It’s been a little over a month since news broke about one Wisconsin dairy processor shedding dozens of dairy farm patrons due to lost markets north of the border. At the same time, some New York dairy cooperatives were still scrambling to find new homes for milk and dairy products. “At best it remains a week-to-week situation,” said one New York co-op representative in early May, noting that the amount of milk displaced in New York was greater than the widely publicized Wisconsin situation that even garnered tweets from U.S. President Trump.

Both the U.S. and Canada have a very firm stance. Canada dairy producers forged an agreement with processors to buy ultrafiltered milk from domestic sources. Meanwhile, U.S. dairy producers and processors would like continued access to Canadian consumers.

We can appreciate Canada’s buy-at-home approach as Hoard’s Dairyman has long been a strong supporter of Canada’s supply management system and at times advocated for a similar system in the U.S. Yet, we also must ask our neighbor, “How do Canadians take the ‘Stay out of our market’ stance but justify becoming more invested in the U.S. dairy industry?”

Two Canadian entities with big U.S. dairy bases
By now, everyone knows that Canada updated its National Ingredient Strategy, leaving well over 1 million pounds of milk displaced each day stateside. Meanwhile, two Canadian entities continued to operate substantial U.S. business bases securing 44 and 52 percent of their respective sales from U.S. operations. While one dairy processor is a publicly traded company, the other organization is a cooperative offering no membership to American dairy farmers, based on our research, yet sweeping up its U.S. profits and carrying those revenues across the border for its dairy farm owners.

In the most recent side-by-side comparison published by Dairy Foods magazine using 2015 data, Quebec’s Agropur Cooperative had $4.45 billion in sales. That made it North America’s largest dairy cooperative. Those dairy product sales were even more substantial than U.S.-based Dairy Farmers of America and Land O’Lakes.

The co-op’s growth trajectory continued even further last year when Agropur grew its sales to $5.95 billion, according to its annual report.

Why did Agropur, and its 3,271 Canadian farm members, grow its U.S. operations?

That’s simple.

While supply management reduces volatility and provides a steady income to its Canadian farmers, it stymies business growth. Unable to grow at home, Agropur turned its eyes south to expand and has done so in a big way. These days, 44 percent of the Quebec co-op’s sales come from U.S. operations, according to Agropur’s annual report. Let’s take a stroll through the past decade:

In 2008, Agropur purchased Trega Foods, a cheese company with three Wisconsin plants. That same year, the co-op purchased Minnesota’s Schroeder Milk.

One year later, Agropur followed up those purchases by acquiring the Farmland Dairies processing facility in Grand Rapids, Mich., and then gobbled up Green Meadows Foods in Hull, Iowa. Agropur further fed its appetite by purchasing Main Street Ingredients in LaCrosse, Wis., to end its three-year run in 2010.

After a four-year hiatus, the Canadian co-op swooped down to acquire Davisco Foods International, its plants in Idaho, Minnesota, and South Dakota, and its $1 billion share of dairy product sales. That purchase doubled its U.S. processing capacity and raised its global milk intake by 50 percent. That allowed Agropur to distribute $60.1 million in patronage dividends to its Canadian co-op members last year.

That’s how Canada’s largest co-op views the U.S. market.

A Canadian company’s game plan in action
While it may be a publicly traded company, Canadian-based Saputo also has ties to dairy co-ops . . . by making outright purchases or buying assets. That first move took place in 2008 when the Montreal-based company bought Wisconsin’s Alto Dairy Cooperative for $160 million, soaking up America’s 17th ranked co-op. However, that acquisition was merely a midlevel purchase.

Let’s roll the clock back even further.

In 1997, Saputo staked a strong U.S. footprint by spending $405 million to acquire Stella Foods and its 12 production facilities scattered across five states. In striking a deal with ConAgra Foods in 2003, Saputo added the Treasure Cave and Nauvoo Blue Cheese brands to its portfolio. With a cash outlay of $216 million in 2007, Saputo bought the Land O’Lakes West Coast industrial cheese business based in Tulare, Calif. Two years later, it spent $44.5 million to nab California’s F&A Dairy.

In a constant growth mode, Saputo spent $270.5 million adding Wisconsin and New Jersey’s Fairmount Cheese holdings to its brand in 2011. Rounding out its buys, Saputo laid out $1.5 billion to purchase Morningstar Foods from Dean Foods. And with it, Saputo added more facilities across nine states to its portfolio.

All told, Saputo spent $2.6 billion to acquire U.S. market share. These days, that Canadian company is really an American dairy processor as 52.6 percent of its $11 billion in revenue in 2016 came from the U.S., according to its annual report. That left 34.8 percent from Canadian sources and 12.6 percent from other countries.

We share these documentable investments because everyone should know that Canada’s two largest dairy companies are playing on both sides of the fence. While many Canadians staunchly defend supply management, other countrymen dance across the border to acquire much needed milk and market share not found at home.

Canada likes U.S. milk up to a point
This recent trade dispute is a complex situation that deserves a much deeper debate if Canada continues to acquire U.S.-based dairy assets. That’s because when it comes to growing their businesses, Canada definitely likes the abundance of U.S. milk except when it comes to selling that milk and its dairy products to its citizens.

Editor's note: Sources for all sales and acquisitions are available upon request.

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© Hoard's Dairyman Intel 2017
May 22, 2017

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