United States
Department of
Agriculture

Cooperative
Information
Report 1
Section 16

Cooperatives
In the Dairy
Industry

 Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Status Quo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cooperatives in the Dairy Industry . . . . . . . . . . . . . . . . . . . . . . . . 3
Initial organization

..............................4

Adaptation to changing markets . . . . . . . . . . . . . . . . . . . . 6
Dairy Cooperative Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Bargaining-only cooperatives

. . . . . . . . . . . . . . . . . . . . . 11

Manufacturing/processing cooperatives . . . . . . . . . . . . . 12
Cooperative cooperation

. . . . . . . . . . . . . . . . . . . . . . . . 14

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Associations Serving the Dairy Industry

. . . . . . . . . . . . . . . . . . 15

For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
RBS publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
RBS Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Revised September 2005

CII

 Cooperatives
In the Dairy Industry

Introduction
Farmer-owned dairy cooperatives in the United States engage in a variety of activities to provide members an assured market for their milk. They may negotiate prices and assemble, haul,
manufacture, process, or market milk and dairy products to wholesalers, retailers, or in their own stores.
Dairy cooperatives range widely in size and function-some
solely arrange for the sale of members' milk and provide few services, while others manufacture a wide range of products and may
market their own branded products directly to consumers. Additionally, many offer supporting services for their members, such as
providing field services, verifying weights and tests of milk, selling milk production equipment and supplies, and providing health
insurance.
A dairy cooperative business is owned, operated, and controlled by the dairy farmers who benefit from its services. Members
finance the cooperative and share in profits it earns in proportion
to the volume of milk they market through the cooperative.
Most dairy cooperatives are organized on a centralized basis-farmers are direct members. Only a few dairy cooperatives are
organized on a federated basis--members of the cooperative are
other cooperatives or a combination of direct members and cooperative members. Many are organized to serve farmers in a local
area or single State, while others serve members in multiple States,
regionally or nationally. Some dairy cooperatives have made additional business arrangements to increase outlets for members' milk
through subsidiaries, partnerships, federations, marketing agenciesin-common with other cooperatives, and joint ventures with other
cooperatives or investor-owned firms.
1

 Status Quo
Dairy cooperative numbers in the United States peaked in
the 1940s at close to 2,300 in 42 States (fig. 1, table 1). By 2002 (the
most recent year dairy cooperatives were comprehensively surveyed by USDA), the Nation had only 196 dairy cooperatives
headquartered in 26 States.
Dairy cooperatives represented 13 percent of all agricultural
marketing cooperatives in the United States in 2002, markedly
down from 30 percent in the mid-1940s. This decline has been
faster than for other agricultural commodities. Likewise, the number of milk producers belonging to a dairy marketing cooperative
shrunk to 61,390 in 2002 from a peak in the 1950s of around 777,000.
However, this trend mirrors the national decline in total number of
dairy farms and increase in dairy farm size.
In sharp contrast, the volume of milk handled by cooperatives was 144 billion pounds in 2002, having expanded steadily
over the years from 31 billion pounds in the mid-1930s. On a percooperative basis, cooperatives handled an average of 736 million
pounds of milk each in 2002, compared to 14 million pounds in
the mid-1930s. Thus, despite their declining numbers, dairy cooperatives' role in the marketplace has continued to grow. The share
of all milk delivered to plants and dealers in the United States by
cooperatives was 86 percent in 2002, up from 48 percent in the
mid-1930s. Almost all of the milk received by dairy cooperatives (96
percent in 2002) came directly from member-producers. The rest
came from nonmembers or investor-owned firms.
The share of milk represented by cooperatives varies between
the regions of the United States. More than 90 percent of the milk
sold to plants and dealers in the East North Central, West North
Central, and South Atlantic regions was handled by cooperatives
in 2002 (table 2). In contrast, cooperatives had the lowest share in
the North Atlantic region (72 percent) followed by the Western
region (75 percent). (Ironically, 44 percent of all cooperatives are
headquartered in the North Atlantic region.) The cooperative share
was 87 percent in the South Central region.
In 2002, the majority (56 percent) of U.S. dairy cooperatives
were categorized as small cooperatives, handling less than 50 million pounds of milk annually. Thirty-one percent of the Nation's
dairy cooperatives were medium-sized—meaning they handled

2

 50 to 99 million pounds of milk annually, while large cooperatives,
those handling at least 1 billion pounds of milk per year, accounted
for 13 percent.
Cooperatives sold 62 percent of the milk they marketed raw
and processed or manufactured 38 percent in their own plants in
2002. Dairy cooperatives have marketed a majority of the cheddar cheese, butter, and dry milk products produced in the United
States for about the past 60 years (fig. 2, table 3). Cooperatives'
share of dry milk products peaked in 1987 at 91 percent and in
2002 held an 85-percent share. Cooperative share of U.S. butter
production has fluctuated between 61 and 71 percent since the
1960s and accounted for 71 percent in 2002. Shares of all natural
cheese production have fallen to 40 percent in 2002 from a high
of 47 percent in 1980. Minor shares of the Nation's packaged fluid
milk, cottage cheese, and ice cream were distributed by cooperatives over the years.
The estimated net business volume of the Nation's dairy
cooperatives has expanded 40-fold, from $520 million in the mid1930s to $23 billion in 2002 (table 4).That volume represents
one-third of the total net business volume of all agricultural marketing cooperatives in the United States in 2002 and has fluctuated
from 27 percent (1943-44) to 38 percent (1987).

