Farm Food Facts

Changing the Farmer Mindset for A New Supply Chain Model

March 17, 2020 USFRA Episode 68
Farm Food Facts
Changing the Farmer Mindset for A New Supply Chain Model
Chapters
Farm Food Facts
Changing the Farmer Mindset for A New Supply Chain Model
Mar 17, 2020 Episode 68
USFRA

Today we’re focusing on the farmer mindset and the new supply chain model.  And on that topic, we are going to hear from the company Danone, who is working to develop and promote regenerative models of agriculture that protects soil, empower farmers and promote animal welfare.  The company says that agriculture is at the heart of what they do.  They’re proud to maintain close relationships with over 140,000 farmers worldwide. Back in March 2018, Danone announced its intention to sharpen its focus on regenerative agriculture, protecting soil, empowering a new generation of farmers and promoting animal welfare.  With us today to talk about these initiatives is Tina Owens, Senior Director of Food and Agriculture Impact of Danone, North America.

Show Notes Transcript

Today we’re focusing on the farmer mindset and the new supply chain model.  And on that topic, we are going to hear from the company Danone, who is working to develop and promote regenerative models of agriculture that protects soil, empower farmers and promote animal welfare.  The company says that agriculture is at the heart of what they do.  They’re proud to maintain close relationships with over 140,000 farmers worldwide. Back in March 2018, Danone announced its intention to sharpen its focus on regenerative agriculture, protecting soil, empowering a new generation of farmers and promoting animal welfare.  With us today to talk about these initiatives is Tina Owens, Senior Director of Food and Agriculture Impact of Danone, North America.

Phil:

Farm food facts where every farmer, every acre and every voice matter. Welcome to Farm Food Facts for Wednesday, March 18th, 2020 I'm your host, Phil Lempert from all of us at Farm Food Facts, we hope everyone is taking the necessary precautions to keep yourself and yours safe in this very difficult time. Today we're focusing on the farmer mindset and the new supply chain model and on that topic we're going to hear from the company Danone who's working to develop and promote regenerative models of agriculture that protects soil, empower farmers and promote animal welfare. The company says that agriculture is at the heart of what they do. They're proud to maintain close relationships with over 140,000 farmers worldwide. Back in March 2018, Danone announced its intention to sharpen its focus on regenerative agriculture, protecting soil, empowering a new generation of farmers and promoting animal welfare with us today to talk about these initiatives and where they are is Tina Owens, Senior Director of Food and Agriculture Impact of Danone, North America. Tina, welcome to Farm Food Facts.

Tina:

Thanks very much for having me. It's great to be here.

Phil:

I want to ask you about Danone's, farmer facing programs. So let's start off with the CPM foundation. What is it and what is it going to do for farmers?

Tina:

Yeah, and so we have a different model of how we approach our family farm. So any us, we're working with over 700 family farms. And within that we've carved out a unique space called the cost plus model program. And what we've found for a lot of the commitments that we're making in recent years, the cost plus model program is actually foundational in change management, helping farms work on different ways operating in the future. And that model sends back to about 2011, 2012 and we started with a multiyear agreement with McCardy family farm and then ended up moving 40% of our non GMO and conventional production into the cost plus model approach, which means that we're covering the cost of production plus a margin. So the farm is guaranteed to have a profit, which as I'm sure you know, is very different from the commoditized model that we currently have in agriculture.

Phil:

Absolutely. And when I think about cost plus model and you know, this guaranteed margin that you're giving them, I've got to think that it's costing your company more than if you just had a bunch of buyers on the open market just out there bidding for milk and other supplies.

Tina:

Well, and there's a reason for that. You know, our CEO Mariano Lazano was on just about five, six years. We've seen the highest price of milk and the lowest price of milk. Unfortunately for most dairy producers it's been more low than high and in many cases the commoditized costs of milk production, it has not even covered their cost of production. So, um, you know, we see farmers operating at a typical loss each year as tracked by the USDA and others. While it costs us more, it provides us a level of stability for planning. And there's also some, um, I would say surprising benefits and things like we launched our non GMO project verified, uh, milk through our cost plus model partnerships. We were actually able to do it well, the low cost in the market. We were able to do it domestically, which is a really big point of difference on our non-GMO project verified milk. So it allows us to move faster when we need to be innovative and at a different cost structure than what you would get if you were sourcing on the open market. And so while there may be a higher cost to the milk at some point in the cycle, there are also these other benefits that allow us to be nimble and have really great transparency and relationship with those, with those farms in order to get things done quickly.

