Darigold aims to sell more than half of its dairy output abroad despite trade spat

Darigold and its 466 Northwest dairy-farmer owners are embarking on a second century in business with a new export strategy that has the cooperative — one of Washington’s largest private companies, handling the state’s second most valuable agricultural product — aiming to sell more than half of its output abroad.

The strategy includes a nearly $100 million upgrade to its flagship plant and new sales offices in Mexico and Asia, targeting the appetites of a growing global middle class. But it is ramping up just as a U.S.-instigated trade war has started to take a toll.

Retaliatory tariffs imposed by Mexico and China, a response to the Trump administration’s protectionist trade policies, have disrupted the dairy business, already struggling with a prolonged period of low prices and weak U.S. demand.

Stan Ryan, hired as the cooperative’s chief executive in early 2016 on the strength of nearly 25 years in the international agribusiness field with Cargill, is undeterred amid the trade uncertainty.

In a world hungry for protein, he said, the long-term fundamentals of dairy are sound, and Darigold is well positioned to capitalize on its proximity to growing Asian markets.

“We simply have kept the faith that world trade is essential for the global food system to work, and that dairy and our location here in the Pacific Northwest … is going to be a natural spot for it,” Ryan said in an interview at the co-op’s Seattle headquarters last week.

He also addressed concerns raised by worker advocates about safety and working conditions on dairy farms in Washington, which have a rate of workers-compensation injury claims well above the rest of agriculture — already one of the state’s more dangerous industries.

100 years in the making

Darigold traces its origins to an association formed in 1918 among Puget Sound farming groups to sell their milk to new customers after the government discontinued a purchasing program at the end of World War I. Today, it processes, sells and distributes for what has become the Northwest Dairy Association cooperative.

The past century saw the enterprise grow through a series of consolidations with other co-ops and acquisitions of competitors.

With net sales of $2.26 billion in its latest fiscal year, Darigold ranked 19th on industry publication Dairy Foods’ list of the largest North American dairy companies. It’s the sixth-largest cooperative on the list, and by revenue it is among the largest private businesses of any kind in Washington, with some 1,700 employees.

Ryan says the broader enterprise, including the farms of the individual co-op members that supplied most of the nearly 9.7 billion pounds of raw milk processed at Darigold plants last year, is larger still.

“The farms are 80 percent of the assets,” he says.

Expanding markets

Darigold has been an exporter for more than a quarter century and had an overseas business as early as 1957, when it partnered on the first milk-packaging plant in the Philippines. It began to rapidly grow overseas sales in the early 1990s.

Export volumes have ramped up over the last five years and today Darigold sends upward of 40 percent of its production to customers in 20 foreign markets. That’s largely in the form of milk proteins and whey used as ingredients in other foods — from sports drinks to confections to yogurt — as well as cheese and some butter.

Until recently, Darigold relied on third-party companies to handle overseas sales and distribution. But a new 10-year strategic plan adopted by the co-op in 2017 emphasizes a closer relationship with customers.

“If we’re going to be a thriving, winning organization — which is what the strategy wants to be, a leader in our industry — you’ve got to take care of customers better than ever, and to do that you need to know them directly,” Ryan says.

To do so, Darigold last month announced new offices in Mexico, Singapore and Shanghai to develop its own overseas sales, marketing and distribution network.

At the same time, Darigold has been investing in new production capabilities to better serve international customers. Two years ago, it poured more than $97 million into its flagship processing plant in Sunnyside, Yakima County — one of 11 it operates from Chehalis, Lewis County, to Bozeman, Montana — as part of a broader push to modernize its facilities.

The Sunnyside plant was upgraded to produce milk and whey proteins and other ingredients for products such as infant formula or nutrition drinks for immune-compromised people, while meeting stringent standards for food safety, quality, shelf life and product integrity. Demands from international customers differ from U.S. standards, adding complexity to the operation.

“Since we’ve been going direct, we’re utilizing those capabilities lots more,” Ryan said.

These bespoke dairy products fetch higher prices than the commodity milk they’re based on.

“You can only get it from certain places, and it takes a lot of technology and a lot of care and handling,” he said, adding that this is a faster-growing part of Darigold’s business.

That’s important given the backdrop of an extended run of low dairy prices, which the trade war looks likely to prolong.

“There is pain on farms from a financial point of view,” he said, although farmers are used to ups and downs. “While it looked like we might have been coming to the end of the low cycle, a lot of trade things … sort of popped that balloon a little bit.”

So far, the actual impact of tariffs on demand for U.S. dairy products has been mixed. Mexican tariffs “clearly hurt the U.S. cheese business and cut off some exports,” Ryan said.

In China, U.S. milk protein exports have been impacted by tariffs, but demand remains strong for whey protein, a byproduct of cheese-making that is concentrated for use in sports nutrition products.

“We’re a significant supplier,” Ryan said. “There’s not a substantial other source. They kind of just go at higher prices.”

Last week U.S. and Chinese officials said they would hold midlevel talks aimed at diffusing the trade disputes before President Donald Trump and Chinese leader Xi Jinping attend multilateral meetings in November.

Trade uncertainty

While the U.S. has pulled out of trade pacts such as the Trans-Pacific Partnership and imposed tariffs on major trade partners including Mexico and China, other countries are “moving ferociously” to fill the void, sad Ryan. Trade relationships are being rearranged.

“One of the things that worries us most in dairy is the activities of the European Union to set up their own bilateral trade deals while we’re occupied with these other things,” he said.

Ryan held posts for Cargill in Venezuela, Brazil, The Netherlands, Australia and China, most recently helping lead the agribusiness giant’s global commodities trading and processing business.

He said the impact of the current trade war has yet to reach the severity of the drought-caused hoarding, price spikes and food riots that rocked the international food system in the late 2000s.

But today feels different in other ways. The U.S., historically a leader in the push for open, rules-based trade, has been “the protagonist on this,” Ryan said, deploying “unprecedented tactics and approach and style with very unknown outcomes.”

For Darigold farmer-owners the trade uncertainty is “scary,” Ryan said. But they aren’t asking him for political insight, despite the fact that his younger brother is U.S. Rep. Paul Ryan, R-Wis., outgoing speaker of the House of Representatives.

“They’ve never asked that and I’ve never volunteered that,” Stan Ryan said. “I think in general, he tries not to do my job and I try not to do his job.”

Darigold’s owners, he said, are oriented toward the long term, investing in a business they intend to pass on to their children, as it was passed on to them by previous generations. The commitment to the export strategy in the face of the trade tumult is testament to that, Ryan said.