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Land O'Lakes, Inc. Business Information, Profile, and History

cooperative feed dairy butter

4001 Lexington Avenue North
Arden Hills
Minnesota
55112-6943
U.S.A.

Company Perspectives

We are a market- and customer-driven cooperative committed to optimizing the value of our members' dairy, crop, and livestock production.

History of Land O'Lakes, Inc.

Land O'Lakes, Inc., is one of the leading agricultural supply and food marketing cooperatives in the United States, providing both its members and the public with food products and production materials. Included in the cooperative are more than 1,150 member associations and approximately 5,150 individual members in all 50 states. Land O'Lakes has also increasingly sought growth opportunities outside the United States, and does business in more than 50 foreign countries. The cooperative is best known for its butter and other quality dairy products, which are marketed under the flagship Land O'Lakes brand as well as Alpine Lace and regional brands such as New Yorker. The cooperative also has several additional operations: Land O'Lakes Purina Feed LLC manufactures and markets feed for farm and livestock animals, for animals used for recreational purposes (such as horses), and for specialized animals such as laboratory and zoo animals. The cooperative's seed division is involved in developing, producing, and marketing seed for alfalfa, soybeans, corn, and grasses and also markets and distributes seeds produced by other companies, including corn, soybeans, sunflowers, canola, sorghum, and sugar beets. MoArk, LLC, is a producer and marketer of eggs. Land O'Lakes is also involved in a joint venture with CHS Inc. called Agriliance, a manufacturer, marketer, and distributor of fertilizers, micronutrients, herbicides, pesticides, and fungicides.

Early History

On June 7, 1921, 350 farmers from all over Minnesota gathered in St. Paul to vote on the organization of a statewide dairy cooperative. With a unanimous vote, the Minnesota Cooperative Creamery Association, Inc., forerunner to Land O'Lakes, was born.

Unlike investor-owned corporations, cooperatives work for and answer to their member-patrons, who benefit in direct proportion to the amount of business they do each year with the cooperative--how many products they supply, or how many they buy. Because each member-patron has one vote, cooperatives are democratic enough to have appealed to the independent American farmers who first joined.

Still, as the St. Paul Pioneer Press was to write 25 years later, skeptics of farm cooperatives existed everywhere in 1921. "Nobody would ever induce American farmers to work together," they claimed, because a farmer was "too individualistic by nature and too firmly set in his own ways to adapt his operating methods to the machinery of any organization." What they did not count on was the energy and dedication of the men who had the vision behind Land O'Lakes.

Beginning with a meager financial stake of $1,375, $1,000 of it borrowed from the Farm Bureau, the cooperative's directors launched a statewide membership campaign. Their project was given a boost when in 1922, after a long fight, the U.S. Senate passed the Capper-Volstead bill, which legalized the marketing of farm products through cooperative agencies. The first year's returns showed a slender profit.

John Brandt, one of the original 15 directors elected to run the organization, became president of the association in 1923. He believed that by working together, competing creameries could raise their profits and offer a better product to their patrons. He urged cooperation among farmers, engineered joint shipments of butter, and proposed a common standard of quality. Most importantly, he and the other directors of the cooperative decided to concentrate on the quality production and aggressive marketing of "sweet cream" butter, butter made from cream before it soured. Although more costly to make and not as familiar to the public, sweet butter tasted better and kept longer.

In February 1924 the cooperative announced a contest to capture the public's attention: its high-quality product needed a catchier name than "Minnesota Cooperative Creamery Butter." First prize was $500 in gold. An overwhelming response brought in over 100,000 entries; the contest was tied between two winners who both thought of "Land O'Lakes." Soon thereafter an Indian maiden appeared on the butter's packaging, completing the familiar image. According to a November 2001 article in Dairy Field magazine, the image of an Indian maiden was selected because the Minnesota/Wisconsin region was the legendary home of Hiawatha and Minnehaha.

In April 1924 the cooperative won a contract with the U.S. Navy for 430,000 pounds of the new sweet cream butter and soon met with a growing demand from American housewives for its conveniently packaged quarter-pound sticks. As Land O'Lakes was already becoming a household name, only two years after the contest, the cooperative changed its name to Land O'Lakes Creameries, Inc., in 1926.

