Dairy Farmers of America

Dennis Rodenbaugh,
Chief Operating Officer, Mid East Region
Dairy Farmers of America

Dairy Farmers of America operates in all of the 48 contiguous States. Its operations are divided into Seven Regions.

Each region has a Council. The Mid-East Council is broken down into 18 districts. The members in each district elect the Councillors. Each farm can have up to three voting members (on condition that they are a partner in the farm business). Each district also elects a delegate and a reserve onto the region’s Policy and Resolutions Committee. They also elect six delegates of which three go forward to attend the Companies Annual Meeting in Kansas City.

The Mid-East Council appoints 7 of its members to the Corporate Board. The number of Directors assigned to each region varies and is determined by a 50:50 mix of the number of farms and the volume of milk in a region.

The Chair of region along with the Chairman and Vice Chairman form the Executive Committee of DFA. These are the Directors who the CEO keeps informed on a week to week basis.

Each region forms a business unit with its own P&L account. They are fairly autonomous, and are managed by a Chief Operating Officer (COO), with the Council acting as the Board for that region. They are responsible for collection and sales of milk in each region. Whilst most of DFA’s factories are held by a separate business unit each area has a number of “balancing plants”, which make powder to use up any surplus milk on a day-to-day basis. In addition each area council draws up its own system of milk premiums.

Each region will trade milk with its neighbours from time to time depending on seasonality and supply and demand in each area. It is up to each COO to negotiate a price and if he can get a better deal outside DFA he will go with that.

Each region has a separate Resolutions and Policy Committee. They draw up new resolutions which are presented at the Annual Meeting for adoption. An example of a resolution was one to support the Cooperatives Working Together (CWT) herd buyout programme.

I can’t help thinking that those who drew up DFA’s system of governance must have taken a lot of inspiration from the United States Constitution. The Executive Committee is like the cabinet with the corporate board more like the senate. Each region enjoys a certain degree of autonomy like the constituent states. With resolutions being considered at each Annual Meeting; somewhat analogous to a meeting of Congress, including no doubt its own version of the President’s State of the Union speech.

I asked Dennis about how DFA came about. It started at a time when prices where very low. Co-operatives had been fighting the bit out against each other. Finally at a industry meeting the Chairmen of several large co-operative got together to discuss the issues. Seven co-operatives where involved in the first set of negotiations. Four co-operatives joined together in the initial merger with another two joining shortly after. They also have joint ventures with Land O Lakes and Dairylea.

To get over certain issues, a procedure known as “Grandfathering” was used. An example of this was the different patronage schemes of each of the merging co-ops. While a new joint scheme was set up for new entrants existing members would continue to have the same rights to withdraw patronage upon retirement as they always had.

New offices where set up in a different location, to create a new feel and identity for the co-op. It also helped to avoid the feeling that one co-op had taken over another.

The system of regional councils was set up to avoid tensions between North & South and East & West.

I then asked. If each region operates like its own mini-coop, what is the advantage of being merged at a national level.

The answer is combined strength and resources. Such as being able to make investments, a meaningful R&D programme, market strength and position. DFA has a number of customers such as Dean Foods and McDonalds who purchase on a Nationwide basis. DFA can offer them local product in every state. They also are in a better bargaining position with the banks, and have not had to ask their members for additional capital funding.

Retained patronage funds are revolved back to members after ten years. When a new member joins he is required to build up $1.75 in equity for every cwt of milk that he sells. 10 cents per cwt is taken of his milk check until he has $1 built up. Then revolving equity payments (which he would receive after ten years) are not paid out until he has $1.75 per cwt built up.

New Directors and Area Councilors receive a day’s training, this focuses on their fiduciary duties. There are no external Directors on the Board however Legal Council attend Board meetings to look after the Directors interests.

The corporate Board meet one a month, each meeting lasts two days. Each area council meets around six times a year.

I couldn’t get exact pay for Directors and Councillors but it is pretty modest at around $300 a day for Directors and $200 a day for Councillors.