Qiio -* United States

4 1 tj$g;~;~of A Strategic Planning Rural BusinessCooperative Service

RBS Research Study of the Dairy Herd Report 150 Improvement System
Abstract A Strategic Planning Study of the Dairy Herd Improvement System

James J. Wadsworth

Agricultural Economist

This report provides an overview and strategic planning study of the dairy herd

improvement (DHI) system, concentrating on assessing current trends and conditions

of the industry and how DHI organizations are structured within it. Information is provided for the principal DHI organizations to carry out strategic planning. Opinions from

DHI managers provide an internal assessment of where the industry is headed and in

what areas leaders need to plan to better position their organizations for the future. A

strategic planning model is developed to analyze industry trends, define available

strategies, and evaluate alternative directions DHI organizations can take as they

strive to achieve organizational and systemwide goals.

Keywords: dairy herd improvement, goals, strategic direction, planning

Cooperative Services Research Report 150

September 1996
Preface The dairy herd improvement (DHI) system has a played a critical role in the advance of

the U.S. dairy industry. Even today, it remains an important link in the industry.

However, dairy industry changes--cow number decreases and shifts, dairy management advances, and on-farm economics-pose significant challenges to DHI. The

nature of the dairy market, changing technology, and competitive pressures indicate

the need for strategic planning among DHI participant organizations.

This report describes the current status of the system and provides information

obtained from DHI managers on where they see the industry heading and how their

organizations will fit into that industry in the future. It develops a planning model to

assess possible strategies and directions for system participants, mainly the dairy herd

improvement associations (DHIAs).

This study is intended to promote positive debate and thought on the current structure

of the DHI system and what future system will be needed to best serve U.S. dairy producers. The intent is to spark strategic planning in DHI organizations by providing

information sourced from statistics, from 27 DHI managers (more than two-thirds of the

managers in the system, i.e., DHIA and DRPC managers), and by developing a strategic planning model to assess alternative strategies and directions.

The author thanks the dairy herd improvement association/cooperative and dairy

record processing center managers, other leaders, and Phil Dukas of National DHIA

for their valuable contributions. However, not all DHIA managers’ and other DHI leaders’ opinions were obtained, so this report should be viewed as an initial step toward

further dialogue and planning.

i
Contents HIGHLIGHTS .........................................................

General Background and Status of the DHI System ........................3

Participation in NCDHIP Testing Plans .....................................4

Most Commonly Used Plans ...........................................5

PlanChanges ......................................................

.

DHI Boundary Restructuring .............................................6

DHlAs ..............................................................

.

Affiliate Manager Opinions ............................................6

Affiliate Strengths and Weaknesses ...................................7

Financial Strength .................................................7

Competition ...................................................

...8

Satisfaction with DRPCs ............................................8

Members’ Rating of DHlAs ......................................... .9

Progressiveness of Board Members and Members ...................... .9

Optimism for the Future ........................................... .9

DRPCs ............................................................ ..g

DRPCManagerOpinions ..........................................

..ll

DRPC Strengths and Weaknesses ...................................ll

Members’ Rating of DRPCs ........................................ll

RatingofDHlAs..................................................l 1

Rating of Affiliate Field Staff ........................................ll

MilkTestingLabs.................................................l 1

Competition.. .................................................

..ll

Future Service Expectations ........................................ll

Optimism.......................................................l 2

Progressiveness ...............................................

..12

Status of DHI-Summary ..............................................12

Strategic Planning: Heading Into the Future .............................. 12

DHIGoals ........................................................

..14

Industry Trends and Conditions ..........................................14

How Managers See the Industry .......................................14

Dairy Cow Population Changes .......................................15

DHIA Location and Cow Populations ...................................16

Trend of Dairy Producer Income .......................................17

Assessment of Overall Market Conditions ...............................18

Market Strategies ................................................19

Alternative Strategic Directions ..........................................20

Status Quo With Modifications and Improvements .........................20

DHI Strategy Ideas.. ..............................................21

Structural Change Strategies .........................................22

Manager Opinions on Further Restructuring Possibilities ..................22

GoalEvaluation.. ..................................................

..2 3

DHIA Goal Evaluation ...............................................24

DRPC Goal Evaluation ..............................................24

Strategic Planning Summary and lmpllcatlons ........................... 25

References .......................................................

