plans to promote KLF in their student dining halls. The University of New Hampshire, the University of Vermont, and Boston Medical Center are all now working with Keep Local Farms as well. Hannaford Supermarkets promoted Keep Local Farms through their Close to Home campaign in January through March All four major dairy processors in New England (Garelick, Oakhurst, Guida s, and Hood) have agreed to support Keep Local Farms. Recommendations: Strive for greater clarity for consumers as to the meaning of local and regional. 7

8 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Support and expand use of programs like Keep Local Farms to help it continue to meet its stated objectives. In tandem, such efforts build public awareness regionally and thus more political support for sustaining a viable dairy farming sector. Most Massachusetts residents, for example, cannot name a dairy producer in the state. Support use of dairy check off funds to promote state and regional dairy producers. A broadened message that explains the benefits of dairy production economic, environmental, food security, and so on can build consumer awareness and support for preferential purchasing. The campaign by the Massachusetts Dairy Promotion Board now is taking that approach and serves as a model for promotional awareness messaging. 5.b: Statewide promotion and branding: Since most states have farm promotion activities, dairy typically is easier to promote from a statewide geographic context. Examples come from most New England states: Rhody Fresh is a branded strategy to label all milk produced by its member-farms. As of 2010, the cooperative was earning $3 million in gross revenues and selling in 120 retail supermarkets and convenience stores in Rhode Island and Massachusetts. Rhode Island has not lost any dairy farms in the last five years. Maine s Own Organic Milk Company (MOO Milk) is a L3C company (a low-profit, limited liability corporation) that markets and distributes organic milk that completely comes from Maine dairy farms, and similarly takes advantage of the state identity. Vermont cheese has a worldwide recognition; largely promoted by Cabot. But Vermont Butter & Cheese Creamery makes artisanal dairy products, mainly cheese, and takes advantage of the state s reputation for quality dairy products. The Massachusetts Seal of Commonwealth Quality represents an emerging state-based effort to forge a Massachusetts identity for dairy producers. Recommendations: Support statewide geographic identities as part of product branding for all dairy products. Support use of dairy check off payments to promote the benefits of local dairy farming, and not just the nutritional value of consuming dairy products. 5.c: Local promotion: Individual dairy operations, or small combined dairy producers and / or processors, are relying heavily on the notion of local as marketing plus. They have no trouble being considered local, and can address more fundamental aspects of the idea, such as freshness, and supporting local dairies in one s community. Local food campaigns are effective when they convey information about a product including freshness and quality, environmental, benefits to local communities (socially and economically) and the environment. Consumers increasingly care about the safety of their food, so accountability is important as well. All of these considerations can be effectively communicated to consumers through a well-managed local branding effort. 8

9 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Recommendations: Include or emphasize really local dairy producers and marketers in statewide and regional promotional efforts. Work together, not separately. Take advantage of the momentum being generated by the USDA Know Your Farmer, Know Your Food campaign. Adapt the FoodRoutes Buy Fresh Buy Local campaign to increase consumer awareness and support of local dairy producers. 6. Processing: Dairy processing is one of the most concentrated areas of regional agriculture. Dean Foods controls over 70% of all dairy processing in the New England region. While this might not in itself explain the pricing structures for raw milk sent to processors, it constrains their options to capture any of the price premiums in the downstream marketplace. Small dairy processing operations have been on the decline for decades, but there has been a resurgence of interest in the past several years. In 2005, there are 38 on-farm processors of dairy products in Vermont. Now this has further expanded see chart below. The product mix has expanded and now the following dairy products are produced by on-farm processors: blue cheese, Gouda cheese, Colby, cheddar cheese, Italian style hard cheeses (Parmesan and Romano), organic fluid milk, organic ice cream and yogurt. (Similarly, there was an approximate doubling of small dairy plants in New York over the last two years, to around 80 statewide. Thirty-four plant permits have been issued this year). Having control of processing makes many types of marketing much more feasible and potentially more profitable. However, these operations can be expensive to build new, and require adequate volume to make them viable. Because of the historical economics of dairy businesses, lenders are reluctant to support them; even USDA and state agencies. Recommendation: State and federal agricultural financing programs should be more supportive of new efforts to develop small processing operations. More detailed assessments of the current resurgence of local dairy marketing should be carried out to help justify and make more loans and grants to new operators. SPECIFIC MARKETS 7. Institutions and food service: Institutions schools, hospitals, and such purchase large amounts of dairy products and as such are desirable targets for local or regional sales. However, they also pose formidable barriers to the purchases of specialized products and use of alternative distributors. This includes: Mandated use by public schools of the lowest bidders is typically required by municipalities. To put this in perspective of the district budget, a 1-cent increase per carton of milk could cost the districts tens of thousands of dollars per year. This is a large challenge, 9

