Episode 5 – Is The Dairy Checkoff Really Working And Worth The Money?

Why hasn’t my milk price gone up if checkoff is doing its job? What value has checkoff brought my farm lately?

Dairy Farmers Jess Peters from Pennsylvania and Larry Hancock from Texas do a deep dive on how the national and local dairy checkoffs are working to drive trust and sales of dairy products, and ensures farmers have a voice once milk leaves the farm.

In this episode of Your Dairy Checkoff Podcast, our farmer hosts will have a conversation with Lucas Lentsch and Peter Vitaliano about the value of the dairy checkoff.

In 1983, Congress created the dairy checkoff on behalf of U.S. dairy farmers to deal with the ongoing surplus of milk. Today, the national and local dairy checkoffs work on behalf of America’s dairy farmers and dairy importers to drive trust in and sales of U.S. dairy products, and ensures farmers have a voice once milk leaves the farm.

This happens through a unified effort between national and local farmer leadership and staff who represent your voice in the dairy industry with consumers, invest in research, insights and expertise, and collaborate with partners to achieve shared goals.

To learn more about the national dairy checkoff and your local dairy checkoffs, please visit usdairy.com.

Dairy Farmer Hosts:

  • Jess Peters – Pennsylvania Dairy Farmer
  • Larry Hancock – Texas Dairy Farmer

Industry Experts

  • Lucas Lentsch – Dairy Management Inc., Executive Vice President, Strategic Integration
  • Peter Vitaliano – National Milk Producers Federation, Vice President, Economic Policy and Market Research

Podcast Transcript:

Jess Peters 0:00
Okay, so this might be a stupid question. But um, I like to. I’d like to ask the stupid questions because if I have the question, someone else might have it. You guys have each I think I mentioned the report to Congress more than once. What exactly are we reporting to Congress? What’s in that report? What’s very good What what? And what is that? What is that doing for me as a dairy farmer,

Larry Hancock 0:25
so I just got to ask if I look at my last milk check, I’m gonna say promotion is terrible. That bad. You just said that’s what we look at.

Jess Peters 0:44
All right. Hello. Hello. Hello. My name is Jess Peters and I’m a dairy farmer from Pennsylvania. And I’m welcoming you to another episode of the dairy checkoff Podcast. I am co hosting today with Larry Hancock who is a dairy farmer from Texas. We’re going to be hosting a discussion today on the value of checkoff and how its measured. And we have two people who are going to help us answer those questions. The first is Lucas Lynch, who was the chief Federation officer at dairy management incorporated the National Dairy checkoff. Hi, Lucas.

Lucas Lentsch 1:15
Good afternoon. Great to be with you.

Jess Peters 1:17
We’re glad to have you. And we also have Peter Vitaliano, VP at national Milk Producers Federation on economic policy and market research.

Peter Vitaliano 1:26
Hello. Hello. Good to be with you this afternoon.

Jess Peters 1:30
Well, we are going to be talking to you guys about how dairy check about how the dairy checkoff and the USDA measure the value of checkoff programs for driving dairy sales and consumer trust. And as a dairy farmer. I know this is a question I’ve had because I pay checkoff and I want to know if I’m getting my money’s worth and where that money is going. So like right off the bat, how do we measure the value of checkoff? How does USDA measure it and how do those differ?

Peter Vitaliano 2:03
Well, from the very beginning of the checkoff legislation, there’s been a requirement that the program B be statistically evaluated for its effectiveness every year. And that is handled by USDA working under contract with various researchers at mostly land grant universities,

Lucas Lentsch 2:26
Larry and Jessica as we as you think about the role that USDA plays as an oversight. But you know, we have ongoing basis as checkoff live in the market every year. And the valuation of programming is actually also real time on an internal review with farmers and the National Board looking over the shoulder of the staff on the strategies that we are employing and the tactics of the relationships that we’re bringing to the life frankly, the partnerships and say food service companies, you know, those we evaluate on the merits of real time results. And again, what the USDA and that outside report to Congress that there’s some terminology that sometimes we can get clumped up on, like, return on investment, or benefit cost ratio, I think that’s a really important decision, discernment that we need to provide for our listening audience is what’s the difference? And sometimes we throw ROI around as a terminology, return on investment. But to be clear, Peter helped me out here that report to Congress is not an ROI. It really is specific to a benefit cost ratio, can you help us understand the difference?