Seeking New Markets, Diversifying During the Great Depression

Land O'Lakes first ventured outside of the dairy business two years later, when it organized egg and poultry divisions. This step toward diversification was to prove crucial during the Great Depression, when dairy businesses throughout the nation suffered enormous losses. In 1930 dairy production was the lowest it had been in two decades, and by December 1933 butter prices had declined to 15¢ a pound, the lowest figure for that month in 25 years. Excess production and surplus holdings were making it almost impossible for American farmers to get back their cost of production, and dozens of creameries held meetings to decide whether they should continue operating. Although Land O'Lakes suffered setbacks because of these market forces between 1929 and 1940, highly imaginative management and a willingness to fight economic trends cut the cooperative's losses considerably. In fact, for much of the Depression Land O'Lakes sales actually grew because of two central strategies.

The first of these strategies was to seek new markets for its products. Before the Depression Land O'Lakes had dealt mostly with large store chains and other nationwide distributors. With many of these large accounts retrenching or vanishing altogether in the crunch, Land O'Lakes began to set up smaller sales branches that could sell directly to groceries and other small outlets. Partly as a result of this marketing strategy, and partly because Land O'Lakes Sweet Cream Butter was being advertised nationally for the first time, Land O'Lakes was able to sell a record 100 million pounds of butter in 1930.

The second strategy was to diversify the products the cooperative offered both to its member farmers and to the public. Seeking to spread the risks of operation, Land O'Lakes began an Agricultural Services Division in 1929 to try to reduce member costs for feed, seed, and other farming supplies. In 1934 the cooperative joined three large cheese cooperatives in the operation of 95 cheese factories, and in 1937 Land O'Lakes opened its first milk drying plant, completing a decade of experimentation that pioneered the production of dry milk. As early as 1926, several individual creameries had begun producing powder from buttermilk, previously a waste product. Thus, when World War II called for milk in a form that did not require refrigeration and had a fraction of the bulk, Land O'Lakes was prepared. All of these changes were ultimately successful expansions and contributed to Land O'Lakes' relative prosperity in difficult times.

In 1938 workers at the main plant in Minneapolis went on strike for a wage increase and a closed shop policy. The strike was amicably settled when the closed-shop demand was withdrawn and a new wage agreement was approved, but the company suffered $400,000 in losses that year.

During World War II, Land O'Lakes was required by federal order to set aside 30 percent of its butter for sale to the government. The cooperative also had a quota of dry milk for the war effort, stepping up production from 22 million pounds in 1941 to 119 million pounds in 1945. By the war's end, Land O'Lakes was producing dried milk and dried eggs in 22 different plants, and eventually became the world's largest manufacturer of dry milk products.

In 1946 Land O'Lakes celebrated its Silver Jubilee under the banner "Pioneers for 25 Years." It prepared for a prosperous future by entering the ice cream and fluid milk markets for the first time, and by developing the world's first successful milk replacement, a dry meal for nursing calves. This meal, a substitute for the skim milk calves were usually fed, overcame opposition to the use of skim milk as a dry milk base.

In 1952 John Brandt, known as "Mr. Land O'Lakes," died after serving as president and general manager for nearly 30 years. Frank Stone became general manager, and M. H. Mauritson became president. Later, a restructuring of the management changed these positions to president and chairman of the board.

Postwar Acquisitions Sparking Rapid Growth

To develop its ice cream line, Land O'Lakes acquired Bridgeman Creameries, a chain of soda-grills in Minnesota and Wisconsin, and the operator of fluid milk businesses in North Dakota and Minnesota. The cooperative also expanded three turkey processing plants in 1954.

During the 1960s, the cooperative continued to grow at an astonishing rate. It acquired Terrace Park Dairies of Sioux Falls, South Dakota, a full-line dairy, and H. C. Christians Company, a Chicago manufacturer of butter, and merged with Dairy Maid Products Cooperative of Eau Claire, Wisconsin. In addition, management responded to the broadening scope of Land O'Lakes' interests by making 60 new assignments and by restructuring the cooperative's internal organization. By the decade's end, Land O'Lakes' sales had reached $400 million and assets totaled nearly $100 million, figures double those of 1960.