Cooperatives in the Dairy Industry
Milk is unique among farm commodities. It is highly perishable, produced, and "harvested" on a daily basis, and moved
from farm to market every other day, if not every day. The volume of milk produced varies seasonally and daily for biological
reasons. This variation is not coordinated with changes in demand,
which also vary from day to day and from season to season. The
task of balancing, or coordinating, the amount of milk supplied
with the volume of milk demanded is thus problematical.
Storage to balance supplies with demand is feasible only after
processing, except in the very short term. As technology developed, conversion of milk from raw product to various intermediate
and final products with longer shelf-lives became possible, but
required increasingly capital-intensive facilities and technologies
that are subject to significant economies of scale.
These fundamental characteristics of milk production, in concert with adverse marketing conditions and the economies available
3

 from jointly owned milk handling facilities and manufacturing
plants, led dairy farmers to pioneer the application of cooperative
principles to marketing U.S. farm products.

Initial organization—In the early days of the Nation,
dairy farms were relatively small and remotely located.
Cooperatives sprang up spontaneously, formed by groups of
farmers seeking solutions to common problems. These groups
drew upon cooperative traditions that immigrant dairy farmers
had brought with them from Northern Europe. Milk from
several farms was pooled in one location (either by hauling milk
or cream in cans or by taking cows to the factory to be milked)
and made into cheese or butter.
Part of the net proceeds was returned to patrons in proportion
to the amount of milk each furnished. Cooperative creameries
were generally organized in areas where a large portion of the
milk produced could best be marketed for butter production,
thereby avoiding the high cost of transporting whole milk to distant city markets.
The first reported cooperative cheese factories were established in the mid-1800s. The number of creameries grew slowly
until mechanical cream separators were introduced around 1890.
By 1900, there were around 6,000 creameries and almost 3,000
cheese factories. About one-third were organized as cooperatives.
Milk evaporating and drying facilities emerged in the 1920s and
subsequently some creameries installed milk drying facilities to
provide a market for buttermilk and skim milk.
Concurrently, the organized marketing of raw milk for fluid
consumption began during the latter part of the 18th century in
cities where families were unable to obtain milk from nearby producers. A system of “middle-men” between producers and
consumers began to emerge in the 1800s. Fewer and fewer producers carried out all marketing functions. Milk price was
determined by negotiation; both buyers and sellers were small
and numerous.
During the mid-1800s, the rapid construction of railroads
permitted increased movement of "fresh country" milk to the cities.
Expanding urbanization made it necessary for families to obtain
milk from distant dairy farms in the country. Dairy farmers formed
associations to arrange these early shipments of “pure” country
milk to the cities.
4

 By the late 1800s, the milk marketing system was steadily
moving toward a structure where hundreds or thousands of dairy
farmers sold to only a handful of large fluid milk dealers. Consequently, cooperative associations developed around the major
cities in the eastern part of the United States and in Chicago to
negotiate milk prices with milk dealers and distributors.
One tactic the early cooperatives employed to compel reluctant milk dealers to negotiate with them was the “milk strike.”
Farmers would withhold milk from the market which would
tighten supplies. This had short-term success in enforcing cooperative demands. Even so, the dealers began to develop a
bargaining edge over farmers, primarily due to better market information through their powerful organizations. In addition, the rural
isolation and the generally independent nature of most dairy farmers combined to restrain cooperative growth at that time.
Nonetheless, early cooperative associations laid the foundation
upon which later ones were built.
In the early 20th century, unfavorable economic conditions,
chaotic pricing of fluid milk, and dealers who balanced fluctuating
supply needs by refusing to accept some producers' milk spurred
the successful formation of large-scale cooperative bargaining
organizations for raw whole milk. Another important stimulus to
cooperative development was government policy for food control during World War I.
The Federal Food Administration, operating from 1917 to
1919, preferred to deal with groups rather than individuals. Cooperative associations were the only representatives of milk producers
and the government advised milk distributors to accommodate
producers' price demands. They complied rather than oppose the
Federal Government.
Furthermore, in a number of instances at that time, the right
of producers to join in negotiating price and terms of sale with
distributors in a particular market was questioned. On several
occasions, leaders of an association were criminally prosecuted
for violating antitrust laws—attempting to increase and fix the
price of milk. Even though they were found not guilty, the prosecutions were a disturbing element in the advancement of dairy
cooperative associations.
Enactment of the Capper-Volstead Act of 1922 granted cooperatives limited exemption from Federal antitrust acts and such
prosecutions abated. By 1925, cooperative dairy associations were
reported in all but 6 of the 48 States. In many cases, government
5

 action had helped to give producer cooperatives a foothold strong
enough to ensure their lasting establishment. Dairy cooperatives
were thus positioned to provide an effective solution for dairy
producers' marketing problems.