Peter Vitaliano 3:40
That’s what it is cause called. And I guess the simple definition that comes right out of the study itself, is the economic return in dollars to every $1 invested by stakeholders in promotion. Now, I’m not as much of a stickler for the, it seems like that that is, you know, a concept that’s fairly close to return on investment. There was you put so many dots like you buy a bond you, you pay $100 for a bond that pays 5% interest, and you get back $105 $5 at the end of that period, say the year. The analysis is done with what’s called time series where they they need data over a number of years. And promotion has two effects that gives those benefit cost ratios that we’ll review subsequently. They increase the the consumption of dairy products. That’s the fundamental purpose of the promotion program. The promotion program does not have an explicit directive to raise prices. It has the directive and the mission to Increase promotion of dairy products in domestic and international markets. But in so doing, if the program is effective and increasing promotion, it will have the effect of increasing prices not permanently. But in an ongoing basis where you put more consumption pressure on the available supply, it’ll move prices up to encourage more production. And in turn, you want to keep keep the promotion going. Now there are two ways you can look at it, you can the return, the benefit cost ratio could be the total return which is any price increase, times the additional sales, there was the the growth of the entire revenue to dairy farmers both in price and quantity, which is what I suspect the whole thing is, for an individual farmer, like Jessica says she wants to admire you want to know what it’s doing for them, you may not be as interested, I mean, you should be as dairy leader, she should be interested in how much it’s growing consumption because that drives your price. But ultimately, what matters on your farm is not how much the pie is growing for everybody. Because the important part of the pie to you is the size of your your milk supply. You if you’re growing your herd or keeping it steady, you want to know what it’s doing to your price, you’re a little slice of that whole revenue increase. And in the sense that how much your price has gone up. As a result of that increase measured by the benefit cost ratio,

Larry Hancock 6:40
I just got to ask if I look at my last milk check, I’m gonna say promotion is terrible. That that you just said that’s what we look at. So that’s a common, I agree with you 100%.

Peter Vitaliano 6:52
But promotion is not the only thing that drives your price. I mean, look at what happened last year where your price went bonkers over all kinds of disruptions in the market. The supply of milk affects that the competition from other products, which has been a key thing and what’s been happening in fluid milk, for example. All of those things, incomes, when when we have a recession, people buy less dairy products, all of those things affect the price of milk, the supply and demand for milk. And promotion is just one of those things that rides in that big mix. So promotion could be very effective at a time when prices are in the tank. Because all these other factors are working against you. I know that’s very difficult for a farmer because you don’t see those other things, but you see the 15 cents on your check. And you see your price. So you see what you’re investing only in promotion, not all those other things. And so you say if if promotion is so good, why is my price, you know, so terrible. And again, you have to look at it over a long, long period of time. And the analysis in the report to Congress is a way of technically separating those things out. So that you’re looking at the effect of promotion, even if it’s writing, you know, somewhat subtly on top of a whole bunch of other changing things that may be negative for price at any one time. But just like the last couple of years, I mean, last year’s prices and direct payments. You know, we could have been done a lot worse during the pandemic. But you remember the period from 2015 to half of 2019 not very good. But 2013 2014 Larry, you’re smiling. They’re wonderful, because you’re going to tell your grandkids about those years. If it comes both ways. That it’s it’s never, you’re not going to keep prices up forever under our basically open marketing system.

Jess Peters 9:12
Okay, so this might be a stupid question. But um, I like to, I’d like to ask the stupid questions, because if I have the question, someone else might have it. You guys have each I think I mentioned the report to Congress more than once. What exactly are we reporting to Congress? What’s in that report? What’s very good What, what and what is that? What is that doing for me as a dairy farmer.

