Introduction

Researcher Neeta Rao was fascinated by the growth of organic agriculture and the organic food industry and had turned her sights on Organic Valley and its growth strategies. Founded in 1988 with the mission of establishing a farmer-owned, organically driven, sustainable business model, Organic Valley had expanded its operations and sales to become one of the largest farmer-owned cooperatives with a membership- base of over 2,000 farmers in the United States as well as a presence in Canada and Australia. Organic Valley had been conscientiously partnering family farmers with a herd size of less than 100 cows to protect them from aggregated large-scale farming, with its potential adverse impact on small-scale farmers. The cooperative structure had helped family farmers succeed in a difficult market and now Organic Valley was facing some key questions that required managerial decisions: What kind of a growth strategy could this sustainable enterprise use to achieve its social, environmental, and economic objectives in an evolving market? How could Organic Valley enhance its social and environmental impact and, at the same time, increase sales in a competitive market?

The Organic Dairy Industry in the United States

Neeta did some preliminary research and conducted interviews to understand how the organic food industry in the United States had grown from a niche movement to a burgeoning multi-billion-dollar market. Buoyed by the surge in demand from socially and environmentally conscious consumers, organic food products made inroads into natural food product chains, conventional stores, and farmers markets throughout the 2000s. Organic milk production emerged as one of the fastest-growing segments in organic agriculture, creating opportunities for farmers in the United States. In 2011, 1,823 organic dairy farms were in existence in the United States with farm sales totaling USD 765 million. To meet this growing demand for organic dairy products, farmers joined national cooperatives such as Organic Valley to get their products to market. As these products gained in popularity, larger retailers, including Walmart, began offering them and larger food producers, such as Danone, began entering the market.

Overview of Organic Valleys Market and Sales

Neeta Rao posited that alternative agricultural systems, such as small-scale organic farming and cooperative enterprises enabled small-scale farmers to create niche markets amidst rapid consolidation in the conventional agricultural sector, especially during periods when their margins were small. Organic dairy farming has become a viable alternative enterprise, especially due to the financial incentives offered by cooperatives such as organic price premium policies. A comparative financial analysis of Organic Valley farmers and conventional farmers revealed that the Organic Valley farmers were almost as profitable as conventional farmers, due to stable milk prices and efficient management of labor and capital.

Despite organic dairy farmings successes, Neeta found that organic dairy products made up a small percentage of total dairy sales in mainstream retail stores. Organic dairy milk products constituted merely 5% of all dairy milk products sold in 2016. In the face of these changes, Organic Valley entered the non-dairy milk market with other products, such as soy creamers, and established cheese cutting and ghee production facilities in Wisconsin. The co-op official also pointed out that locally produced dairy milk (which was not necessarily certified organic) impacted the sales of certified organic milk. Organic Valley, for its part, placed considerable emphasis on tapping the local food market. As summarized in the Organic Valley website, by collaborating with local bottling plants, Organic Valley was able to create real jobs and boost the local economy. Organic Valley also collaborated with research organizations and local co-ops to promote local food systems.

Officials at Organic Valley discussed with Neeta how Organic Valley incorporated the local food narrative into its marketing activities. Global corporations also wanted to take advantage of the surge in the organic market, and companies such as Danone also acquired local organic brands.

In assessing the growth of organic agriculture and the organic food industry, and how Organic Valley positioned itself for success in that market, Neeta noted that while gross sales of Organic Valley exceeded USD 1 billion in 2017 it had also posted its first financial loss that year. These trends prompted Neeta to evaluate what growth strategies would be optimal for a sustainable enterprise like Organic Valley, especially when the organic market was getting more competitive. Neeta also pondered whether the partnership with a large retailer like Walmart would pave the way for creating an eco-system of shared value, whereby large corporations can collaborate with cooperatives to pursue financial success and create societal benefits.