Adapting to changing markets—Early bargaining
associations quickly found that increases in milk prices led to
problems in disposing of milk not needed for fluid use. In
response, numerous markets adopted classified pricing plans in
the 1920s and early 1930s. In every case, a cooperative
negotiated its adoption with the larger dealers. These plans
recognized the difference in the value of milk, depending upon
how it was used. Thus, raw milk prices were based on end-use.
Audit procedures were also established to ensure correct
payment by handlers. Consequently, dairy cooperatives
developed milk pooling systems to more equitably distribute
returns for milk used in different products to members and also
implemented plans for dealing with the seasonality of milk
deliveries.
● Government dairy programs — However, despite these
efforts by cooperatives to standardize milk pricing, there was continued instability in fluid milk marketing during the 1930s. This led
many States to adopt milk marketing orders. Federal Milk Marketing Orders (FMMO) were first authorized under the Agricultural
Marketing Agreement Act of 1937. By institutionalizing and enforcing classified pricing, these orders stabilized market conditions
and assured adequate consumer supplies of pure and wholesome
milk at all times. They benefited both producers and consumers by
establishing and maintaining orderly marketing conditions.
Producer approval was required before an order could be
implemented. Cooperatives were permitted to bloc-vote for their
membership. This led to the organization of many new cooperatives, some formed as a first step in obtaining a milk marketing
order and others to represent producer views different from those
of the members of existing cooperatives.
In addition, FMMOs exempt cooperatives from a marketing
service deduction if they perform certain marketing services (such
as providing market information, verification of weights, sampling, and testing of milk). Many small, bargaining-only dairy
cooperatives unable to perform these marketing services have affiliated with larger cooperatives to qualify for this exemption.
6

 Up through the early 20th century, many dairy farmers had
been separating their milk at the farm—using the skim on the farm
and shipping the cream to a butter plant (hence the name “creamery”). Advancements in milk condensing and drying facilities
made the nonfat portion of milk marketable and prompted these
farmers to switch from shipping farm-separated cream to whole
milk. World War II brought an increased need for manufactured
dairy products, particularly dry milk products. Through lend-lease
funds, the Federal Government financed the construction of several
cooperative milk drying plants.
The Federal Milk Price Support Program was also started
during World War II and became permanent in 1949. The program
supports the farm milk price through government purchases of
butter, American cheese, and nonfat dry milk that cannot be sold
commercially for at least the announced prices. Prices for these
manufactured products are set at levels intended to enable manufacturers to pay farmers the announced support price for milk.
Cooperatives performing balancing services by manufacturing
milk not needed for the fluid market into butter, powder, or cheese
were thus assured of a market for these products at federally set
minimum prices. Around this time, many country plant operations changed from private ownership into cooperatives.
● Specialization and economies of scale—With improvements
in the road system, milk transportation shifted from rail to truck.
As significant economies of scale in assembling milk became apparent, there was substantial consolidation of milk receiving stations
and milk plants grew in size and shrunk in numbers. While cooperative numbers contracted, mostly due to consolidation and
merger, the volume of milk marketed by those remaining
expanded.
The development of the interstate highway system, refrigerated transport methods, and innovation in dairy product packaging
greatly increased the distance milk and dairy products could travel
to market while maintaining quality and shelf life. During the
1960s, widespread use of bulk tanks on the farm drastically
changed the marketing of raw milk. Larger volumes of milk could
be picked up from each farm and hauled directly (or transferred at
a pump-over station to a larger tank truck) to the city from substantial distances. Cooperatives took on much of the milk hauling
and routing of milk supplies, which cut costs and led to substantial economies of scale.

7

 Some cooperatives with large raw milk volumes began to
unite in federated regional bargaining associations, thus pioneering regional pricing of milk. Facilitating these efforts were the
changes in the FMMO regulations that, in effect, removed barriers
to inter-order milk movement and more closely linked the separate
orders. When milk supplies tightened in the late 1960s, these federations were able to establish price premiums over minimum
prices for fluid milk (over-order prices) in FMMOs extending from
the Great Lakes to the Gulf of Mexico and Mexican border.
Conversion to bulk handling and processing of milk at plants
was completed by the 1970s. This required not only substantial
capital investment, but also additional milk volume for low-cost
operations. The increased efficiency in production, manufacturing, processing, and transporting milk led to fewer, but larger,
farms and processing/manufacturing plants. Dairy cooperatives
adapted similarly with a wave of mergers and consolidations in the
mid-1960s that markedly reduced cooperative numbers. The larger
organizations remaining, however, put farmers in a better position to negotiate with large, concentrated food companies and
milk handlers.
Many of these large, highly specialized investor-owned fluid
processing plants grew interested in avoiding the cumbersome
job of obtaining, managing, and coordinating milk supplies so
they could focus their resources on processing and marketing.
They increasingly looked to cooperatives to provide the exact
amount of milk they needed. Large-scale, multi-plant cooperatives negotiated “full-supply” contracts with these fluid processors
(and in some cases, manufacturers). Under a full-supply contract,
a cooperative provides just the milk volume the plants need and
manufactures whatever volume of milk is in excess of processor
demand into other products, such as butter and powder.
This task of balancing the volume of milk supplied with the
volume demanded is complicated because of the nature of milk
production—a fluctuating flow product that is harvested on a daily
basis. Further, dairy cooperatives agree to market all of the milk
their members produce. The larger the volume under one organization's control, the more the random variations of supply and
demand tends to offset one another (both within supply and
demand and between the two). As a result, the balancing services
that cooperatives are well-positioned to perform benefit the broader
market, as well as their members.