Peter Vitaliano 9:37
The report to Congress is an annual report again mandated by the Promotion Act. The promotion is a is based on a law that was passed in 1983. And that law permits producers if they vote to do so to impose a national border on them. cells, which mandates a 15 cent assessment. Prior to that you had a bunch of regional organizations but it was it was kind of voluntary. They the current checkoff program unified that at a national level. And again, part of that requirement is a report Annual Report to Congress, I could look up and tell you how many pages the most recent one was. But there are many, there are a number of chapters that just give straight descriptions of the program. Talk about what the what the programs have done over the past year. And a number of other things that there’s there’s only one chapter chapter three in each one, that is this specific quantitative evaluation, you know, what, what is the benefit cost ratio of the the promotion programs have achieved. But there’s a lot more besides that, and it’s, it’s not heavy reading. And I would recommend that every dairy farmer that pays checkoff should read that, because that tells you a lot about your program.

Lucas Lentsch 11:04
And quite easily, it’s just even putting in your Google Search USDA dairy report to Congress and you’ll go right to it. So just do we answer your question it basically the Act and the order requires that report back to Congress. Are you looking for a little bit more context from what does that actually mean, in the halls of Congress?

Jess Peters 11:25
Um, maybe a little bit more, I guess, the relevance of the report, I suppose the way I take it is, it’s USDA is way of dairy farmers are paying into this. It’s kind of their way of checking you and making sure you’re spending our money in a reputable reputable way. I guess it’s kind of what I’m taking it. It’s like their checks and balances. Is that right?

Peter Vitaliano 11:51
Well, the latest report, technically was was published in November 2020. But it it it all, they covered the program through 2018. Now there’s going to be a lag, you have to wait till the whole year is completed, get the data to do the analysis, get all the information to do the write up on those other chapters. So it usually takes a while, I would expect that it would easily take at least you know, a good part of the year after that year closes to do the report. So by that measure, last November doing 1918 2018 is probably about a year later. That could have been and I don’t know the details, but but my guess is that could have included, you know, the programs all the way up through 2019. Published 10 months 11 months later, but I am not privy to all the details that go into how long it takes to put the whole report together.

Larry Hancock 13:04
My thoughts or anything with the government is that’s pretty quick. Yeah.

Jess Peters 13:09
You’re talking a lot about the promotion that checkoff does. And I think one of the things that frustrates farmers the most is one, not seeing the result in our milk tech is everything we do on the farm comes back to our milk check. but to also I think a lot of farmers don’t actually see the promotion checkoff is doing. And I don’t you know, I hear all the time, and I’m just as an advocate online, I, I don’t see billboards, I don’t see commercials on TV, you know, where is our money going? What promotion are you doing? And how effective is it?

Lucas Lentsch 13:40
You know, Jessica, that’s a great question. And I think one of the things to keep in mind is, is if you think about consumers, and where they’re located, and if you look around your farm, you may be close to an urban center, you may not be, but by and large, most of our consuming public are someplace other than ag country. And when you think about billboards, who’s driving by that, that might make a farmer feel good, they see something on a billboard that by where they live, but at the end of the day, our marketing, our partners, we’re really joining, partnerships, and our approach to this business is really going where consumers are. And it might sound a little silly, but to say it this way, if you’re not seeing some of the advertising in the digital channels, the answer is it’s because you’re not the demographic that we’re targeting. But those that can you trust me when I say we are in that space, digitally, working through a reaching Generation Z, but we also have called the conflicted health seeker. Now there’s some there’s some very clear demographics that we are targeting and going after. And we’re out there going after that marginal, conflicted health seeker and helping them make a choice if they have that moment of truth in the retail aisle and they’re saying, do I pick this alternative? Or do I pick this trusted beverage, I’m going to pick the trusted dairy beverage because some of that marketing got through to me.