10 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing especially in public school districts with less flexibility in spending. Institutions rely on large purveyors that supply other products besides dairy and can deliver on a regular and predictable schedule. Vendors or purveyors must be approved in advance, and they are not always friendly to working with numbers of independent local farmers. For example, Somerville Public Schools in Massachusetts tried working with Oakhurst Dairy in Maine. They were interested in Oakhurst because of their business model, support of local farms, and a manageable price point. Unfortunately, Oakhurst was not able to meet the delivery needs of the school district in reliability and frequency, and another option had to be found. Schools get free- or low-cost cheese through the federal commodity programs. These amounts to millions of pounds a year, but the prices paid to producers for the product are too low for small-scale operations in New England to compete as producers for the government cheese pool. Institutions often have different serving and packaging requirements that smaller dairies can t supply. For example, specified bulk packaging or different sizes of individual milk cartons is not standardized across different school districts and private institutions. Farm-to-school sales of produce have grown rapidly in recent years, and the opportunity to include milk or other dairy products is attractive. But few dairies have their own processing facilities. Nonetheless, for those that can supply milk or products, such as yogurt, cheese and ice cream, the prices offered and logistics remain barriers. Even hospitals that pay top dollar for their facilities and professional staffs are reluctant to increase budgets for better quality foods. This is beginning to change, but on a case-by-case basis. Nonetheless, some institutions can and do try to buy organic and other products that support dairy famers. However, the price premiums allowable are typically narrow. Many now do buy Stonyfield yogurt, but that has come as a result of years of work by Stonyfield to get the serving sizes, packaging and pricing suitable to the marketplace. Private schools provide an interesting market for a New England regional brands of milk and dairy products, although they typically purchase less milk than do public school districts. Private schools and universities may be the best avenue for increasing regional milk consumption in New England, as they have slightly greater flexibility in their budgets and purchasing. They are capable of purchasing milk at a higher price point and purchasing by their values instead of being governed solely by the bottom line. An important point to recognize with schools is that their milk demand is predictable and steady, but seasonal. Schools are only purchasing milk when students are in session, usually September through May, with a two to four week vacation in December. This could play as a positive or a challenge in the marketing of a New England regional milk product. High Lawn Dairy in the Berkshires has been selling to private institutions. Currently, 10 percent of High Lawn s milk production supplies four schools Williams College, Wellesley, Phillips Academy and Buxton School. On average, High Lawn submits bids per year to schools. However, it received no new contracts in the past three years. High Lawn also lost 2 contracts - Smith College and Springfield College - to larger dairies due to competition in price. Recommendations: 10

11 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Despite the success of Farm to School, in the region, there are no similar support mechanisms for local dairies to follow the suit. The premise of Dairy Farm to School is still quite new, and there is no existing research that assesses the opportunities for local dairies to sell directly to schools. More research of existing models is needed to determine what options exist or need to develop in order to expand opportunities for small and independent dairy producers and processors to sell to institutions. Schools and state education departments should better address constraints to dairy consumption in schools, such as new nutritional guidelines for competitive foods and beverages that are likely to reduce dairy sales. This policy focus can be at the state agency level. Some institutions, notably private schools or public schools in well-off communities, have an interest in local foods and sustainability, and are incorporating local or regional independent dairy, including organic dairy, into their purchases. This could be more widely promoted to other districts and universities. More documentation of procedures and sharing results from those who have tried it would be helpful to other schools and universities. Hospitals are in a similar situation. State-funded colleges and universities have also been cutting back dairy alternatives due to budget cuts, but it make take efforts targeting state governments or legislatures to overcome such impediments. Schools could try to increase participation in the School Breakfast and School Lunch programs, where a lot of milk in particular is consumed. 8. Retail food stores: We did not focus on larger supermarket, package stores, and other retail locations where most milk is sold to retail shoppers. Specialty stores and coops do preferentially stock local and regional independent dairy products, and organic products. For example, Harvest Co-op in Boston currently sells milk from a large variety of companies such as Stonyfield, Organic Valley, and MOO, and they ran many campaigns to encourage the purchase of this product. Whole foods also stocks High Lawn Farms Crescent Ridge Dairy, Shaw Farm, New England Organic Creamery, and MOO Milk, depending on the store. Products from these individual farms are delivered directly to the store either by the farm or through a local distributor. Recommendation: Coops and Whole Foods exemplify the options available in retail grocery stores. Opportunities for smaller grocery stores and package stores to carry such products are not well studied except via the experiences of individual dairies to market their products in such locations. More shared information on their experiences would be helpful to other, particularly newer, independent dairy distributors. 9. Restaurants: Chefs and restaurant food buyers have significant expertise in purchasing local food, and many are willing to purchasing products directly from the farmer. While restaurants have many reasons for buying locally produced foods, there is less focus on dairy. 11

