Southern Marketing Agency Inc - Focus On …

Rural Cooperatives, Jan-Feb, 2004

What is the Southern Marketing Agency (SMA)?

SMA is a marketing-agency-in common, the primary purpose of which is to seek efficiencies in supplying the fluid milk needs of the southeastern United States. SMA began operations on April 1, 2002, as a Kentucky agricultural cooperative organized under provisions of the Capper Volstead Act. Current members are: Arkansas Dairy Cooperative Association (Damascus, Ark.); Dairy Farmers of America Inc. (Kansas City, Mo.); Dairymen's Marketing Cooperative Inc. (Mountain Grove, Mo.); Lone Star Milk Producers Inc. (Windthorst, Texas); and Maryland & Virginia Milk Producers Cooperative Association Inc. (Reston, Va.).

Initial goals:

1. Promote member cooperation and communication;

2. Seek cost savings in the purchase of supplemental milk;

3. Preserve over-order prices in the Southeast;

4. Seek cost savings in farm-to-market hauling;

5. Seek cost savings in seasonal surplus balancing.

Results to date

* "Member cooperation and communication simply could not be better," says Jeff Sims, as administrator and assistant secretary of the agency. "The goals of the agency are clearly defined and all the members are dedicated to working together to reach the goals."

* Supplemental milk purchase costs have declined, and supplemental milk agreements have been restructured, Simms notes. The new supplemental milk agreements have allowed Class I utilization percentages in the Appalachian and Southeast Federal Milk Marketing Orders to increase over comparable months last year.

* Prices over federal-order minimums in the Southeast were not only preserved, but they increased in 2003, Simms reports.

* Agency members have saved more than $10.6 million in hauling costs since April 2002, adding more than 12 cents per hundredweight to the SMA-weighted average pool value. Savings are also increasing month-to-month.

* A study of current and future needs for seasonal milk surplus balancing capacity is underway to help determine short- and long-term needs for balancing capacity and optimum plant locations.

Key management members:

Day-to-day operations of the agency are handled through the Operations Committee, made up of senior management members of the member cooperatives. Committee members are: Floyd Wiedower, from Arkansas Dairy Cooperative Association; John Collins from DFA; Don Allen from Dairymen's Marketing Cooperative Inc.; Jim Baird from Lone Star Milk Producers Inc.; Jay Bryant from Maryland & Virginia Milk Producers. Other members of senior management of each cooperative may, and regularly do, participate.

How is SMA governed?

The Operations Committee reports directly to the SMA board of directors, made up of 10 dairy farmers, all of whom are producer-members of the five member cooperatives. Board seats are apportioned by member patronage, with each member entitled to at least one board seat, without regard to any minimum patronage level.

Biggest obstacle overcome

"The change in mindset of cooperation vs. competition is not always an easy transition to make. The group has now fully completed that transformation and cooperation is at an extremely high level," Simms says.

Future plans?

The agency continues to seek efficiencies in milk hauling, which is a major cost in serving a milk-deficit market. "Agency members feel the cost--savings achieved thus far in milk hauling may have only scratched the surface. The recommendations from the study of balancing plant needs will offer opportunities for savings there too," Simms says. "As production continues to decline in the Southeast and fluid milk sales continue to grow, focusing on the efficient and cost effective procurement of supplemental milk to fill the growing deficit will be an ongoing process."