Jess Peters 15:05
So, um, another thing I hear a lot from dairy farmers, we see a lot of advertising from milk alternatives. I have a hard time calling it almond milk. I’d like to call it almond juice. But I think we’re a very passionate group of dairy farmers are and one thing we want to see is there. It almost feels like they’re attacking us. And we want to know a lot of farmers wonder why. checkoff isn’t or can’t attack back. Do you want I mean, on our behalf? You know, I’m sure there are rules about that. You know, why aren’t we fighting back?

Lucas Lentsch 15:48
is a great question. In Yes, your first responses. One of the things that dairy checkoff as a through its act in order. And as we’re governed by farmers, we still have to be regulated by USDA oversight. And to disparage any other food, or food and beverage is something we’re not allowed to do. But information is our friend, and consuming public. You know, one of the things we always have to keep in mind is when you’re trying to take on the dairy industry. And all you have to do to gain market share is to create doubt, people attack us from all edges. And you know, as an industry leader, we are in a spot where consumer confidence is high. We’re in 97% of all the grocery carts out there in some form or fashion. And when you see that advertising, they’re trying to break through and and get into that market share. That’s not going to go away. It’s only going to likely increase more and more competition is going to come after. In really they want to knock off the king of the hill and that being dairy, they want part of that market share. So the attacks are going to keep coming. That’s that is a reality. But for us our ability to respond is really in in science. It’s in truth and it’s not in from an emotional reaction. But one from a really a trusted science based response.

Peter Vitaliano 17:23
It’s a fighting back really requires a team effort, because as Lucas says the checkoff itself can’t directly go after sort of the alternatives. But there are a lot of policy issues involved in that. And national milk is a policy organization and we are fighting back. We have been browbeating the Food and Drug Administration that has not been enforcing its its own regulations for years. Because they figure it’s not a health issue. It’s just a standards issue. But regulations prohibit the labeling of anything with the word milk, for example, that is not from a cow or at least from a from a bovine animal. And so these alternatives the call themselves almond milk, and the like are are violating those standards.

Larry Hancock 18:24
I we could take two more podcasts talking about dairy alternatives. But I want to bring it back just for a minute and that’s, you know, our checkoff is 15 cents. And it’s it’s not one that goes to state and regions and to national. Are those not managed? Are those measured the same way?

Peter Vitaliano 18:46
Yes, in fact, because all those different promotion programs are operating at the same time. The analysis tends to look at the totality of money that’s being spent. They they separate it out into the DNI unified program expenditures. They include the milk Pep expenditures, because they’re operating in there on fluid along with a DMA. It’s and then the state and regional the the, the approved programs are third batch.

Lucas Lentsch 19:22
Yeah, so the milk, milk milk processor education program, it’s all the whites, basically the white fluid milk that is produced in the country, those processors pay their own check off on that, you know, as far as the state and local, there’s a thing called qualified programs. And all of the qualified programs that USDA oversees, is not necessarily all of the programs that roll up under our our unified marketing plan. And I just want to point this out. There’s one National Dairy board and that national nipple of that 15 cents flow. With the National Dairy board, and then there are the rest of qualified programs across the country of which there are 16. state and regional systems. And of those 16, essentially, 14 of those state regions pay into the Federation, which is the United dairy industry association. And they are contributing dollars that jointly invest in partnerships, programming, nationally and locally. And the rest of that Federation, the state level, and regional level, they are taking that unified marketing plan that they’ve helped create, and they’re out there implementing it. The best example I can come at you with locally is there are no national screws, schools, quote, unquote, they’re all local, just like farmers are local zip codes. So our schools and we need the staff out across the country to implement programming in order to continue to have trust and confidence in dairy working alongside of the USDA dietary guidelines. So that would be one example of how that work comes to life.

Jess Peters 21:02
Lucas, you specifically mentioned consumer confidence and part of the discussion and that’s kind of a new thing. I think, how do we measure that you’re gaining consumer trust through checkoff programs? I mean, one way I do it online is, you know, they’re farmers actually advocating online directly to consumers through social media, how are you measuring, if and how we’re gaining consumer trust?

