March 27 2013 07:22 AM

Two years ago, the Upper Midwest cooperative developed a strategic plan to position the organization for future growth by focusing on core products.

Members, delegates, directors and employees of the Associated Milk Producers Cooperative met in Bloomington, Minn., for its annual meeting on March 25 and 26. During the Tuesday business session, AMPI's Ed Welch, president and CEO, reminded members that the cooperative's readjusted manufacturing portfolio with primary focus on cheese, butter and powered dairy products (whey and nonfat dry milk) has already started to pay dividends. Together those core products accounted for 85 percent of the co-ops sales in 2012.

In order to get to the point, the co-op made two key strategic moves. Last March, it sold its Cass-Clay brand and that plant to Kemps. While the plant is no longer in AMPI's possession, it still maintains an exclusive supply agreement to the Fargo-based, N.D. plant. In a second move late last year, the co-op sold its cheese sauce and pudding business to Bay Valley Foods of Oak Brook, Ill. In the past, those two portions of AMPI's business represented less than five percent of the co-ops activity.

As a result, the co-op with 2,900 members not only reduced its hauling costs, but also has begun to improve its debt to equity ratio. Overall, AMPI handled 5.6 billion pounds of member milk which resulted in $1.7 billion in sales last year.

"Cheese production, which represents 57 percent of our total sales, grew by 11 million pounds compared to one year earlier," said Welch. "To help aid that growth, 40 percent of our cheese production flows through 18 new cheese vats in the Blair and Jim Falls, Wis., facilities," he said noting that installation was completed towards the end of 2011 at a total cost of $7.5 million. "Thanks to those updates, 3 million more pounds of cheese is being made from the same volume of milk. That investment will have a short two-year payback," said the AMPI leader.

Butter ranks as the co-op's second largest product representing 16 percent of all sales. It too was up. "Butter production continued its steady growth, increasing 5 million pounds over last year," said Welch. "AMPI produced 150 million pounds of butter last year; that is up 25 million pounds from just 5 years ago."

The co-op continues to try to maximize producers' return on investment. Currently 46 percent of all dairy products it manufactures were in the form of consumer-packaged products with the remaining 54 percent in bulk.

"Even though consumer packaged cheese sales were down slightly in 2012 (when compared to 2011), consumer packaged cheese sales have climbed 19 percent in the past five years," said Welch. For butter, the growth was 21 percent during the last five-year window.

Orders from food service continue to be a growth area for AMPI. "Orders from food service customers fueled our growth in consumer-packaged cheese and butter sales," said Welch who pointed out that those sales account for 70 percent of AMPI's total consumer-packaged sales. Some of the co-op leading customers include: Sysco, a leading food service supplier, Cracker Barrel, Denny's and fast food giant McDonald's.