8

 Thus, dairy cooperatives came to dominate the functions of
supplying fluid milk markets, routing the movement of milk, and
balancing supply with demand. In addition, their role in verifying weights and tests assures members of proper payment for their
milk. In this way, they have increased efficiency in milk marketing
and strengthened their position in the marketplace. Their guarantee to market all of their members' milk distinctly sets dairy
cooperatives apart from proprietary milk handlers.
Meanwhile, continued development of dairy technology
allowed dairy product lines to be expanded and diversified. Consumers received these developments with open arms in many
cases, particularly in the case of cheese. Subsequently, the large
manufacturing plants that cooperatives developed to manage milk
supplies began to evolve into important profit centers in their own
right.
● Facing the 21st century—In 2000, Federal milk marketing
orders were consolidated from 31 to 11 orders, reflecting the
increased geographical boundaries of milk markets. Moreover, the
Federal minimum support price for milk (at the national average
milkfat test) had been stepped down from a high of $13.49 in the
early 1980s to $9.90 at the end of the 20th century, where it remains
today. The lowered floor under the milk price allowed market
forces increasing influence. Dramatic price swings in raw milk
prices, previously unseen since the inception of the support program, resulted.
In addition to these regulatory changes, there was another
wave of consolidation in the dairy sector among investor-owned
dairy firms and grocery retailers as the 20th century drew to a
close. At the same time, the capital cost of keeping processing
capabilities up-to-date continued to grow. In response, the pace
of mergers and consolidation among dairy cooperatives picked
up again. Some of this activity was to satisfy the needs of large,
integrated food companies that increasingly looked for milk suppliers with national reach, the ability to provide entire lines of
dairy products, or the ability to meet particular product specifications.
Other dairy cooperatives merged to address regional needs
and to consolidate complementary or duplicate operations. For
example, in 1997, the top 5 dairy cooperatives handled 41 percent
of the net milk handled by all cooperatives. Subsequently, three
of these merged into a single entity, meaning the three largest dairy
cooperatives handled 46 percent of all cooperative milk in 2002.
9

 Five cooperatives accounted for more than one-half (54 percent)
of the milk handled by cooperatives. Furthermore, two of these
large dairy cooperatives have national reach in both marketing
and membership, while the territories of many others span multiple
States.
Cooperatives also continued to look for ways to enhance the
value of their members' milk and to market it more efficiently.
Some formed joint ventures with proprietary handlers or with
other cooperatives to perform manufacturing and marketing functions, expand their market outlets, and share the financial risk of the
manufacturing and marketing activities. A few producer groups in
the Northeast and Upper Midwest formed small marketing cooperatives to try to enhance the value of their farm milk by capturing
“middle-man margins,” by reducing marketing overhead or by
pursuing “niche” markets that capitalize on consumers' interest
in quality and local source of their food. Some consumers are willing to pay premium prices for food with various attributes such as
“organic,” “natural,” “hormone-free,” pasture-based (grazing),
locally produced and “fresh.” Some of these niche-marketing cooperatives have been quite successful.

Dairy Cooperative Operations
Dairy cooperatives today run the gamut in size and extent
of services they provide. They differ markedly because they have
taken a variety of avenues to address the needs and preferences
of their members and specific market situation.
Most dairy cooperatives employ a general manager or CEO
and a staff of field representatives to build membership and provide assistance in improving milk production and quality. Other
employees include: laboratory technicians who verify the weight
and quality of farm milk delivered; personnel to prepare and distribute market information and represent the association in
legislative and regulatory affairs (such as Federal and State milk
market order hearings); and office staff who prepare and distribute milk checks and perform other administrative duties.
Cooperatives that manufacture or process milk also have employees who operate the cooperative's plants and develop and market
its products. Some cooperatives also provide other services such as
selling dairy equipment, supplies, and feed (even to the extent of
having their own system of feed mills, in some cases), providing
10

 health insurance, retirement plans, and, beginning in the 1990s,
forward milk price contracts and assistance in using futures markets to manage milk price risks.
Alternatively, many small cooperatives, predominately in the
Northeast, limit their activities to arranging milk sales and issuing
milk checks. These are often affiliated with larger cooperatives
and usually have no hired staff.
A board of directors oversees every dairy cooperative. The
board consists of elected producer-members who set the cooperative's policy for the manager to carry out.
Individual cooperatives have tailored their operations to their
specific market situation to assure members a market for their
milk. Their divergent operations can be broadly grouped into two
operating types: “bargaining only” and “manufacturing/processing.” Furthermore, within the manufacturing/processing
group, there is a wide range in the type and scale of manufacturing operations.

