Swiss Valley Farms brings a sharp focus to cheesemaking

Swiss Valley Farms chief executive officer Donald A. Boelens was dealing with volatile milk prices and a collapsing export market in 2008-2009. Looking back, he says he knew there had to be a better management structure, one that could allow the company to take advantage of opportunities caused by price fluctuations and at the same time deal with the hardships.

So, with the backing of the co-op’s board of directors, he set out to change the organization of the Davenport, Iowa-based dairy cooperative. In June 2011, Boelens reorganized the management structure to make the co-op more nimble and able to react quicker to opportunities in the marketplace. He changed Swiss Valley Farms from a company aligned by functions (sales, operations, marketing) to one aligned by product lines (natural cheese, dairy ingredients, procurement).

Swiss Valley Farms makes cheeses in Iowa, Minnesota and Wisconsin, but its products are sold around the world. With 2011 revenues of nearly $400 million (up from $333 million in 2010), the firm placed 51st on the most recent Dairy 100, Dairy Foods’annual list of the nation’s largest dairy processors. With 683 member farms producing 1.5 billion pounds of milk annually, it is the 21st largest dairy cooperative, according to Hoard’s Dairyman magazine.

Boelens joined the co-op’s management team in 2001 as chief financial officer and was named co-CEO with J. Gordon Toyne in 2003. When Toyne retired in 2008, Boelens became the sole CEO.

Jeff Saforek, vice president and general manager of the Dairy Ingredients and Export division, describes the company as “quick and lean.” Saforek’s division consists of cream cheese, club cheese, processed cheese and whey powders. Jeff Jirik is vice president and general manager of the Natural Cheese division, which consists of the company’s Swiss, Baby Swiss and blue cheese products. Chris Hoeger is the company’s vice president and general manager of Procurement. Each has profit-and-loss responsibilities. It keeps them focused on running a tight ship.

It was hard to coordinate activities in the former alignment, Boelens says. Now, he calls Swiss Valley Farms “flexible and adept” and able to react to requests in weeks, not months. For example, a customer wanted a reduced-fat product, and Swiss Valley Farms created it in nine weeks. It could have taken nine months in the previous alignment, he says.

While the economy was affecting all dairy processors, not just cheesemakers, there were also changes in the structure of dairy farming, which directly affect cooperatives. Large farming operations have more options as to whom they affiliate with, says agricultural economist Bob Cropp, a professor emeritus at the University of Wisconsin, who has been following dairy cooperatives for 40 years.

One way to retain membership is to increase the value to the producer by providing them a secure market for their milk along with a solid pay price and dividend. Companies have to find or create an advantage to compete successfully. Swiss Valley Farms has a history of adding value to its milk. Cropp says Swiss Valley Farms was an early advocate of adding value to dairy products. The co-op leadership has always insisted on high-quality milk, and it was a proponent of analyzing milk for its butterfat, proteins and other solids, Cropp says. Swiss Valley Farms’ strategy is to make high-quality cheeses, which offer high returns to co-op members.

Defining and refining the business

Swiss Valley Farms has honed its focus in the past four years by selling and buying assets. In 2008, it started selling its cultured and fluid milk businesses; it was out of the fluid business for good in 2009. Swiss Valley Farms sold a Parmesan packaging facility in Dalbo, Minn., because it wasn’t using any members’ milk. In 2010, it bought Faribault Dairy Co., a maker of blue-veined cheeses, a growing category. That same year, Swiss Valley Farms formed a joint venture with Emmi-Roth Käse USA (called White Hill Cheese Co., LLC) to manufacture cheese in Shullsburg, Wis., where it owns a 24,000-square-foot plant. White Hill Cheese makes Baby Swiss, no-salt-added Swiss and other varieties.

Today, Swiss Valley Farms is a manufacturer of high-value cheeses and whey powders. Efficiency is seen throughout the entire operation. Boelens speaks proudly about his “lean operation.” The Davenport headquarters is in a building shared with other businesses. There are just six people on the executive staff, and when Saforek adds there is not a “plethora” of resources, he means layers of management. “You can’t hide here,” he says. Everyone has to add value, he adds.

“As a midsize company, we play the innovation card,” Boelens says. He also puts the focus on the customer. “We provide a high level of service.” Boelens met with every major customer and asked them: What can we do to make your business better? Then he figured out how to work within the parameters of cost, functionality and nutrition.

Cropp says that is exactly what a co-op needs to do. The key to success, he says, is to build relationships with customers and work with them on product development.