Another key merger occurred in 1970, as Land O'Lakes was joined by the Farmers Regional Cooperative, also known as Felco. This move increased Land O'Lakes' capacity to produce and market agricultural production goods (such as fertilizers and insecticides) for its member-patrons, and also brought Ralph Hofstad, Felco's president, to Land O'Lakes, where he later served as president. Also in 1970 Land O'Lakes Creameries, Inc., changed its name to simply Land O'Lakes, Inc., to better reflect its diverse business.

Expansion and diversification continued at a rapid rate as the 1970s drew to a close. In 1978 the cooperative entered the red meat business for the first time with the acquisition of Spencer Beef, the country's 17th largest meatpacker, and in 1980 Land O'Lakes began soybean processing in conjunction with Dawson Mills. The cooperative also produced new products such as "But-R-Cups" and Country Morning Blend, a spread made of 40 percent sweet cream butter and 60 percent corn oil margarine, offering more options to American households and foodservice businesses. Introduced to the foodservice market in 1975 after ten years of development, "But-R-Cups" were single servings of butter packaged entirely by machine ensuring portion control and standardized freshness. Country Morning Blend appeared in 1981 and was aimed at consumers who preferred the taste of butter but could not afford it. It was cleverly designed to make a dent in the margarine market while keeping converts from butter, always Land O'Lakes' mainstay, to a minimum.

Difficulties Leading to Retreat from Diversification

In 1981 Land O'Lakes moved into its new corporate offices in Arden Hills, Minnesota, just north of the Twin Cities, with facilities for research, testing, sales, and training.

At the end of fiscal 1982, too much supply, too little demand, escalating production costs, and excessive interest rates on existing debts resulted in losses in excess of $19 million. Land O'Lakes had moved too fast and taken on too much in the 1970s and early 1980s, critics said, pointing to the cooperative's ventures in beef, agronomy, petroleum, and soybeans. A merger with Midland Cooperative that year did eventually bring savings in excess of $4 million, and Land O'Lakes' fiscal health was never seriously threatened.

In 1985 a class-action suit brought against Land O'Lakes by 96 turkey farmers claimed that the cooperative had overcharged the farmers for their participation in a marketing pool in 1980. Land O'Lakes eventually settled out of court for approximately $1.5 million.

In the late 1980s, Land O'Lakes showed a continued willingness to expand, while carefully monitoring its less-established commodities. In January 1987 Land O'Lakes launched an extensive joint venture, Cenex/Land O'Lakes Ag Services, with Cenex Cooperative to market feed, seed, farm chemicals, and petroleum. Later in the year it embarked on a more limited venture with Mid-America Dairymen (taking advantage of the fact that Mid-America's regional offices and Land O'Lakes' corporate headquarters were both located in Arden Hills) to operate dairy plants together. Land O'Lakes also left the petroleum resources business in 1987 and soon thereafter divested turkey and red meat businesses, reflecting a concern that industry overproduction, widely fluctuating market prices, and increasing operating costs would continue to make their operation unprofitable.

Expanding Market Area Domestically and Internationally

Land O'Lakes entered the 1990s under new leadership, as John E. ("Jack") Gherty, a 19-year cooperative veteran, was named president in September 1989, replacing Hofstad. The Gherty-led Land O'Lakes of the 1990s, while hampered somewhat by the inefficient ways of many of its conservative, cash-strapped Midwestern farmers, posted steadily rising sales and earnings thanks largely to efforts to extend the cooperative's sales area both in the United States and abroad.