Bargaining-only cooperatives—Many cooperatives
focus their operations on negotiating milk prices and terms of
trade for members' raw milk, but do not engage in further
manufacturing or processing. These “bargaining-only” dairy
cooperatives are the most numerous (74 percent of all dairy
cooperatives in 2002), but represent just one-quarter of U.S.
cooperative milk volume (fig. 3). Some of the larger bargainingonly cooperatives once had manufacturing capabilities, but
ceased their plant operations to focus only on milk marketing. A
number of them have joined in pricing federations. A small
number are “check-off” organizations that represent member
concerns in the policy arena and provide limited marketing
services.
Bargaining-only cooperatives have relatively few assets. Most
are small (64 percent handle less than 50 million pounds of milk
annually). At the same time, however, about 10 bargaining-only
cooperatives were quite large, handling over 1 billion pounds of
milk in 2002.
Members of bargaining-only cooperatives potentially face
the greatest marketing risk when the milk supply exceeds market
needs. In times of “surplus,” bargaining-only cooperatives may
have to sell some of their supply at reduced (“distressed”) prices
and/or incur increased costs in moving members' milk long distances to find a market. Lack of manufacturing facilities to
11

 manufacture or process milk into storable products may weaken
their negotiating power with milk buyers. Also, they forgo potential margins that may be captured by further processing members'
milk. Alternatively, as long as there are buyers of milk, business risk
for bargaining cooperatives is low because members are not burdened by the expense of owning and operating under-used
manufacturing facilities.

Manufacturing/processing cooperatives— Just 50 of
the Nation's dairy cooperatives operated one or more plants for
manufacturing some or all of their members' milk into dairy
products in 2002. However, these cooperatives account for threefourths of all milk handled by dairy cooperatives. Owning
manufacturing facilities improves a cooperative's ability to
balance member milk supply with customer demand,
strengthening its negotiating position. These cooperatives can
provide their customers a full supply of raw milk and remove
the burden of disposing of unneeded milk. Manufacturing
operations also offer cooperatives the opportunity to add value
to their members' milk. The extent and character of these
cooperatives' operations vary widely.
● Commodity manufacturing cooperatives—Some cooperatives (10 in 2002) operate large-scale commodity manufacturing
plants making undifferentiated or generic “hard products” in bulk,
such as butter, nonfat dry milk powder, and cheese. They run a
high volume of member milk through their plants to make the
commodity products. They handled about 9 percent of all the milk
handled by dairy cooperatives in 2002. These “commodity manufacturing” cooperatives aim to operate their plants at maximum
capacity in order to achieve low per-unit costs. They all sell some
raw milk to other handlers, but for a few it's a major portion of
their member milk.
Many of these cooperatives began manufacturing dairy products to ensure a market for all the milk their members
produced—making the commodity products when they had surplus milk. Most now operate modern, large-scale plants that require
a continuous flow of milk near plant capacity to be cost-effective.
The commodity manufacturing cooperatives have limited
flexibility to adjust their product mix to changes in the market
because they are committed to operating their plants at maximum
capacity to make a limited line of commodity products. Volatile
milk prices leave them subject to inventory losses arising from
12

 unexpected price movements. However, the advent of a futures
market for milk products has afforded hedging opportunities to
help manage this risk.
● Niche marketing cooperatives —Quite distinct from the
cooperatives making undifferentiated products, a number of smalland medium-sized cooperatives (18 in 2002) manufacture and market specialty dairy products for niche markets. These “niche
marketing” cooperatives aim to capture some marketing margins
in addition to processor margins, thus taking their operations
closer to the consumer. Most commonly, these niche marketing
cooperatives make specialty or branded cheese. Some are longestablished cooperatives while others formed more recently in an
attempt to capture a market based on various attributes of the
members' milk or production methods.
While somewhat sheltered from the volatility and low margins of the commodity markets, these cooperatives must be able to
produce and market a unique, high-quality product. They lack the
size and scale to compete on price with the large commodity manufacturers. Thus, their viability depends upon an ability to find
and develop a niche for their specialty product. For those unable
to do so, the market is unforgiving. However, a number of niche
marketing cooperatives are capitalizing on the increasing consumer interest in “organic” and “farm-based” or local production,
and specialty cheeses.
While most of the niche marketing cooperatives use all of
their members' milk in their own plants, a few belong to established or traditional cooperatives and simply “buy back,” or pay,
the larger cooperatives for the portion of their members' milk they
use to make their niche products. The larger cooperatives can more
economically market the milk they do not need for their niche
products. In some cases, they contract with other processors to
make their specialty products and do not own the processing facilities. The milk handled by these cooperatives amounts to less than
0.5 percent of all cooperative milk.
● Fluid processing cooperatives—In a similar vein, a small
number of dairy cooperatives have been successful in marketing
bottled milk. They typically make other products in addition to
fluid milk, such as ice cream and soft dairy products (yogurt, sour
cream, dips). These fluid processing or “bottling” cooperatives
also capture processor margins and at least some marketing margins through their operations. Most of the bottling cooperatives
have been long established and use most, if not all, of the milk
13