Overview of Organic Valleys Organizational and Operational Structure

To delve deeper into potential growth strategies for a sustainable enterprise like Organic Valley, Neeta analyzed the cooperatives unique organizational structure. In interviewing Organic Valley officials, she found that Organic Valley differentiated itself from other competitors in terms of its pay structure. Organic Valley paid farmers first and then ran the business with the remaining funds. As a sustainable enterprise, Organic Valley strove to socially empower its producers by encouraging them to participate in the executive committees activities. Officials at Organic Valley pointed out to Neeta that transitioning farmers typically witnessed a decline in yield. However, they eventually benefited from the increase in pay price for organic dairy produce, which was higher than the pay price for conventional produce. To reduce the financial burden of transitioning, Organic Valley compensated farmers by paying a transition fee, which was USD 2 above the price of 100 lbs of conventional milk. As of 2017, Organic Valleys national average dairy pay price was USD 32.85 per 100 lbs which, according to the Organic Valley annual report, was nearly double the conventional market day price of USD 17.42.

Neeta learnt that Organic Valley had to ensure that its producer-members farms were financially viable by making organic feed affordable and accessible. Organic Valley had a team of soil agronomists, animal nutritionists, and veterinarians to assist producers to grow their own feed. According to Organic Valley officials, producers with better managerial experience could reduce their average production costs. Distribution activities were undertaken by Organic Valleys partner organization Organic Logistics, which helped offset freight and warehousing costs. While it was evident that Organic Valley could meet financial, economic, and ecological goals due to its unique organizational structure, Neeta wondered what kind of growth of strategies could enable the cooperative to stay ahead of the competition in the long run, especially following the advent of new market entrants and non- dairy substitutes.

Perspectives from the Field

To put Organic Valleys future growth strategies in proper perspective and inform her ideas, Neeta reflected on a series of field interviews she and research colleagues had held with Organic Valley member producers.

On a crisp, spring afternoon in April 2014, on the rolling hills of North Eastern Iowa, Neeta had listened in as Derek Bowden, an Organic Valley farmer, chatted with other members of Organic Valley. The farmers were talking about the cooperative and the benefits of organic dairy farming. Dairy farms are on the decline, organic dairy farmers can create a niche. The farmers noted that the cooperative Organic Valley had helped small-scale farmers in Iowa tap into niche markets amidst rapid consolidation in the conventional agricultural sector. Calling for a greater focus on grazing management and forage quality, Kyle Rankin, another Organic Valley co-op member, cautioned aspiring dairy producers: Do not focus on high production when starting out.

Does it decrease expenses? Organic Valley farmers were almost as profitable as conventional farmers due to stable milk prices and efficient management of labor and capital. Neeta learned that a high percentage of the farmers cull cows (culled to maintain the dairy herd quality and size) and bull calves were sold for conventional meat production. However, most of the farmers were not targeting the organic meat market. Also, the Organic Valley farmers interviewed did not directly market their produce to households or other institutional buyers such as schools or hospitals, except for one producer, who sold organic corn to households near to his farm. This prompted her to wonder whether the dairy farmers could expand their product portfolio beyond dairy products and grow organic vegetables and fruits for Organic Valley or supply ingredients for non-dairy substitutes. While the Organic Valley farmers were directing their efforts towards improving the quality of their produce, they had yet to assess to what extent they could expand their operations. Neeta later reflected on this managerial decision and explored the prospects of implementing a suitable green marketing strategy mix, as outlined by Ginsberg and Bloom (2004), for Organic Valley to differentiate itself from competitors. Could Organic Valley adopt a defensive green market strategy to cope with competitive pressure or could it continue catering to a niche market through an extreme green strategy.