Lucas Lentsch 21:27
Well, if you think about market segmentation, it really comes down to a quantitative analysis of when we start something, and when we finish a campaign. And that idea of that measurement starts when we do if we’re implementing, like most recently, undeniably dairy was a a campaign that we moved to really make sure that consumers were tracking here, they could trust foods from from dairy, they could trust farmers. And that, in order to know that we had progress on that front, there was that that evaluation of the marketplace with polling, knowing the demographics of who you’re targeting, and where they fell, with the results of those initial responses, let’s say go back to that conflicted health seeker as a category term that we worked with. And then over the course of a year or two, we check back in and we evaluate a random sample of consumers that fit into that bucket, and we see how we’re doing with them. And so that’s truly a quantitative analysis that allows us to see, are we moving the needle in a correct direction? That’s just a very simple way of saying, when you have a random sample of Any of a group across the country, that is very much your target audience? Have you moved their sentiment on key things that we’re thinking about? So that’s one way that we can evaluate trust? Other ways as frankly, you know, product sales, and return of consumers to certain products? You know, and how do they move along the path of supporting something they try it once? And they’re one and done? Or do they become a brand advocate, and you can see the repeat sales? And do they ultimately become a brand champion that’s out there telling their friends and families to buy a product. And that’s how you can see consumer confidence in certain brands as well.

Peter Vitaliano 23:26
That brings up another point that, in addition to the, you know, we’ve been talking about the technical quantitative report, in the in the Annual Report to Congress, but there’s no besides that more fancy statistical analysis. There are all kinds of good data and good that tell a story about as Luca said, how consumers are increasing their confidence increasing their consumption of dairy products. One of my favorites is looking at what’s been happening over almost 100 years of butter consumption per capita, which had been in decline until, you know, since literally 100 years ago, until recent decades, and thanks to DMA funded research, which is added to the change perception of consumption of dietary fats has been on the upswing again almost for the first time in 100 years. I mean, those things are not just accidents, you can just look at some of that data and say, Wow, something’s gone right here.

Lucas Lentsch 24:38
Know, Peter, we don’t talk near enough about this. I may not be drinking as much milk as I used to, but what I’m sure eating it, and as a country, we’re at an all time high per capita consumption of dairy foods. And I would say as we’re looking at the trends going forward that’s only growing and that’s a lot to celebrate in that and I don’t think we Celebrate near enough because we, I think sometimes we associate the value of what is raised on my farm in the vault tank going for processing. There’s an emotional connection of what that product looks like to what the consumer is drinking or eating. And I think dairy as a beverage is one way of looking at it. But dairy as an ingredient is another way of thinking about your dairy profile, if you will, where your products hit the marketplace.

Peter Vitaliano 25:32
That’s I couldn’t have said it better myself. Lucas, the food industry is is changing rapidly and many, many foods are now becoming ingredients in other foods and dairy is no exception. I mean, look what’s happened in in the way complex were used to dump way on your fields or put it down to Seward somewhere. And now it’s basically manufactured into a whole host of value added products, goes into nutritional products, etc. The growth of exports is a tremendous success story that the checkoff has had a role and, and for years and years and it’s still the case about 80% of the total milk equivalent or milk solids as I measure it in that goes to exports are still ingredients, dry, basically nonfat dry milk, all those different whey products lactose. That’s what gets imported by dairy deficit countries, where it’s often reconstituted into a whole host of consumer products.