 they handle in their own plants. This sector is extremely competitive and requires ample financial resources and top-notch
management to survive. Over time, many have merged into larger,
more diversified cooperatives, leaving just seven operating in 2002.
Fluid processing cooperatives accounted for less than 1 percent of
all milk handled by dairy cooperatives in 2002.
● Diversified cooperatives—Finally, some cooperatives operate a system of plants to manufacture a variety of dairy
products—both commodity and differentiated—including bottled
milk. At the same time, they sell a substantial portion of their milk
supply to other handlers. Some are sophisticated marketers of
branded, consumer products. The diversified operations better
position these cooperatives to direct milk to its most profitable
use. Thus, they are well positioned to capture processor and marketing margins from their many enterprises.
Many of these “diversified” cooperatives are the result of
mergers and consolidation between cooperatives that previously
had a more narrow operating focus. Several perform some of their
manufacturing/processing through joint ventures or partnerships
with investor-owned companies or other cooperatives. The 15
diversified cooperatives in 2002 represent almost two-thirds (66
percent) of all milk handled by dairy cooperatives. A majority of
these handled upwards of 1 billion pounds of milk in 2002 while
none handled less than 50 million pounds.

Cooperative cooperation—Dairy cooperatives work
together in assorted ways to serve their members. As mentioned
earlier, dairy cooperatives have formed joint ventures and
federations or marketing agencies-in-common (MAC) with
other dairy cooperatives to enhance their ability to market
members' milk.
These organizational structures allow the participating cooperatives to maintain their individual identities while strengthening
their collective position in various pursuits. The least formal
arrangement may be where membership areas overlap and cooperatives “swap” milk—pick up and/or receive each other's
members' milk, allowing them to more efficiently move milk from
farm to plant--a cost savings.
Some marketing agencies coordinate activities of their member cooperatives in establishing a scale of regional and interregional
service charges for milk above Federal order minimums. They
negotiate price premiums for fluid milk, provide a forum for adjust14

 ing sales policies, and coordinate more efficient raw milk shipments. One marketing agency acts as the sales agent for the group
of dairy cooperatives' nonfat dry milk, capturing savings from a
centralized marketing effort and disseminating proprietary market
information among members.
In 2003, dairy farmers developed a national program under
the umbrella of a membership organization for America's dairy
cooperatives (the National Milk Producers Federation) to address
the supply and demand imbalances that can depress milk prices.
This effort is unique because it is aimed at supply-reduction
(through a combination of herd retirement programs, reduced production marketings programs, and export subsidy programs) and
because participation is also open to independent dairy farmers
not affiliated with a cooperative.

Summary—The Nation's dairy cooperatives have
shown their ability to successfully adapt to changes in the
marketing environment and offer a wide variety of avenues for
dairy farmers to market their milk. Their success has allowed
milk producers to maintain the independence of their farm
firms. Thus, in contrast to some other livestock sectors, dairy
farmers have been able to maintain their autonomy while
gaining some “muscle in the marketplace” through their
cooperatives.
Developments on various fronts raise new issues for U.S.
dairy cooperatives to address as the future unfolds. World trade
issues, such as subsidy levels and import quotas, are under scrutiny
by world bodies. The recent upsurge in domestic use of imported
milk protein concentrates has raised concern among dairy producers that it is displacing nonfat dry milk produced domestically
and depressing prices. New technology and procedures for making dairy products (such as cheese from dry dairy ingredients
rather than fresh milk) may require cooperatives to assess and
adjust their operations. In sum, the dynamics of the 21st century
dairy industry present a broad array of issues for dairy cooperatives
as they plan and direct their operations to market members' milk
to its best advantage.

15

 Associations Serving the Dairy Industry
Dairy cooperatives, as well as individual dairy producers,
often belong to specialized organizations concerned with furthering the varied interests of the dairy industry through legislation,
advertising, sales promotion, merchandising, marketing, public
relations, and product research.
The National Milk Producers Federation (NMPF) was
founded in 1916 to provide dairy cooperatives and their dairy
farmer members a voice in the formulation of policy concerning
national issues affecting milk production and marketing.
The Dairy Production Stabilization Act of 1983 (Dairy Act)
authorized a national producer program for dairy product promotion, research and nutrition education to increase human
consumption of milk and dairy products. This program is funded
by a mandatory assessment of 15 cents per hundredweight (cwt)
of milk produced and is administered by the National Dairy Promotion and Research Board (NDB). The Dairy Act also provides
that dairy farmers can direct up to 10 cents per cwt of this assessment to qualified regional, State, or local dairy product promotion,
research, or nutrition education programs. Many of these fall under
the umbrella of the United Dairy Industry Association (UDIA), a
federation of State and regional generic producer promotion organizations.
In 1995, the NDB and UDIA jointly formed Dairy Management Inc. (DMI) to streamline and coordinate national, regional,
and local promotion efforts. DMI is a domestic and international
planning and management organization that endeavors to build
demand for dairy products on behalf of the Nation's dairy farmers.
DMI, along with international, State, and regional organizations,
manages the American Dairy Association, the National Dairy
Council, and the U.S. Dairy Export Council.
A number of State dairy associations exist to build up their
respective dairy industries. These associations of dairy farmers
engage in diverse activities to support and enhance the viability of
a particular State's milk producers. Activities range from representing dairy farmers' interests in regulatory and policy matters
to providing educational programs, or running a central milk-testing lab.
Other associations and cooperatives assist farmers with milk
production. Many artificial insemination (AI) organizations are
16

