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October 11, 2012 09:05 AM
Sole Supplier

Dannon signs exclusive agreement with Kansas dairy farm

In what is perhaps a unique marketing agreement in the U.S., the Dannon Company has signed an exclusive milk-buying contract with McCarty Dairy, which milks some 7,200 cows on three facilities in northwest Kansas.

The milk is being condensed in a plant on one of the dairies, eliminating two-thirds of the liquid volume and weight, before it is shipped 600 miles to the Dannon yogurt plant in Dallas, Texas. McCarty is supplying the equivalent of 500,000 lb. of milk to Dannon each day.

Discussion of this unusual agreement will be one of the highlights of the 2012 Elite Producer Business Conference in Las Vegas, Nev., Nov. 5 to 7.

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"Price volatility is an issue for producers, processors and consumers. This arrangement offers more stability for everyone involved," says Michael Neuwirth, Dannon’s senior director of public relations.

The Dannon plant is a nonpool plant under Federal Order 126, and therefore is not required to pay Class II minimum prices for McCarty’s milk. At the same time, the plant is not entitled to pool draws and will have to make up the difference to pay a competitive price for the milk.

The Dannon-McCarty contract is based on a cost-plus model in which McCarty’s cost of production plus a margin is paid. It will reduce, but not eliminate, price swings.

Pricing is part of the agreement but not all of it, says Mike McCarty, who, along with brothers Clay and Ken and their parents, Tom and Judy, manages the operation. The McCartys must meet contract-specific quality parameters that are more stringent than current Grade A minimums.

Working with a single farm allows Dannon to collaborate with the McCartys on reducing miles traveled and water and energy consumed—potentially driving even more costs out of the system. The McCartys, in turn, can tap into Dannon engineering expertise to further reduce electrical and cooling costs.

McCarty Dairy represents four generations of dairy producers, originating in Pennsylvania. In 2000, the McCartys moved to Kansas, and the operation now consists of dairies at Rexford and Bird City and a nearby heifer raising facility.

Since the Dannon partnership was signed last year, the McCartys have doubled their herd size and the number of employees to more than 100. Construction of the dairy’s new milk condensing operation required more than 55,000 man-hours.

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