Do Marketing Agencies in Common Really Work?

Transcription

1 Do Marketing Agencies in Common Really Work? Jim Sleper Southern Dairy Conference January 25,

2 FEDERAL ORDERS MARKETING AGENCIES IN COMMON 2

3 3 Agenda Definition of MAC s Purposes of MAC s Land O Lakes involvement & experiences Ongoing Challenges & Opportunities Q & A

4 4 MAC definition: Member cooperatives maintaining their operational independence while capitalizing on the benefits of approaching customers as a unified body. A grouping or combination of cooperatives that market products under a common agreement. Legal entity enabled by Capper-Volstead Act... may act together...

5 5 MAC definition...(do Not s) MAC s... Do NOT unduly enhance prices Do NOT restrict trade at any level (producer, wholesaler, retailer) Do NOT eliminate competition Are NOT strategies to broaden coop membership

6 Agencies typically... 6 Provide better utilization of production & sales Capture premium dollars left on the table Achieve lower cost efficiencies in marketing & balancing Capture transportation savings Require a tightly bound membership structure Must include independent audit functions Must have trust among all parties!

7 7 Without an Agency... Customers always think the competitor has a lower price Sales terms (not just price) begin to vary No good way to verify information

8 8 Why do customers like MAC s? Customers desire a one-stop supplier Agencies maximize efficiencies in market balancing and customer services eventually lower cost to consumers Knowing that competitor costs are equal

9 9 Different types of MAC s Information sharing only Set Prices Pools Revenues Pools Costs Pools Revenues & Costs

10 10 MAC Musts Must have Legal involvement in all aspects, from start to finish! Certification of formation Bylaws Participation in all meetings Must go forward in functions never backward Marketing of member milk Pricing to customers

11 11 Purposes of MAC s 1. Promote orderly marketing 2. Means to gain efficiencies 3. Method to share premiums 4. Method to share costs associated with the marketplace

12 12 MAC Purposes 1. Promote orderly marketing Processors wanting to be supplied by ONE supplier Garnering supplemental supplies Producers pitting one against another Elimination of special deals Normally, Class I processors receive highest priority

13 13 MAC Purposes 2. Means to gain efficiencies Closest milk to closest plant Co-mingling of milk Sharing of customers requirements rbst, organic, quality standards Surplus disposal Legislative & regulatory representation

14 14 MAC Purposes 3. Method to share premiums Normally Class I Service charge revenues Equal sharing versus supplier performance

15 15 MAC Purposes 4. Method to share costs associated with the marketplace Hauling costs Bad debt losses Full supply vs. partial supply Uniform Receiving Weights & Tests Late notice fees Rejected loads

16 16 Dairy MAC s Alphabet soup! DairyAmerica RMMA UMMA CMPC IMMA SLMMA PEC MEMMA GNEMMA GSA DCMA SMA SDCA Yellow denotes LOL membership

17 Common Milk Marketing Agencies 17 CMPC $ Central Milk Producers Cooperative DCMA $ Dairy Cooperative Marketing Association GSA $RC Great Southwest Milk Marketing Agency IMMA $ Iowa Milk Marketing Agency MEMMA $RC- Mideast Milk Marketing Agency PEC $RC- Producers Equalization Committee RMMA $ Regional Milk Marketing Agency SDCA $R Southeastern Dairy Cooperative Association SIMMA $ Southern Illinois Milk Marketing Agency SMA $RC Southern Marketing Association UMMA $ Upper Midwest Marketing Agency $ = Sets Price; R = Pools Revenues; C = Pools Costs

18 18 MAC Success Story #1 Upper Mid-west Marketing Agency (UMMA) Founded in 1990 Prices only fluid Premiums have increased (2x) Coops who supply fluid earn vast majority of premium Daily balancing charge (URC)

19 19 FO 30 Class I Returns Total dollars (million) generated by Federal order Class I differential and over-order agency premium Federal Order Over- Order Total* Million Dollars Year Average $78 $93 $170 * May not add due to rounding Source: FO 30 Market Administrator

20 20 MAC Success Story #2 Producers Equalization Committee (PEC) Implemented late 80 s Pools revenues & common expenses Two separate pools Pool A Establishes & Pools Class I & II premiums (including affidavit) Pool B Establishes & Pools Service Charges Representing 5.5 billion pounds per year Generating $48 million of additional income annually (2010)

21 21 MAC Success Story #3 Greater Northeast Milk Marketing Agency (GNEMMA) Established Sept Coops in MAC Primarily prices rbst free rbst free premium 75 cents/cwt. since inception No pooling of revenues or costs

22 22 Challenges for MAC s Continued scrutiny of Capper-Volstead Lack of trust among members Lack of leadership Temptation to do better alone! Free rider syndrome Fewer, larger, regional/national buyers Greater demands such as higher quality milk Eliminating/Modifying Federal Orders FFTF FO Reform Two class market

23 23

24 24 Opportunities for MAC s Should MAC price more than Class I? Implement Standby Supplemental pools? Communications between MAC s? Coordination between MAC s? Method to address national/multi-regional issues... Feed surcharge Fuel surcharge rbst, Organic, EU Standards

25 Questions? 25