Larry Hancock 26:46
You know, I’m just a farmer. So I’ll probably never read the report to Congress. If it’s more than a paragraph long, it’s probably more than I’ll read. But I’m an advocate of promotion and the way I look at it probably very simple. As you know, I try really hard to manage my hurt. And I hope to increase my production by one and a half 2% every year, which nationally we’ve always done that, usually over that. And that’s without adding a lot of, of animals that’s just improving my herd. And, and so far, we’ve been able to handle all that milk. Yeah, all that growth is sold, it’s not being stored. Like it used to be in my olden days when I first started stored in a cave somewhere in Kentucky, it’s it’s actually being sold and I think that’s a good touch real good have the checkoff and the spinning up them up the dollars. It’s interesting to hear about how we measure that. And and I’m sure that it’s measured in lots of ways each time. Each time a plan is put in place, that plan is measured. So there’s a lot of measurements. So I think you’ve done a good job explaining it I you know, for the report to Congress, I go back to what you said at first, do we trust that report? Peter, do you trust that report?

Peter Vitaliano 28:14
Yeah, it’s it’s the best information there is. I’ve been following. You know those evaluations for years and years and with other commodities, I’m gonna get a little technical here, dairy products tend to be price inelastic, so that that means the demand is such that a little bit of effort in boosting consumption can have a big effect on prices. If we didn’t, if dairy wasn’t that way, the promotion wouldn’t be as effective. So you’ve got an industry that that is ripe for promotion, activities to be effective.

Lucas Lentsch 28:50
I think one of the things that’s really incredible about that farmers continue to provide the oversight. And you know, we that work in dairy checkoff and promotion research. It’s a it’s an honor to work for farmers. And when a farmer is looking over our shoulder at a board meeting, asking the questions about value, how are we making progress, I distill it down into a simple phrase. And that’s really the definition of value added. And the hope and the desire that we are getting a value added proposition in front of our farmers. And that is definition being would you miss us if we’re gone? And then you could twist it a little bit and say, Would you miss this program? If it was gone? Would you miss this body of work if it was gone? If we didn’t have us dairy Export Council, would you miss it? If we didn’t have nutrient? Would you miss it if we didn’t have the Innovation Center for us dairy, bringing all of the brands together companies together in a pre competitive way to work on issues facing our industry? You know, and I think that the answer is we hold ourselves accountable to it. Standard, and we better be value added, we better be making a difference. And one of the great things about having farmers close to this is we make adjustments real time in the year that we’re in. We don’t wait around for a report to Congress, for us to make a decision to change something that’s a that’s a lagging indicator of success. We are all about the present and the future.

Jess Peters 30:22
I think that’s a good place to stop on behalf of dairy farmers. I want to say thank you to you like checkoff and your programs and you guys because I know we’re a hard group to get a foothold with. And it’s just been so many years of not having good milk prices or input prices constantly going up and profits never following them. That were very skeptical of where and how we spend our money. And you know, that 15 cents doesn’t seem like a lot of money. But the fact that it’s constantly there always has us questioning, you know, and I think Lucas made the point that we feel like we don’t see that money in promotion, because we’re not the ones being promoted to. But I think I agree that if you weren’t there, we would miss you. We just don’t know that. Larry, what do you think?

Larry Hancock 31:16
I agree. I think Lucas summed it up really well. I think the board questions everything and and tries to make the best use of the money. There are times when we tried something and it doesn’t succeed. But I hope everybody expects that because we’re always trying to make sure we’re making a difference. And I think checkoff does that it makes a difference. And you did a good job. Just thank you very much.

Jess Peters 31:46
Well, thank you. So did you Larry. And thanks to Lucas and Peter, for this conversation, the value checkoff I know I learned some things and had a few confusions cleared up. And it was it was just really fun talking to you guys today. My first hosting gig, I might go into business now. Thank

Peter Vitaliano 32:06
you for Thanks.

Lucas Lentsch 32:08
Thank you for representing America’s dairy farmers in this discussion to the opportunity.

Jess Peters 32:15
And I want to thank everyone for hanging out with us and listening to what we have to say and if you want to hear more about different issues affecting the dairy industry, you can subscribe to this podcast on your favorite podcast platform like stitcher or Spotify or iTunes. I know I use Spotify or you can check out our website at dairy checkoff podcast calm for future episodes.

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