Investing in IT, plants

Information technology is vital for any business. Swiss Valley Farms has networked its plants and connected them to headquarters. It purchased a demand-planning system to replace Excel-based spreadsheets. The new software allows the company to generate forecasts for sales, marketing, logistics and financials. Boelens says the company “probably gained 10 years” in a three-year span by converting to the demand-planning software.

Infrastructure investments at the plant level include an ultra-filtration unit, milk receiving improvements and air handling upgrades. The raw milk UF separator unit improves milk by adjusting to seasonal variations in a cow’s milk production, thus allowing for the manufacturing of a more consistent product. (Read more about Swiss Valley Farms’ Luana cheese manufacturing plant on page 60.) That one piece of equipment is important. For a cheesemaker, the hardest thing to do is be consistent, says Jirik. He should know. He’s a master cheesemaker and board member of the American Cheese Society.

Jirik takes pride in the fact that Swiss Valley Farms makes specialty Swiss-style cheeses, not commodity products. He describes his cheese as “high flavor” and calls it world championship caliber. That’s not just hype. The company is recognized every year in cheese competitions. The ones that mean the most are those judging a cheese’s technical merits, although the company appreciates awards given for taste and appearance.

Compared to Swiss cheese, making Cheddar is easy, Jirik says. “We have to wait 55-60 days to see if we’ve done it right,” he adds, referring to the taste, eye formation and other factors that define high-quality Swiss and Emmenthal cheeses.

The long-term outlook

By divesting its fluid milk business and focusing on specialty cheeses, Swiss Valley Farms has put itself in a good position for increasing sales. The forecast for 2012 is to grow 8% overall, including the branded and private-label cheeses and whey powders. Swiss cheese and new accounts are expected to increase 1-3% a year, and specialty cheeses are growing at 5% a year, Jirik says. Purchasing Faribault and the White Hill Cheese joint venture give the company more capacity. Demand for blue cheese is exploding. The Faribault and Mindoro plants have increased production 20%, as measured by pounds.

 Cheese processors used to dispose of whey by spreading it on fields. Then they discovered the economic potential of the byproduct. Cropp calls whey a “high-value commodity” that is “a bright spot in the dairy industry.”

 Swiss Valley Farms recognized the potential in whey powders and has built a booming revenue stream. Exports are a growing part of the co-op’s revenues. Saforek says the company could export nearly all the whey powder it produces, but won’t because it has domestic customers to serve. Swiss Valley Farms sells whey powder, cream cheese, Swiss cheese and blue cheese to customers in Mexico, South America, Asia and the Middle East.

“The global market is coming to the United States,” Boelens says. Standards in the U.S. cheese industry are high, and that helps all processors, he says. Swiss Valley Farms is a member of the U.S. Dairy Export Council. When talking with potential export customers, the conversation first turns to the strengths of the U.S. dairy industry, Saforek says. Those strengths include an educated workforce, an established infrastructure, low transportation costs, a viable economy that can still invest in manufacturing and high standards for safety (meaning no melamine scandals), he says.

Then Swiss Valley Farms talks about it strengths, including processing whey with desirable color, taste, mineral content and nutritional value. The co-op points out that whey is produced from a single source of milk and a controlled milk supply. Consistency helps maintain the quality, Saforek says. Swiss Valley Farms took first place for its sweet whey at the 2011World Dairy Expo.

Cropp says the challenge for dairy cooperatives is to be profitable so they can invest and grow. Co-op processors in the upper Midwest have to run efficiently because they pay a higher price for milk, compared to those in southern states. By restructuring its business, investing in its cheese plants, manufacturing branded and private-label cheeses, and developing export customers, Swiss Valley Farms is adding value to its members’ milk, building equity in the co-op and returning profits to the farmers. It is also producing cheeses its customers can sell and that consumers can enjoy. The turmoil of the last decade has passed. 

2011 Cheese Honors

Blue Cheese

1st Place (St. Pete’s brand), Minnesota State Fair

Grand Champion, (St. Pete’s brand), NCCIA Cheese Making Contest

1st Place (St. Pete’s brand), National Milk Producers Federation

2nd Place (Verdant brand), National Milk Producers Federation

3rd Place, National Milk Producers Federation

Gorgonzola

2nd Place, Wisconsin State Fair

2nd Place, (AmaGorg brand) NCCIA Cheese Making Contest

Swiss

1st Place, Illinois State Fair

1st Place, National Milk Producers Federation

Baby Swiss

2nd Place, Illinois State Fair

2nd Place, National Milk Producers Federation

Neufchatel

3rd Place, World Dairy Expo

3rd Place, Illinois State Fair

Cream Cheese

Grand Champion, Illinois State Fair

1st Place, National Milk Producers Federation

Sweet Whey

        1st Place, World Dairy Expo