Land O'Lakes finding rhythm in highly competitive world food industry

Land O'Lakes is a company whose bread-and-butter business really is butter — and a whole lot more.

It has to be to survive long-term, said CEO and President Chris Policinski.

"Food is one of the great growth industries of our generation," he said in an interview. "We're going to need to produce 70 percent more food between now and 2050."

As the world's population swells from 6 billion to 9 billion people in the next 35 years, Policinski said, the food industry will be even more competitive and challenging. Land O'Lakes needs to continue to concentrate on a few sectors and go after them in a big way, he said, always with the goal of benefiting the agricultural cooperative's members.

The Arden Hills-based company has grown steadily since it was founded in 1921, but never so much as during the past decade, when net sales have doubled and the company has exited some businesses and acquired others to strengthen its core. Of the company's nearly 10,000 workers, 45 percent have been hired since 2011.

Policinski, who has led Land O'Lakes since 2005, has concentrated on three businesses, each contributing about the same amount toward 2015's $13 billion in sales: the original dairy products, Purina Animal Nutrition livestock feed and WinField Solutions crop consulting and supplies.

The sales were down from $14.7 billion in 2014 as on-farm income, increasing consolidation and challenging commodity markets affected the businesses. Despite that, Policinski said the company's balance sheet is the strongest in its 94-year history with income of $308 million.

"They've been very strategic and very focused in what they've done," he said. "Their ownership structure happens to have dairy farmers in it, and it happens to have agricultural cooperatives that are owned by farmers, but their corporate finance decisions and the way they approach strategy is no different than any other corporation."

The cooperative is owned by 2,259 dairy producers, 1,273 ag producers, and 799 co-op members. Cash returned to members in 2015 totaled $161 million, the seventh consecutive year returns have exceeded $100 million.

Chuck Conner, president and CEO of the National Council of Farmer Cooperatives, said one of the strengths of co-ops is their ability to provide member-owners with so many essential services. "Whether it's a corn farmer or a dairy producer, Land O'Lakes has tremendous skin in the game in terms of that producer's bottom-line success," he said.

Policinski said his formula for success means fewer, bigger businesses and workers that collaborate to develop and market value-added, branded products and services.

Allan Gray, director of the Center for Food and Agricultural Business at Purdue University, said the fastest growth at Land O'Lakes has come during the past several years from its WinField division. Started mainly as a seed and crop chemical business that sold its own brand, it has evolved into a crop consultant and wholesaler that purchases seeds and pesticides at volume discounts from various manufacturers, and sells them and its own brands to local co-ops and farmers.

Gray, who also holds a chair at Purdue that was endowed by Land O'Lakes, said the company is competing with Monsanto, Syngenta, John Deere and other large ag companies to develop the best systems to improve yields and profits while reducing the environmental impact of farming.

"It's uncertain for all of them, who's going to end up with the tech systems that are the most widely adopted and widely effective," Gray said. "It's a bit of a race at the moment."

WinField reported $4.8 billion in revenue last year, and is in the process of growing much larger. Last year, Land O'Lakes approved the largest merger in its history with Iowa-based United Suppliers Inc., a similar seed and crop input business with $2.6 billion in sales in 2014.

Fitch Ratings views the merger as "neutral to modestly positive," said Bill Densmore, a senior director and analyst with the ratings firm. It will increase the company's scale and its ability to provide customers with expanded product offerings, he said, including enhanced agricultural services and technologies.

Also part of the company strategy has been establishing its Answer Plot program: essentially outdoor labs on 200 plots across the U.S. and Canada where it tests how seeds from various manufacturers perform in different soils and climates, including fertilizer and pesticide products. The goal is to advise farmers about the best genetics, planting densities, cropping systems and farming techniques for their particular areas — both at the time of planting and during the growing season.

Knowing all major aspects of food has given Land O'Lakes a mother lode of expertise that can be leveraged into high-end consulting with other companies or even countries, he said. For example, Land O'Lakes has partnered with Nestlé at the Dairy Farming Institute in China to train producers how to be more efficient.

Last year, the company also purchased an ownership stake in Villa Crop Protection, a leading farm chemicals company based in South Africa. It's a natural extension of the Land O'Lakes international division that has been working in Africa and elsewhere since 1981 to improve food systems, health and nutrition, mainly in conjunction with U.S. government-funded initiatives and training programs.

The company is also moving into new territory with its animal feed division purchased from Ralston Purina in 2001. Policinski said Purina, with its famous red-checkered brand, is developing specialized products with higher margins in U.S. farm animal feed and will add more muscle and creativity in marketing the brand.

The oldest division of Land O'Lakes, of course, is its dairy foods, which procures about 13 billion pounds of milk annually from members to make and sell butter, cheese, spreads and refrigerated desserts, including the Kozy Shack brand that it acquired in 2012.

The three divisions will continue to develop, because they must, Policinski said.

Tom Meersman • 612-673-7388