Meeting Triple Bottom Line

Goals in her interviews with organic farmers, Neeta heard the farmers describe how they had succeeded in reaching out to wider range of socially and environmentally conscious consumers and achieved environmental, financial, and social goals. Consumers like our products and we would like to continue to respond to consumers needs after having heard their positive feedback, Organic Valley farmer Ron Hauber explained to Neeta.Many farmers indicated that the rise in organic dairy milk sales had induced more farmers to foray into organic dairy farming. They also discussed the economic compulsions that had drawn them to organic dairying and it was evident that cooperatives provided other financial incentives, such as stable pay prices, which induced conventional dairy farmers to transition into organic dairying farmers Trent Gallagher, Ron Hauber, and Kyle Rankin indicated this was certainly the case for them. Some farmers noted that they were drawn to organic dairying because they wanted to explore the possibilities of both remaining profitable and fulfilling environmental goals. I wanted to get away from antibiotic and chemical usage and I also looked into the organic dairy price, explained Ron Hauber, while Aaron Bloomquist wanted to do well by enjoying a stable pay price and, at the same time, doing good by improving herd health. Besides safeguarding the environment, some farmers also wanted to produce healthy food for consumers. For instance, Kyle Rankin said he wanted to stay away from chemicals and pass on health benefits [to consumers].

In her interviews, Neeta learned that some of the Organic Valley farmers already knew about grazing techniques and organic dairying, which helped their smooth transition to organic farming. Derek Bowden had previously adopted grazing techniques, while Mark Reuben explained he had followed organic practices long before our land was certified organic. Likewise, Kyle Rankin liked the idea of organic dairying, and said his management practices were already similar to organic dairying.

Their pre-existing interest in organic and grazing practices meant Organic Valley farmers already gave considerable importance towards fulfilling environmental goals. Would a membership expansion drive be of benefit to Organic Valley when sales were declining in a competitive market?

Planning for Growth

One farmer, Ron Hauber, noted that since 1988 there has been a growth of organic dairy farms, from eight farms to nearly 1,600, now that Organic Valley had expanded. Kyle Rankin had also witnessed a growth in organic dairy farming since 2006, when Organic Valley allowed producers in at 80:20. This was a feed exemption rule that allowed transitioning farmers to obtain 20% of their feed from conventional sources for a specific time frame, enabling them to keep feeding conventional grain until full transition. While a few interviewees could not discern whether there had been a rise in organic dairy farming in their respective counties/regions, Wesley Hansen alluded to the growth in number of organic dairy farms in Grant County, Wisconsin.

On the other hand, Derek Bowden had seen a high attrition of start-up organic farms in my region. Organic Valley officials pointed out that conventional farmers had begun showing interest in the organic co-op model by word of mouth, and neighboring farmers had also learned about the higher pay prices offered by organic dairy cooperatives. Although the Organic Valley co-op members cited a growing interest among conventional farmers in organic dairying, Neetas interview with the local food cooperative revealed a higher likelihood of shortage in supply of organic products. This seems like it is because there are few producers and tighter supplies of inputs such as certified organic feed or production facilities, said the local food co-op official. Could Organic Valley fill the above supply gap by tapping the growing inflow of conventional farmers who were turning organic? Also, could the expansion of the member base help increase production and give rise to economies of scale, which would help lower organic dairy milk prices and in turn, enable the cooperative to stay ahead of other organic market entrants and producers of non-dairy substitutes? Would the membership expansion also help Organic Valley to scale up its supplies to industrial buyers such as Walmart and General Mills and in turn, enhance shared value for diverse stakeholders? Or would Organic Valley have to focus more on the existing pool of environmentally conscious farmers and on niche organic markets, to avoid losses from a potential sales decline?

Questions

1.What are the major 7 or 8 issues in this case study

2.What are the principal causes/main reasons for each of them

3.What are solutions/recommendations for those issues

4.Identify the operational and supply chain related issues from the case study and explain them

5.Would you recommend that Organic Valley expand its existing pool of cooperative members? Why, or why not

6.Would you recommend that Organic Valley farmers continue tapping a niche market or that they look at expanding their customer base? Explain your reasons

7.How can Organic Valley enhance shared value creation as part of its growth strategy

8. What strategy should Organic Valley pursue to cope better with a potential sales decline in a competitive organic food market