..2 6

Appendix ..........................................................27

ii
The DHI system consists of 33 affiliate DHIAs, seven dairy record processing centers

(DRPCs), and numerous local DHlAs and milk laboratories. National DHIA is the centerpiece of the system and several government bodies are also intricately involved.

DHI is largely responsible for the significant gains made in U.S. dairy production, but

the system faces a challenging future.

The 21 DHIA managers (64 percent) contacted indicated their organizations had many

strengths and few weaknesses. Financial stability, headquarter employees, the board

of directors, member service, progressiveness and equipment were most often identified as major strengths. Member involvement was identified as a major weakness.

Most managers said that competition was not strong; members would rate their DHIA

at just above average; boards and members are progressive; and they are optimistic

for the future.

Six DRPC of the seven managers identified their major strengths as efficiency, quality

records, and innovation. Only a few weaknesses were identified such as cost efficiency and equipment. DRPC managers said that members would rate their operations

high, but the managers themselves rated the DHIAs, whose records they process, only

slightly above average.

DHI leaders understand the challenges of remaining competitive in a mature, but continually changing dairy market. The market is characterized by declining but shifting

cow numbers, larger herds, and strong competition for dairy producer dollars. DHI

organizations have responded to their environment by employing leadership and niche

strategies and in a number of cases by exercising structural change strategies. DHlAs

and DRPCs have consolidated, closed, streamlined, developed new products and services, become more competitive with their industry counterparts, and in some cases

opened new markets with new clients. For the most part, the DHlAs and DRPCs in the

system have been dynamic in their pursuit of a strong and continued market position.

The contacted managers advocated several themes on where DHI leaders need to

focus further strategy development:

l Progressive programs and services.

l Efficiency.

l Flexibility for meeting the needs of individual dairy producers.

l Coordination between DHIAs, DRPCs, regulations, etc.

l Technological capabilities.

l Marketing, training, and DHI promotion.

l Consolidation opportunities.

l Nontraditional methods for improving system.

The DHlAs operating today, taking into account recent DHI system structural changes,

follow a status quo with modifications and improvements strategic direction. Those

with the ability to defend leadership strategies in traditional and new services (i.e.,

. . . 111
Highlights prominent industry position) and develop niche strategies (i.e., unique opportunities)

will likely continue with the status quo for some time. However, it will require a solid

base of member cows, operational efficiencies, and considerable human and capital

resources. Those without such attributes will find it necessary to explore and determine other directions.

Two directions likely to be considered in DHI strategic planning include consolidation

and joint ventures within or outside the DHI system. How those directions are further

defined and when they are explored will depend on the circumstances surrounding

each DHIA and its market position. Inevitably, all DHlAs need to examine their structure and direction and determine the best path for achieving goals. In the final analysis,

the future structure of the organizations in the DHI system will depend on the achievement of goals.

Eleven core and performance goals are identified for evaluating strategic direction in

DHI planning. Core goals are continued member control, provision of quality member

services and products, supervision of dairy records, retention of member loyalty, and

competitiveness and viability. Performance goals include maintaining and expanding

membership, gaining efficiencies, maintaining financial strength, developing new

opportunities, being technologically innovative, and being an industry leader. If other

goals can be defined, DHI leaders need to identify and evaluate them.

Changes in the DHI system will eventually reduce the structures. Several directions of

change are likely. These will probably be fewer DHIAs, DRPCs, and milk labs, more

streamlined regulations, more direct information flows, and more outside working relationships. Surviving DHI organizations will be able to position themselves in the market

in a way that allows them to be flexible enough to deliver the varying types of programs producers demand, efficient enough to be affordable, and resource-strong

enough to be progressive and viable.

This report voices some opinions and ideas from DHI leaders. They can provide focus

and stimulation for further discussions by DHI managers, directors, and members who

must collectively brainstorm and listen to each other and the marketplace. A continuing

dialogue requires progressive steps for planning and action. Sound strategic planning

by DHI organizations will help determine avenues for future success. Alternative

strategies and directions must be explored in light of industry conditions and with a

keen eye on crucial organizational and systemwide goals.

iv
A Strategic Planning Study

of the Dairy Herd Improvement

James J. Wadsworth

Agricultural Economist

T

he DI-II system has played a critical role in

advancing the U.S. dairy industry Its provision of production and management

records, services to dairy farmers, and contribution of

information to industry organizations, universities,

and Government agencies, has been one of the vehicles

directly responsible for gains in milk production and

dairy farm herd management efficiencies.