 organized as cooperatives. They provide dairy producers access
to a wide variety of bulls, enabling them to capitalize on the most
recent genetic advances. Many Dairy Herd Improvement Associations (DHIA) are organized as cooperatives and provide
individual dairy producers an economical method of obtaining
information useful for improving breeding and management of
dairy herds in order to improve productivity.
As the DHIA program moved away from its government
roots in the 1990s, new business arrangements emerged, providing
a broad range of information services for dairy farmers. Some AI
and DHIA organizations consolidated into single entities. In
another case, a dairy cooperative joined forces with a DHIA to
create an information technology cooperative which provides farm
management tools.
The National Mastitis Council (NMC) is a nonprofit organization devoted to reducing mastitis and enhancing milk quality
by promoting research and providing information to the dairy
industry regarding udder health, milking management and milk
quality. Many dairy producers also belong to farm production supply cooperatives to secure supplies for their dairy farming
operations.

For More Information
RBS publications:
RR 206 Dairy Cooperative Growth Challenges
RR 203 Financial Profile of Dairy Cooperatives, 2002
RR 201 Marketing Operations of Dairy Cooperatives, 2002
RR 188 Cost of Balancing Milk Supplies: Northeast
Regional Market
RR 187 Structural Change in the Dairy Cooperative Sector,
1992-2000
RR 166 A New Approach to Measuring Dairy Co-op
Performance
RR 164 Financial Statistics of the Largest Dairy Coopera
tives, 1980-1995
RR 152 Dairy Cooperatives' Role in Managing Price Risks

17

 Contacts:
Cooperative Services Staff

Phone

E-mail

Thomas Stafford
202/690-0368
Cooperative Marketing
Division Director, RBS/USDA

thomas.stafford@usda.gov

K. Charles Ling
202/690-1410
Dairy, Livestock and Poultry
Program Leader, RBS/USDA

charles.ling@usda.gov

Carolyn Liebrand 202/690-1414
Dairy, Livestock and Poultry
Program Staff, RBS/USDA

carolyn.liebrand@usda.gov

Cooperative Services Web Site:
www.rurdev.usda.gov/rbs/coops/csdir.htm

18

 Figure 1—Trends in number, volume, and membership of dairy
cooperatives, 1925-2002

2,500
Cooperatives

2,000

Milk
marketed
(million cwts)

1,500
1,000
500

Members
(thousands)

0
1925 1935 1943 1956 1964 1973 1980 1987 1992 1997 2002

Figure 2—Cooperatives’ market share of selected dairy product
production, 2002

Cooperative share of U.S. production

Percent
100
90
80
70
60
50
40
30
20
10
0

86%
71%

40%

9%

Nonfat
dry milk

Butter

Total
natural
cheese

7%

3%

Cottage Packed
Ice
cheese
fluid
cream
milk

19

 Figure 3—U.S. dairy cooperatives, by type of operation—share of
total number and milk volume, 2002

Share of dairy
cooperative numbers

11% Diversified & fluid
processing

9% Niche
Marketing

5% Commodity
Manufacturing

75%

75% Bargaining-only

Share of milk
handled (estimated)

25%
Bargainingonly

9%
Commodity
Manufacturing

66% Diversified
& Fluid
Processing

20

0.5%
Niche
Marketing

 Table 1—Cooperative

numbers, volume of milk marketed and
number of members, 1925-2002, selected years

Year

1925
1935/36
1943/44
1956/57
1964
1973
1980
1987
1992
1997
2002
1
2

Dairy
Co-ops

Percent of
all U.S
marketing
cooperatives

(Number)

(%)

2,197
2,270
2,286
1,746
1,244
592
435
296
265
226
196

27
30
28
24
14
12
10
12
12
13

Milk
market
Cooperative
Members
by dairy
share of
of dairy
cooperatives1 U.S. Total2 cooperatives
(Million pounds)

31,058
n/a
58,038
76,743
83,227
95,634
105,798
122,622
127,418
144,349

(%)

(Number)

48
59
67
76
77
76
82
83
86

460,000
720,000
702,000
777,400
561,085
281,065
163,549
120,603
110,440
87,938
61,390

Net of intercooperative transfers.
Dairy marketing cooperatives' share of all milk delivered to plants and dealers.