12 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing The obstacles that restaurants face when buying local foods include inconsistent availability and quality, difficulty identifying reliable local producers, difficulty in making purchases due to lack of procedures with many farmers, and dealing with multiple suppliers ordering and delivery schedules. Small local producers sometimes can overcome these limitations by pooling resources and aggregating their product. Additionally, producers can use an intermediary aggregator to distribute or ship local products to consumers through restaurant markets. Such intermediaries could allow growers to spend more time managing the farm and less time marketing their goods. However, there are successful models such as Henrietta s Table in Cambridge, MA. Fluid milk products are delivered directly from Oakhurst Dairy in Maine. A local distributor delivers butter, yogurt, and other milk products multiple times a week. Henrietta s Table consumes 300 pints of butter each week, and purchases Stonyfield brand yogurt and purchases specialty butters from Vermont Butter and Cheese Company, which are procured through the local distributor. Many higher-end restaurants use similar volumes of dairy products, and are very focused on quality and sourcing, but have focused more on produce than on dairy. Recommendations: There is an untapped market for local farm branded milk in the Boston restaurant scene. The importance of a farm name to the consumer is high when buying local produce or dairy products. Local distributors may be key in getting local milk into restaurants by keeping distribution costs low for farms, and allowing restaurants time savings with onestop shopping. Many more higher-end restaurants could be purchasing greater amounts of products, particularly cheese, but also ice creams, butter, and cream for New England independent distribute from farmers directly. This may be a potentially strong growth area for producers or independent dairy processors with specialty products. Direct marketing: A large majority of dairy farmers, particularly in Vermont and Maine, are only set up to wholesale their milk. It would take a substantial amount of capital and labor to restructure their businesses to retailing milk. Currently, there are only a few dairy farms in the area that are set up to directly sell their milk, an most of these are filled to capacity. Direct-toconsumer sales by dairy producers are well established at farmstands they operate, and at other farmstands where regular deliveries are possible. Two other direct markets do not have a lot of dairy marketing, however: 10. Consumer Supported Agriculture (CSA): CSA dairy is scarce; Massachusetts has one dairy-focused operation based in Framingham that includes a raw milk option as a niche product. Almost no CSAs include dairy, in part because they mainly produce fresh vegetables and have not thought about dairy, except cheeses in a few instances. There are a handful of dairy-only CSAs in the Northeast, but opportunities seems somewhat limited; home delivery is often a preferred option for farms that could offer a CSA model. 12

13 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Recommendations: As CSAs increasingly diversity by adding products from other local farms, the opportunity to add cheese shares is ripe for expansion. Diversifying CSAs should also investigate other dairy products from local producers to incorporate into a CSA share. 11. Farmers Markets: Fluid milk sales at farmers markets appear impractical for many reasons, even where there is a niche product with a price premium. High Lawn Farm in the Berkshires sold milk at farmers markets, but experienced great resistance from wholesale accounts, which said they would stop selling High Lawn Farm milk if they continued selling at farmers markets. Local cheeses are still a small component of total farmers market sales (e.g., about 10 vendors in Massachusetts), limited in part by the number of on-farm producers with the capacity to sell at these venues. However, there is expansion potential if markets are more flexible to allow other farmers to market the cheese. Farmers markets have some opportunities to offer other products, such as yogurt and ice cream, but face practical challenges (although ice cream is sold, particular for immediate consumption, at some markets). Recommendation: Diary expansion at farmers markets has greater potential than with CSAs. But as with most direct marketing, there is limited data on current vendors and research on potential for expansion. More assessment is recommended given the size of this marketplace. 12. Incentive voucher programs: As with fruits and vegetables, dairy consumption is lower in lower-income communities. These incentive programs, such as the Farmers Market Promotion Program, and Wholesome Wave s double vouchers, are primarily targeting fresh produce at farmers markets. Some programs can include CSAs, deliveries to senior community centers, and other locations. The use of incentives to promote dairy consumption has not been investigated in any depth. While there is skepticism, more information and one or two pilot efforts seem worthwhile to determine the feasibility of a dairy promotional program, especially for products (cheese, yogurt, etc.) from local producers. Recommendation: There has been little if any research on expanded opportunities for using incentive programs; more is warranted given the need and potential for this to apply to dairy. Pilot programs could determine their viability. 13. Dairy Home Delivery: Home delivery of dairy products is an iconic image of earlier decades in our country s history, and is often thought of as an outdated practice. However, 13

