**Extended interview highlighted in blue.
Andrei Mikhalevsky discusses the industry’s offshore prospects
|As managing director of global ingredients and food services at Fonterra, Mikhalevsky developed many international customer
It took a yearlong, worldwide search, but the board of directors of California Dairies, Inc. (CDI), finally found its new chief executive officer in New Zealand’s Fonterra Co-operative Group Ltd.
On Jan. 1, Andrei Mikhalevsky succeeded retiring Richard Cotta as president and CEO of the third largest dairy cooperative in the nation.
Born and raised in the U.S., Mikhalevsky is the third CEO in CDI’s 12-year history. He’s an experienced industry professional who has traveled the world marketing dairy products.
Just 10 days into the job, the former Fonterra executive sat down with Dairy Today at CDI’s headquarters in Visalia, Calif., to discuss his new role and the industry’s market prospects.
Dairy Today: Why leave Fonterra and take on the management of a California dairy cooperative?
Mikhalevsky: I have always had an interest in global and international business and have worked a good part of my career outside of the country. At this point in my career, I wanted to work in the U.S. industry again. There’s a unique opportunity for the U.S. industry right now in the world market, and I want to be a part of that. So, I looked for a company in the U.S. that I thought was an excellent company and an excellent fit, and the California Dairies opportunity came forward.
Dairy Today: What do you expect your biggest challenges to be?
Mikhalevsky: The biggest challenges are participating and positioning in the global market, ensuring we have access to the export market, and ensuring that pricing delivers the best return back to members.
Dairy Today: Isn’t CDI already there?
Mikhalevsky: We are. But the U.S. industry—not just California Dairies—has developed an industry that produces products that are more on a scale toward the commodity end as opposed to true value-added products. Improved profitability is on the higher end of the scale. So, while we currently participate in the export market, it’s going to be important to decide how we want to participate and with what products.
Dairy Today: How critical are exports to future industry growth?
Mikhalevsky: Dairy exports are critical to the U.S. industry and to California Dairies, and maybe even more so for any dairy producer in California. First, growth rates here are not exceptionally high. Second, as California is positioned on one coast, it’s very difficult to get products to the East Coast, so there are high transportation costs.
There’s a bigger opportunity for producers in California to look to markets in Asia and Latin America. One reason is that the world population continues to increase. There are projections that food production needs to double by 2050. Dairy nutrition is a critical component of that. Exports from the U.S. could be a massive opportunity for the U.S. dairy industry in general, but California is uniquely positioned to take advantage of that opportunity.
An employee stacks pallets of dairy powder at CDI’s processing plant in Visalia, Calif. The co-op’s main export products are dairy powders and butter.
Dairy Today: Will CDI join Cooperatives Working Together to help build export demand?
Mikhalevsky: At this point, we’re not members of CWT. As we look forward, we’ll always review whether it makes sense. But primarily, CWT hasn’t focused on the powder business. They’ve been more involved with cheese and butter. For us, that’s a little different than the product mix we would generally go out with. Second, we think we have a pretty good understanding of world export markets.
Dairy Today: Does CDI support the Dairy Security Act of 2011?
Mikhalevsky: There are portions of the act that we feel very favorable toward. There are other parts which we would say would not fit where California Dairies is going. It’s very important for us to ensure that our members are successful and sustainable. So, areas that ensure that members’ profit margins are protected are very important to us. Anything, though, that would inhibit our ability to produce product and ship it into the marketplace would not be where California Dairies would like to go.
Dairy Today: What are your goals for your first year at California Dairies Inc.?
Mikhalevsky: Obviously, my first goal is to learn the business and the U.S. market. While I’ve been working in this market, I haven’t been working from the same perspective of being a domestically based company. There’s quite a bit going on right now, whether it’s the farm bill, the ongoing volatility in the dairy market, the changes in regulations around the world or negotiations in free trade agreements. I want to make sure we’re an active participant in the industry’s changes so we are representing our member owners in the most effective manner possible.
Second, as in any cooperative, we’re trying to get the highest return for our members, whether that’s in milk price or in the profits we can bring back to the cooperative.
Third, we are looking forward to growing in the market. And to grow, we need to position ourselves properly for the market growth we believe will occur.
Dairy Today: Even if the Dairy Security Act does not pass, should dairy price supports be eliminated?