Phil:

So Tina, I'm going to ask a question that probably you can't answer. I'll just ask for your instinctual answer. This sounds great. Why isn't every company doing exactly what you're describing?

Tina:

Oh, well because for the last 30 to 40 years, we've been told that a commoditized system where you're squeezing costs out of every single corner and using a black box for sourcing is desirable. And that in fact, that's what allows, you know, the lowest operating costs for companies. And what we're actually saying more so in the last few years, not necessarily in dairy but in large food companies, is that where companies want to change something in the food system, they first have to de-commoditize it. So you know, as I look out across some of our other, the other large food companies that are similar size to us, you can actually point out examples where they taken the supply chain out of the black box looking to do something unique in order to connect with consumers, maybe create supply that the commoditized market couldn't provide. You know, something unique about the certification or the story behind how Hey ingredients were grown or the types of farms that they want to work with.

Tina:

And so you are seeing it a little bit here and there, but very piecemeal and it's so far it's tied to more transparency efforts and less about farmer economic resilience. And what's great about the cost plus model program is it puts farmer economic resilience squarely at the center and allows them to not have to worry about how they're going to stay in business next month, next year, or even the next generation. For those with which we have longstanding partnership, that type of model, that longterm thinking does longterm agreements. You know, you may have CEOs at some companies that don't last five years in our plus model contract lasts five years. So you know, it's just a completely different way of approaching the whole system.

Phil:

And in fact, when I look at the average food CEO, whether it's at the retail level or at the CPG level, I think the last number that I saw was something like 18 months. It wasn't even close to five years. When your salespeople and your customers look at a genome product, what are they seeing on the package, on the label that's different than one of your competitors?

Tina:

That's a great question and we're actually working to bring that out to the consumer right now. And what you'll find with the known is that a lot of what we've done is in behind the scenes, in the foundational ways that we did business. So we are the world's largest B Corp and that means the triple bottom line people, planet and profits. And that mindset manifests itself in different programs in the way that we source ingredients, the way that we work with farms or programs around soil health, for example. We're just starting to go down the path of unlocking that for consumers and helping them see behind that curtain. And I hope that you'll see a lot of exciting things coming from us in the next one to two years around that.

Phil:

So let's talk about soil health. Cause I know that's one of the initiatives that you have. You launched it a couple of years ago, you've made a five year commitment, $6 million to it. Tell us a little bit about the soil health program.

Tina:

So in March of 2018 we announced it, we would have the five year commitment and we also announced some key third parties that were in this with us. So eco practices, um, you know, a key call out. They're actually helping us by working directly with the farms that are part of the program too. Track what's happening in the field. We started with 26,000 acres looking at whether they were doing crop rotation, cover crops, uh, no or low tillage and uh, using moisture probes, you know, how they were doing an irrigation. It took advantage of everything from the farmer's notes in their front pocket to satellite imagery. Um, you know, data from there, my John Deere tractor, all of it to help those farms understand how they can start implementing practices, what the next steps would be for their specific situation region. Um, in order to move on the spectrum of regenerative agriculture. And I'm proud to say that in year two we expanded from 26,000 acres to over 50,000 acres and added 11,000 acres that were organic as part of that second year expansion. So, and we're getting a holistic view, a cross section of our farming partners on how they're working in the field related to soil health.

Phil:

So you're getting this holistic view, you're seeing all of these 50,000 acres. What's going on? What about the farmer? What kind of input? What kind of learnings or the individual farmers getting their fellow farmers, if any?

Tina:

Yeah, it's important to note actually that our farmers McCardy salmon farms were the ones that brought us the relationship with eco practices that ended up leading to the soil health program that we announced. So you know, it's one of those situations where we can point to the cost plus model of having farmer feedback and that um, relationship that helps us expand and push ourselves in new ways and interacting with the farm. And so eco practice is the one that is actually working with the farms. We do have farmer meetings where we bring together folks within a region and they are able to talk peer to peer. But because we're not able to tell farmers directly, you know, what they should be doing, we feel that is not our role. What we've done instead is pay for the level of information that goes beyond anything that they've had before to help them understand how making those practice changes will actually impact their own farming operation and even what it might mean for their own economic liability three years, five years, 10 years from now, whether or not they're doing business with us.

Tina:

So we're looking for the mindset shift and the farms. Many of those that are part of the cost plus model program have already made that mindset shift. And so the transition with those farms is sometimes a, a shorter road than others. But it's important to know that the farmers themselves need to embrace a new way of thinking about their soil health and putting it at the center of how they're running their operation and wherever possible, we're opening doors to make sure that they have access to every tool that they need. So even beyond data we've gotten into loans and grant programs that we announced earlier this year, uh, I'd be happy to share a little bit more about those if you're interested.

