The message at the recent Organic Valley Annual Meeting was pretty clear—2013 wasn’t really a great year for the high successful organic food co-operative with its dairy focus.
Sometimes, it’s difficult for others to see what passes for hard times at a very successful organization like Organic Valley. For instance, sales continued to approach $1 billion annually in 2013, as they grew to $930 million from $857 million in 2012. That doesn’t sound too bad for a year most of the co-op’s management and board of directors are “ready to forget.” Then, there’s the profit of just $5 million in 2013. Unfortunately, that’s a troubling decline as a percentage of sales from the $9.6 million profit in 2012 and the $12 million profit in 2011.
The Organic Valley Annual meeting was held at the LaCrosse Center on Thursday, April 3 with hundreds of the co-operatives members and employees in attendance.
OV’s Chief Financial Officer Mike Bedessem explained the tough year as a sort of a tale of two years. During the first seven months of the year, organic milk production exceeded the demand. When milk production exceeds demand, Organic Valley has a utilization problem.
In her report, OV’s Chief Operating Officer Louise Hemstead told the assembled producer members and employees at the annual meeting the co-op’s goal was 98 percent or better utilization of milk as organic fluid milk or another dairy product. In the first part of the year, utilization fell to around 96 percent. OV milk not used as an organic product is forced to be sold at a lower conventional milk price. This needs to be minimized. So, utilization was a problem in the first half of the year, according to Hemstead.
Bedessem pointed out that the difference in the organic price the co-op paid for the milk to the conventional price it received cost the co-op almost $9 million. Incidentally, the Organic Valley Midwest pay price reached $29.59 per hundredweight in 2013, while the conventional price moved up to $19.76.
However, steps to increase sales taken by OV Vice President of Sales Eric Newman and his staff, as well as the increased marketing efforts of Vice President of Brand Marketing Lewis Goldstein never had a chance to come to fruition. Essentially, the problem of increased production that they sought to address in the first half of the year evaporated in the second half of the year.
Suddenly, Organic Valley, was faced with below average production and could not meet its customers’ demands. This forced OV to allocate supplies to its customers. The result was many retail shelves left bare or meagerly stocked with Organic Valley dairy products. Newman showed slides of the empty shelves during his presentation. He also noted that the other organic dairy producers could not keep their supply on the shelves and also suffered from decreased production.
On one thing, the management reports seemed to agree—2014 held the promise to be a better year for Organic Valley.
While 2013 proved to be trying year from an operational and financial standpoint, that wasn’t the only challenge the co-operative faced. A massive fire at the organization’s LaFarge headquarters on Tuesday, May 14 severely impacted the co-operative’s ability to function. CEO George Siemon spoke of the resolve with which the employees faced the situation, working from a variety of makeshift offices. Bedessem also noted that through it all, facing destruction of records and reduced computer capability, the co-operative was able to stay current on paying and collecting its bills.
Bedessem explained that in response to the fire JP Morgan Chase increased the co-operative’s line of credit from $45 million to $65 million to help.
The well-respected chief financial officer also told the group that Organic Valley had reached an agreement with Rabobank, a Dutch bank with an emphasis in farm and agribusiness lending.
Bedessem had high praise for the co-op’s insurance company, which worked quickly and effectively, approving claims and making timely payments to help in the recovery effort. He noted the insurance company had approved payments of almost $12.5 million, including $7.2 million to repair the building $3.98 million to replace equipment and $1.4 million for extra expenses to rent spaces and equipment.
The fire “scattered the staff to winds,” according to Bedessem. The co-operative was forced to send staff into 21 different buildings including libraries, homes and other places.
During his presentation CEO George Siemon noted that one positive that came from the fire was the renewed commitment from the staff to cooperative.
While Bedessem acknowledged some of the financial problems caused by the fire, he also noted a strange twist caused by the higher cost of replacing the lost building and equipment. Because the replacement value was $8,917,000, while the book value of the losses was $4,121,000, it created an increase in value on the balance sheet of $4,796,000.
“Mike, when is the next fire scheduled,” a voice jokingly asked from the back of the room to resounding laughter from the hundreds in attendance.
“It’s something we don’t want to have to ever go through again,” Bedessem replied. He noted another fire at a processing plant in Indiana, used by the co-operative, had resulted in $1 million insurance claim last year as well.
“2013 was a strange year,” Bedessem said. “It’s why we buy insurance.”
Despite the problems of supply and the lack of supply of milk and the resulting financial problems it caused and the impact of the fire on the operations, CEO George Siemon could still find some bright spots in the preceding year. He noted that fresh vegetable produce sales had grown hugely in large part because of the Hillsboro consolidation point being used by local Amish growers. He also pointed to increased productivity of the Organic Meat Company. The CEO also pointed out the success of the OV Feed Program, which now has participation from more than 500 co-op members.
Toward the end of the annual meeting on Thursday, the results of the Organic Valley Board elections were announced. Incumbent board member Steve Pierson from St. Paul, Oregon was re-elected and newcomer Roger Peters from Chaseburg, Wisconsin was also elected.
Organic Valley is America’s largest cooperative of organic farmers and one of the nation’s leading organic brands. Organized in 1988, it represents 1,844 farmers in 36 states. Focused on its founding mission of saving family farms through organic farming, Organic Valley produces a variety of organic foods, including organic milk, soy, cheese, butter, spreads, creams, eggs, and produce, which are sold in supermarkets, natural foods stores and food cooperatives nationwide.