In part to counter the maturing of the U.S. market in such cooperative staples as butter, livestock feed, and fertilizers, Land O'Lakes became much more aggressive overseas in the 1990s. The groundwork for these moves began to be laid in 1981, when Land O'Lakes formed an International Development division. This division worked as a subcontractor on projects that were funded through grants from the U.S. Agency for International Development and international development banks and that aimed to build local farm and food economies. Land O'Lakes' involvement in these efforts helped to build business ties that later evolved into joint ventures, as well as developing new customers for exports in the region. By the mid-1990s Poland was turning into one of the International Development division's real success stories as Land O'Lakes entered into joint ventures to operate a feed milling business and a cheese plant there. Exports to Mexico increased in this period led by the 1996 introduction of the Great Start line of swine starter feeds. In March 1996 a feed mill began operating in Taiwan that was part of a joint venture between Land O'Lakes and a Taiwanese firm. Land O'Lakes celebrated its 75th anniversary in 1996 with record net sales of $3.49 billion and near record net earnings of $118.9 million (second only to the $120.5 million of 1995).

Meanwhile, Land O'Lakes was involved in activities at home that brought it closer to being a truly nationwide cooperative. The cooperative's Pacific Northwest region was bolstered through a joint venture with the Seattle-based Darigold Feed Co. cooperative, which was fully operational in 1993 and served to link the Pacific Northwest feed operations of the two cooperatives, bringing gains from the larger scale of the combined operations. Also in 1993 Land O'Lakes acquired the assets of the Waldron Feed Co., the only commercial feed manufacturer in the Hawaiian Islands. This purchase not only gave Land O'Lakes a U.S. presence that stretched from Michigan to Hawaii but it also brought with it Waldron's exports to the Pacific Rim. In early 1997 Land O'Lakes merged with Southampton, Pennsylvania-based Altantic Dairy Cooperative, which had been one of Land O'Lakes' largest dairy cooperative members and which was owned by 3,600 dairy farmers in the Middle Atlantic region. The merger made Land O'Lakes the third-largest processor of dairy foods in the country (with $2.1 billion in annual processing), enhanced the cooperative's butter supply near to its strongest market area, and extended its membership base into a new region and into seven new states, thereby giving Land O'Lakes a coast-to-coast presence. Later in 1997 Land O'Lakes acquired Alpine Lace Brands, Inc., a Maplewood, New Jersey, marketer of cheeses and meat products to supermarket delicatessens, with the top-selling deli Swiss cheese brand in the United States. Through this $60 million deal, Land O'Lakes boosted its deli market share from 13 to 17 percent.

In 1998 the cooperative bolstered its West Coast operations by merging with Dairyman's Cooperative Creamery Association of Tulare, California. Dairyman's had 240 members and annual revenues of about $800 million. The merger increased Land O'Lakes' annual milk production capacity by 50 percent, from 8 billion pounds to 12 billion pounds. Results for 1998 were severely impacted by a $26 million loss suffered by the cooperative's swine operations as a result of low prices in the hog industry.

Dealmaking at the Turn of the Millennium

A host of deals completed between 1999 and 2002 brought fundamental, across-the-board changes. The Cenex/Land O'Lakes Agronomy joint venture acquired the retail operations of Terra Industries Inc., a producer of crop protection, fertilizer, and seed products based in Sioux City, Iowa. This 1999 deal for approximately $360 million was followed one year later by the merger of Cenex/Land O'Lakes Agronomy and the agronomy operations of Farmland Industries, Inc. to form Agriliance, a joint venture for which Land O'Lakes held a 50 percent interest. Also in 2000 the cooperative and Farmland Industries combined their feed operations into another joint venture, Land O'Lakes Farmland Feed LLC, with Land O'Lakes taking an initial 69 percent stake. In 2001 Land O'Lakes spent about $360 million to acquire Purina Mills, Inc., one of the largest animal feed companies in the country. Purina Mills was folded into Land O'Lakes Farmland Feed, after which Land O'Lakes' stake in the feed business stood at 92 percent. Land O'Lakes bought out Farmland's 8 percent stake in 2004, after which the unit was renamed Land O'Lakes Purina Feed LLC.