Source: Marketing Operations of Dairy Cooperatives, selected years.
Statistics of Farmer Cooperatives, selected years.

21

 Table 2—Dairy

cooperative numbers, marketing share and
number of producers, by region, 2002
Marketing
share1

Number of
cooperatives2

Percent

Number

North Atlantic
East North Central
West North Central
South Atlantic
South Central
Western

72
93
93
95
87
75
__

87
53
53
8
8
24
___

12,866
24,314
14,199
2,770
3,617
3,604
______

21
40
23
4
6
6
___

All regions3

83

194

61,390

100

Region

1

2

3

Members
delivering
Number

Regional share
of members
Percent

Cooperative member volume as a percentage of milk sold to plants and dealers in
region.
Cooperatives having members in the region, but not necessarily headquartered
there.
Number of cooperatives do not add to totals because some receive milk from more
than one region. States in each region: North Atlantic (CT, MA, ME, NH, NJ, NY,
PA, RI, VT); East North Central (IL, IN, MI, OH, WI); West North Central (KS, IA,
MN, MO, ND, NE, SD); South Atlantic (DE, FL, GA, MD, NC, SC, VA, WV); South
Central (AL, AR, KY, LA, MS, OK, TN, TX); Western (AK, AZ, CA, CO, HI, ID, MT,
NM, NV, OR, UT, WA, WY).

22

 Table 3—Cooperatives

distributing selected dairy products,
number and market share1, selected years
Year

Bulk whole milk2

Packaged fluid milk

No.

No.

1936
1944
1957
1964
1973
1980
1987
1992
1997
2002

408
735
730
548
352
251
230
204
174

215
85
60
34
29
21
16

Year

Cheddar cheese

1936
1944
1957
1964
1973
1980
1987
1992
1997
2002

%

9
12
16
14
16
14
7

All natural cheese

No.

%

No.

n/a
n/a
n/a
n/a
n/a
n/a
n/a
59
33
24

n/a
n/a
n/a
n/a
n/a
n/a
n/a
75
70
n/a

562
501
323
294
187
157
94
75
42
32

%

25
16
18
21
35
47
45
43
40
40

Ice cream
No.

%

57
130
143
60
38
21
20
13
7

1
4
5
5
11
8
10
6
3

Butter

Cottage cheese
No.

14
108
126
64
42
23
22
13
9

%

1
7
15
13
22
13
13
10
9

Dry milk products3

No.

%

1,444
1,164
888
740
207
148
82
68
36
19

39
55
58
65
66
64
71
65
61
71

No.

139
191
212
57
48
31
26
24
17

%

17
56
57
72
85
87
91
81
76
85

Source: Marketing Operations of Dairy Cooperatives, selected years.
1 Percent of total processed or manufactured in the U.S. distributed by
cooperatives.
2 Bulk whole milk includes "market milk" and milk sold as market cream and butter
is "creamery butter."
3 Includes nonfat dry milk, dry buttermilk, and dry whole milk.

23

 Table 4—Estimated

business volume of U.S. agricultural
marketing cooperatives, selected years1
Year

Dairy Cooperatives
(Million dollars)

1935/36
1943/44
1956/57
1963/64
1972/73
1980
1987
1992
1997
2002
1

520
1,203
2,764
3,524
6,102
13,666
16,548
20,239
23,374
23,038

Percent of all marketing
cooperatives
(%)

33
27
35
31
31
28
38
35
30
33

Includes gross business volume in 1935/36 and 1943/44. The remaining years
include net business volume where business between cooperatives was excluded.
Source: Cooperative Historical Statistics and Farmer Cooperative Statistics,
selected years.

24

 U.S. Department of Agriculture
Rural Development
Rural Business–Cooperative Service
Stop 3250
Washington, D.C. 20250-3250

Rural Business–Cooperative Service (RBS) provides research, management, and
educational assistance to cooperatives to strengthen the economic position of farmers
and other rural residents. It works directly with cooperative leaders and Federal and
State agencies to improve organization, leadership, and operation of cooperatives and to
give guidance to further development.
The cooperative segment of RBS (1) helps farmers and other rural residents develop
cooperatives to obtain supplies and services at lower cost and to get better prices for
products they sell; (2) advises rural residents on developing existing resources through
cooperative action to enhance rural living; (3) helps cooperatives improve services and
operating efficiency; (4) informs members, directors, employees, and the public on how
cooperatives work and benefit their members and their communities; and (5) encourages
international cooperative programs. RBS also publishes research and educational
materials and issues Rural Cooperatives magazine.

The United States Department of Agriculture (USDA) prohibits discrimination in all its
programs and activities on the basis of race, color, national origin, sex, religion, age,
disability, political beliefs, sexual orientation, and marital or family status. (Not all
prohibited bases apply to all programs). Persons with disabilities who require alternative
means for communication of program information (braille, large print, audiotape, etc.)
should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD).
To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room
326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, D.C.
20250-9410, or call (202) 720-5964 (voice or TDD). USDA is an equal opportunity
provider and employer.