14 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing there has been a recent resurgence in the dairy home delivery model as consumers seek out new ways of connecting with their food and the people who produce it. Massachusetts is home to multiple home dairy delivery companies, with three operating in the greater Boston area. These home delivery dairies were once producers of milk on their own farms, but have moved out of production and remain solely with the distribution of milk purchased from local farms. Dairy home delivery is a niche market targeting a consumer who is in search of a high quality milk or dairy product, convenience, appreciates the source of their food, and is willing to pay a higher price for the product. Although a smaller market, this outlet can still have great impact on the New England dairy industry. Recommendation: As with other direct marketing, more information is needed on the practicalities; more background best practices, challenges, and overall potential for home delivery is worth gathering and sharing. Summary conclusions: New England s dairy producers need to continue to adapt to more creative marketing as part of overall diversification if they are to be sustainable over the long term. Marketing is a diverse component of dairy industry. Creative marketing-related strategies will be needed by more producers, in combination with other programs and policies by dairy producers and by all those who support their continued existence in New England. More research and information sharing has been emphasized. The critical need to promote such transitions on a timely basis requires that producers, customers, policy advocates, and policymakers better understand the specifics of what works, how it works, and the challenges that have to be dealt with. Interested parties could do more to fund and carry out marketingoriented case studies of promising strategies. Initiatives like Rhody Fresh (RI) and The Farmers Cow (CT) are still emerging models, but already offer best practices and lessons learned to benefit others considering multi-producer models. Similarly, marketing case studies are warranted for unique individual businesses to discern success factors and challenges they overcame. 14

15 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Tufts papers cited: Appelman, J., Bardot Lewis, C., Simons, J., & Tung, A. Boston Milkshed Assessment: Setting the Framework for a Comprehensive Analysis of the Dairy Supply Chain to New England's Largest Urban Center". Tufts University, Friedman School of Nutrition Science and Policy, Agriculture, Food and Environment Program. May Eliza Bemis, Vanessa Herald, Rachael Kirk. Greater Boston Area Milkshed Marketing Assessment: An Explanation of Existing Opportunities to Increase Economic Viability of New England Dairy Farms. Friedman School of Nutrition, Tufts University. May 7, Amelia B. Fischer. The New England Dairy System and Consumer Demand. Tufts University, Friedman School of Nutrition Science and Policy, Agriculture, Food and Environment Program. December,

16 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing APPENDIX TABLES Consumption Trend Graphs 1.00 Total fluid milk availability: servings/capita/day Figure 2: Total Fluid Milk Availability: Servings per person per day ice cream other frozen dairy total frozen dairy Figure 3: Frozen Dairy Product Consumption, servings per person per day 16

17 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing yoghurt cottage cheese Figure 4: Yoghurt and Cottage Cheese consumption, servings per person per day American cheese Italian cheese miscellaneous cheese Figure 5: Cheese consumption, servings per person per day 17

18 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing Figure 1. Number of on-farm dairy processors in state of Maine between 1995-Feb 2012 (low is eleven, high is eighty-three). Eleven more on-farm processors are in the process of getting 18

19 New England Milkshed Assessment Summary of Policy Dimensions and Recommendations Related to Marketing set up, but are not included in this data. Also, the 2012 number does not include frozen desserts processors or any interstate milk shippers. Figure 2. Number of on-farm dairy processors in state of Vermont between (low is nine, high is forty-eight). 19