On the dairy side, Land O'Lakes in 2000 acquired Madison Dairy Produce Company, operator of the largest butter production facility in the Midwest. The cooperative also acquired a Beatrice Group mozzarella cheese plant in Gustine, California, in 2000, and the following year purchased a Kraft Foods Inc. cheese plant in Melrose, Minnesota, through a joint venture with Dairy Farmers of America, Inc. In the face of increasing consolidation in the milk marketing sector, Land O'Lakes elected to sell its Upper Midwest fluid milk operations to Dean Foods Company in a deal that closed in July 2000. Cooperative members continued to supply raw milk to the five facilities that Dean acquired. Concurrently, Land O'Lakes and Dean entered into a 50-50 joint venture giving Dean the right to market sour cream, half and half, and cream nationwide under the Land O'Lakes brand. In 2002 Land O'Lakes and the new Dean Foods Company (created via Suiza Foods Corporation's 2001 acquisition of the original Dean Foods) replaced this joint venture with an expanded alliance giving Dean the right to use the Land O'Lakes name nationally on a range of value-added fluid milk and cultured dairy products.

Through this string of deals, Land O'Lakes had positioned itself as a business with four strong core operations--dairy foods, feed, seed, and agronomy. Through the year 2005 the cooperative concentrated on paying down a significant portion of the debt it had incurred via some of these deals and also consolidating and integrating merged operations. Seeking to focus further on these core areas, Land O'Lakes divested its troubled swine operations in 2005 and also sold off its 38 percent interest in CF Industries, a fertilizer maker based in Long Grove, Illinois, for $315 million. The sale of the CF stake resulted in a net gain of $70 million, pushing net earnings for the year to a record $129 million. Net sales fell slightly, 1.6 percent, to $7.56 billion.

In October 2005 Gherty retired, having left a lasting mark on Land O'Lakes. Succeeding him as president and CEO was Chris Policinski, who had been executive vice-president and chief operating officer of the dairy foods division. One of Policinski's initial focuses was cost containment, and Land O'Lakes in February 2006 shut down its cheddar cheese plant in Greenwood, Wisconsin, which had operated at a loss the previous year. The new leader also continued his predecessor's strategy of focusing on core areas. The principal troubled operation that remained was the egg production and marketing unit, MoArk, LLC. MoArk had been a joint venture from 1998 until January 2006, when Land O'Lakes acquired full control. Land O'Lakes then sold MoArk's liquid egg processing operations to Golden Oval Eggs, LLC, in June 2006 in a $60 million deal. MoArk, which retained its shell egg business, remained a candidate for divestment as it represented a distraction from Land O'Lakes' much larger and stronger core businesses.

Principal Subsidiaries

Land O'Lakes Purina Feed LLC; MoArk, LLC.

Principal Competitors

Kraft Foods Inc.; Dean Foods Company; Sargento Foods Inc.; Challenge Dairy Products; Keller's Creamery, LP; Pioneer Hi-Bred International, Inc.; Monsanto Company; Syngenta Seeds, Inc.

Chronology

  • Key Dates
  • 1921 A group of 350 Minnesota farmers form the Minnesota Cooperative Creamery Association, Inc.
  • 1924 The Land O'Lakes brand is introduced.
  • 1926 Cooperative changes its name to Land O'Lakes Creameries, Inc.
  • 1929 Cooperative begins supplying feed, seed, and other farm supplies to its members.
  • 1934 Land O'Lakes enters the cheese making sector.
  • 1937 First milk drying plant opens.
  • 1946 Land O'Lakes enters the ice cream and fluid milk markets.
  • 1970 Cooperative merges with the Farmers Regional Cooperative and shortens its name to Land O'Lakes, Inc.
  • 1987 Cenex/Land O'Lakes Ag Services joint venture is formed.
  • 1997 Land O'Lakes merges with Atlantic Dairy Cooperative; Alpine Lace Brands, Inc., is acquired.
  • 1998 Merger with Dairyman's Cooperative Creamery Association is completed.
  • 2000 Cenex/Land O'Lakes Agronomy and the agronomy operations of Farmland Industries, Inc. merge to form the joint venture Agriliance; Land O'Lakes and Farmland Industries merge their feed operations into the joint venture Land O'Lakes Farmland Feed LLC; Land O'Lakes sells its Upper Midwest fluid milk operations to Dean Foods Company and the two companies enter into marketing alliance.
  • 2001 Cooperative acquires Purina Mills, Inc., which is folded into Land O'Lakes Farmland Feed.
  • 2004 Land O'Lakes takes full control of Farmland Feed, which is renamed Land O'Lakes Purina Feed LLC.
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