Mikhalevsky: In this case, that’s still under further review before we take an official position.
Dairy Today: What percentage of CDI’s products goes export?
Mikhalevsky: In the 20% range. The other percent of our product goes throughout the U.S., depending on whether it’s selling as ingredients or as powders though DairyAmerica, or through our Challenge butter business and foodservice businesses. Our key export products are primarily dairy powders through DairyAmerica, and also some butter products.
Dairy Today: Which are the export markets to target?
Mikhalevsky: There are lots of markets along the Pacific Ocean, whether you look at China, Japan, Vietnam, Indonesia, Malaysia and the Philippines. You also have Latin America, where there is a need for dairy products in some countries.
Dairy Today: What about domestic demand? Can CDI grow customer base and ingredient use here in the U.S.?
Mikhalevsky: We can grow domestically, but there are limits on that growth, simply because of population growth, consumption growth and other trends in the dairy industry. We’ll always try to get our fair share of the opportunity domestically.
Dairy Today: What about your work at Fonterra or prior to that prepares you to do this?
Mikhalevsky: I spent the last five years basically selling dairy products in many countries around the world. I also participated strongly in the U.S. market prior to this as chairman of the board of DairiConcepts, which is a joint venture between Fonterra and Dairy Farmers of America. It has nine manufacturing facilities. In addition, I began my career in the consumer product goods industry, which gives me experience in retail branded products and working with many U.S. retailers.
Dairy Today: What impact will the European Union individual-farm 400,000 SCC requirement have on CDI? Do you have any farms not in compliance?
Mikhalevsky: All of our farms are in compliance today, and we intend to be100% compliant.
Dairy Today: In 2009, when things were so bad for dairies, some thought California’s dairy dominance might end. Your thoughts?
Mikhalevsky: In the long term, there ought to be a lot of optimism for this business. Food production must go up in the world. Dairy is one of nature’s most perfect foods. Dairy nutrition is very important. Dairy’s an excellent source of protein. If you look at the world market, demand will only continue to go up. So if you have a shortage of product and an absolutely fantastic product, and you know demand is going up, there’s an opportunity within that space. That means it’s important to be an efficient operator. To take advantage of this massive opportunity, we need to go to the world market in a unified fashion rather than compete with each other. We ought to be encouraging free trade, moving those programs forward and promoting dairy nutrition.
Dairy Today: China and other major dairy producing countries must feel that way too. Are you worried about China as a dairy competitor down the road?
Mikhalevsky: I don’t think in the short term China is going to be able to produce enough product to handle its own internal needs and growth. So they’ll need to be looking outside for a considerable period of time. But remember there’s an even larger market in India, which we don’t talk about much. Going forward, they also have a high need for dairy from cow’s milk.
Dairy Today: Is the co-op model still feasible and viable?
Mikhalevsky: Not only is the co-op model feasible and viable but, managed the right way, it can be a competitive advantage in the marketplace.
Dairy Today: What’s unique about CDI compared to other major U.S. dairy co-ops?
Mikhalevsky: First of all, it has an excellent manufacturing base. CDI has really done a good job in building a foundation of manufacturing facilities that are fit for purpose and targeted toward opportunity in the marketplace. Second, it’s uniquely positioned in the world market. It’s on a coast that has easy access to the growth markets in the world, so there’s a real opportunity for California Dairies there. CDI also has excellent people in the organization: a great management team and very strong, high-caliber people who understand the dairy industry. It also has a very forward-looking board that’s looking at how to take CDI to the next level and move forward into the future.
Dairy Today: What do you want others to know about CDI?
Mikhalevsky: There’s a massive opportunity for dairy, not only here in the U.S. but in the world market. If CDI can find ways to take advantage of that opportunity, there’s a big reward at the end. The future is very, very bright for the dairy industry in California.
A Glance at California Dairies, Inc.
- More than 425 members on more than 500 dairies
- Accounts for 43% of California’s milk production and 9% of U.S. milk output
- No. 2 among U.S. dairy co-ops in annual milk volume (behind Dairy Farmers of America); No. 3 in annual revenues (behind DFA and Land O’Lakes)
- Average dairy size is 1,300 cows
- Handles 17 billion pounds of milk annually
- Annual revenues are $3 billion
- Operates six processing plants in California
- 80% of its market is domestic; 20% is export
- February 2012