20 NEW ENGLAND MILKSHED ASSESSMENT: STATE-LEVEL PROGRAMS AND POLICIES HELPING TO SUSTAIN THE REGION S DAIRY FARMS AND STATE AND FEDERAL POLICY RECOMMENDATIONS THE CONTEXT Dairy farms manage most of the cropland in five of the six New England states and represent the largest market value of any agricultural commodity in the region. o The region s 17,000 licensed dairy herds generate more than $700 million annually 1 in fluid milk sales. The average mature milk cow has an annual economic impact of about $14,000, 2 and the region s dairy herd contributes more than $3 billion to the New England economy. 3 The average dairy farmer in New England owns or manages over 300 acres of cropland, pasture and woodland; this land is more vulnerable to development if it is not being actively used for agriculture. 4 Severe prices swings and rising costs of production continue to impact the region s dairy sector o At $11.79 per hundredweight (cwt.), the June 2009 all-milk price was 10 cents less than what farmers received for milk in 1979 (real dollars). 5 Many producers suffered financial losses of $350 to more than $700 per cow in o Though profitability has since improved, with average milk prices in the Northeast of $21.53 per cwt. in 2011 covering average net costs of production of $18.10, 7 prices are already beginning to drop again in 2012, following the cyclical pattern below. 8 1 United States Department of Agriculture, New England Agricultural Statistics June Statement of Vermont Dairy Industry Representatives to Secretary Vilsack, Burlington, VT February 13, see also American Farmland Trust in collaboration with Community Involved in Sustaining Agriculture, Increasing Local Milk Processing Capacity: Benefits to Pioneer Valley Consumers and Communities, January In 2010, there were 213,100 milk cows in New England. New England Agricultural Statistics Service, Annual Bulletin 2011, page Census of Agriculture 5 Parsons, Bob. Vermont s Dairy Sector: Is there a Sustainable Future for the 800 Lb. Gorilla? Food System Research Collaborative at the University of Vermont Center for Rural Studies Opportunities for Agriculture Working Paper Series, Volume 1, Number 4. 6 Ibid. Quoting 2010 Northeast Dairy Farm Summary, produced by Farm Credit East, Farm Credit of Maine, and Yankee Farm Credit. 7 Lidback, Joanna and Laughton, Chris Northeast Dairy Farm Summary, May Farm Credit East, Farm Credit of Maine, and Yankee Farm Credit. 8 Farm Credit East, Knowledge Exchange Partner, Volume 6, Issue 2, February,

21 U.S. All-Milk Price, Source: U.S. Department of Agriculture 2010b o Rising production costs show no sign of slowing. Feed, the largest single yearly expense for most dairies, rose more than $300 per cow in 2011, to $1, Gas, fuel and oil costs rose by 35%, and crop inputs were up by 15%. 10 Drought conditions and continued high demand for U.S. feed stocks are likely to push feed prices higher Milk production costs in the first six months of 2012 are already up by an estimated $1.40 per cwt. 11 Given these trends, it is not surprising that the region is losing dairy farms at an alarming rate: In just the last 10 years, nearly 1/3 of the region s licensed dairy herds have gone out of business Lidback, Laughton, 2011 Northeast Dairy Farm Summary, May Ibid. 11 Farm Credit East, Knowledge Exchange Report. July, New England Agricultural Statistics,

22 Policy Conditions Current federal dairy policy is widely regarded as insufficient in providing price stability and income support to New England milk producers. Relevant federal dairy income and price support mechanisms include: o Dairy Product Price Support Program: This program indirectly supports the farm price of milk through government purchases of surplus dairy products from dairy processors. It sets a national milk price floor of about $9.90 per hundredweight which is the equivalent of half the current cost of milk production in the region. 13 o Milk Income Contract Loss Program (MILC): This program pays dairy farmers when milk prices fall below an established target price. It is similar to crop subsidy programs which pay farmers only when farm prices drop below certain levels. Eligible farmers receive a payment equal to 45% of the difference between the target price and the lower market price. In 2009, the program was amended to include a feed adjuster, which increases the target price when feed costs are high. The MILC program is extremely important to New England dairy farmers. In 2009, during the last price trough, MILC payments to the region were over $31 million. [In contrast, MILC payments were under $2 million in 2010, reflecting rising milk prices.] 14 However, MILC alone is an insufficient income safety net during severe price troughs, especially since there is a payment cap affecting dairy herds of over 160 cows. Congress is currently debating reauthorization of the federal Farm Bill. In both the Senatepassed and House Agriculture Committee versions of the bill, the Dairy Product Price Support Program and MILC are replaced with a dairy margin protection program. This new program would provide subsidized insurance coverage for dairy farmers when margins 15 are low or negative. It would also provide a market stabilization, or supply management, program to scale down production when the market is oversupplied. While too soon to know if these changes will be implemented and how they will affect the region, these policy reforms have been embraced by a number of dairy organizations and Members of Congress from New England. 16 NEW ENGLAND STATE POLICIES AND PROGRAMS Recognizing the importance of dairy to its agricultural sector, economy and land base, every state in New England has taken steps to help retain and sustain its dairy farms. These steps range from programs that provide direct support to dairy farms when federal milk prices do not cover the costs of milk production in essence, supplementing the federal Milk Income Loss Contract program to those aimed at dairy herd health and dairy product promotion. Additionally, most of the New England states have programs that, while serving a broader farming constituency, have been extremely important to dairy farm viability. This latter 13 See 2011 Northeast Dairy Farm Summary. 14 See Farm Credit East Knowledge Exchange Partner, Volume 5, Issue 9, September Margins equal the all-milk price minus feed costs 16 See Northeast State Departments of Agriculture (NEASDA) Farm Bill Funding Priorities Summary, March