Phil:

Sure. But before that, I, I've got to imagine that for this cost plus model program that you've got, you must have a waiting list of farmers who, who want to be part of this, not only from the economics but the kind of information and the kind of funding that you're giving to echo practices to help them be a better farmer,

Tina:

not a waiting list. It's actually a dating on, on the folks that ended up becoming part of the class less model program. There's a one year dating period and there's also, you know, as you pointed out earlier in, um, certain times of the market, we're, we're paying above market prices. And so we've got to balance within our portfolio. Again, it's that 40% roughly of our conventional and non-GMO project verified melts. And you know, we're looking at organic for cost plus model. So, you know, there's a few farms that have entered the system there that we affectionately call dating, where you spend a year, um, sharing information back and forth. And it's because we're going to enter into those longer term contracts where we're your costs of production for five years. Then we need to make sure that you're ready to act openly and not work in a black box. So that right there is already a different mindset and then because they've made that mental transition and are part of this broader program with multi year agreements and the deep relationship with the gnome, it is more a complimentary relationship on how they're taking up, uh, and leading with some of the initiatives that, you know, branch to them. You know, a lot of it is optional and we're finding that farmers are much more likely to opt in when you have those longterm agreements in place.

Phil:

Absolutely. So as, as a Denon consumer, and I guess I'm probably not supposed to say that but, but I do consume a bunch of your brands. I was thrilled to see the headline come out that said horizon will be the first carbon positive national dairy in the U S by 2025. Tell me a little bit about that. Besides the fact that I love horizon most to begin with now. I love it. I love it even more.

Tina:

Well thank you for being a consumer. So we're so excited to share that horizon organic cause announced that they will become the first national dairy brand to become carbon positive. And that's across our whole supply chain by 2025 so that means everything from the seed to the the farm where the crops are grown to the dairy, to our processing, to our employees, to the consumer and the energy that is used to run their refrigerator for that milk. That means the entire thing. And the reason we're calling it carbon positive is because we first want to achieve carbon neutrality, but then go even further. So we're looking at removing, we'd do saying an offsetting any additional emissions from entering the atmosphere and therefore becoming carbon positive

Phil:

five years is not a long time to do all the things that you've just described from the refrigeration to to everything. What's the plan? How are you going to pull this off?

Tina:

So as a lot of it is going to be working with our farming partners. So horizon works with over 600 kids farms, everything from a four cow organic dairy up to you know, a couple thousand calories can in theory and they are, we're working now on bringing the best means possible to our farms to help them make the choice into transitioning into practices that lead to regenerative agriculture. So one of the ways that we're bringing that to life is that horizon has announced that they will do a 1.5 million per year for 10 years, $15 million investment fund that is meant to being low or no cost loans wherever possible. Potentially also gaining grants that will make it viable for farms to often to make some changes on the ground. We've also using our soil health program, that 11,000 acres that I mentioned earlier as a pilot for how to continue rolling that out within the rest of our horizon organic farm so that we can have a baseline of activity and what's occurring in the fields where the cows are fed and making sure that we're wherever possible, pulling really big papers to help farms get access to things like grants or capital.

Tina:

And if they need it, technical assistance for understanding what they might need to do next on the farm. This is a really big game that we're playing and one of the reasons it's five years was actually our leadership, specifically our CEO and gentleman Mark from America, Mariano. He wanted to push folks to really move the needle and not be complacent about it. If you have a 10 year goals and it kind of feels like you don't give, you have to do anything about it today or

Phil:

yeah,

Tina:

five year goal every, yeah, she has a five year goal, you know, okay, we've got to get busy, you know, yesterday we're already behind. Um, and that's because we are pushing both ourselves and the industry and we also want people to see dairy as part of the solution when it comes to climate issues. So, um, you know, the big part of the perception around the dairy industry and we've been leaders in the organic industry for decades, we're looking to move the needle even further on leadership to being in a carbon positive brand.

Phil:

Well, Tina, it sounds like you've got a great job. First of all, let me say that in everything that you are talking about, everything that you're describing and certainly the farmers who are listeners, the retailers who are listeners, the farm food facts are all going to be wanting to be on your dating list. I know that for sure. So thanks for joining us today on farm food facts.

Tina:

Thanks very much for having me. It was a pleasure.

Phil:

Thanks for listening to today's podcast episode. For more information on all things food and agriculture, please visit us@usfarmersandranchers.org also, be sure to look for us on Facebook at us farmers and ranchers or on Twitter at USFRA. Until next time.