Milk production per cow (figure 1) has markedly

increased during the latter half of this century.

Production per cow increased 259 percent from 4,600

pounds in 1940 to 16,500 pounds in 1995. Total milk

production increased from 109 billion pounds in 1940

to 156 billion pounds in 1995, up 43 percent (figure 2),

even though cow numbers decreased 60 percent during the same period from 23.7 million to 9.5 million

(figure 3).

While these changes are partially the result of DHI

system success, they aIso create a diIemma for the curFigure 1- Milk Production per Cow, 1940-95

Pounds (1,000)

18

16

14

12

10

8

6

4

2

0

1940 44 48 52 56 60 64 68 72 76 80 84 88 92 95 1940 44 48 52 56 60 64 68 72 76 80 84 88 92 95

Source: NASS, USDA Source: NASS, USDA

System

Figure 2- Milk Production, 1940-95

Pounds (7,000,000,000)

160,

1940 44 48 52 56 60 64 68 72 76 80 84 88 92 95

Source: NASS, USDA

Figure I% U.S. Dairy Cow Numbers, 1940-95

Pounds (7,000,OOO)

1
rent structure. On-farm economics pose significant

challenges to DHI organizations because the system’s

traditional source of revenue is based on the dairy

cow. Changes in cow numbers, where they are located,

and how they are managed all have an impact.

Complicating the situation are the multiple roles,

given recent technological gains, that DHIAs are being

pressured to accept. DHIAs must be technological

innovators, facilitators, and providers, in addition to

carrying out their traditional roles of testing, collecting

data, and providing reports. With such pressures,

many DHIAs face an increasingly arduous future.

Given the circumstances of the current environment,

DHI organizations need to look closely at how well

they are positioned in their industry today and will be

in the future. What will DHIAs need to look like to

remain active players in the industry; what strategies

and direction would be best to pursue?

DHI organizations need strategic planning to focus

on the future. It must be continuous and holistic.

Every DHI organization needs to regularly examine

and define its mission, goals, strategies, and direction.

Each must envision how it will continue to fit into the

dairy services sector and what it needs to do in strategy and structural terms to do that.

This report provides an overview’ and strategic

planning account of the DHI system, concentrating on

the structure and operations of the organizations that

carry out the specific functions. These include collecting dairy records, processing them, and providing services to farmers, specifically DHIAs and Dairy Record

Processing Centers (DRPCs). The focus is on their status and future. DHI managers were asked about their

organizations and where the industry is headed. Those

who responded provided significant information.

DHI system leaders have been discussing changes,

voicing needs for the future, modifying and adapting

their organizations, and providing ideas on what DHI

needs to be over time. This report consolidates DHI

manager thoughts and offers an outside perspective on

the status and strategic direction of the major players

in the system. More than two-thirds of the DHIA affiliate and DRPC managers in the system were contacted,

1 For an extensive history and more detailed description of the DHI

system, please see “Dairy Herd Improvement Letter,” ARS, USDA,

Vol. 49, No. 4, July-August-September, 1973.

Figure 4- Flow of NCDHIP Information

NCDHIP Herd

I

component

percentage

Processing Center

AIPL-USDA Al Organization

Source: G.R. Wiggins, “National Genetic Improvement Programs for Dairy Cattle,” Journal of Animal Science, no. 69, 1991.

2
providing a significant body of thought. With their

input, this report provides an initial step toward further dialogue and planning.

General Background and Status

of DHI System

The DHI system is composed of a rather complex

combination of organizations working together to

serve dairy producers and other aspects of the dairy

industry with dairy herd records and management

information systems. This system combines organizations that work in conjunction and in competition with

one another to carry out the National Cooperative

Dairy Herd Improvement Program (NCDHIP). The

system is decentralized, reflecting the highly information-intensive nature of the genetic improvement dairy

record system. Much of the data collected by DHI

flows among a number of institutional entities (figure

4), including DHI organizations, artificial insemination

(AI) businesses, pedigree associations, USDA, universities, extension personnel, and, of course, dairy producers. The complexity involved with testing, collecting, analyzing, and sharing of data is managed by

dividing the system into separate functions and delegating these to different organizational entities, one of

which is the NCDHIl?

Figure 5 provides a truncated organizational chart

of the DHI system. The left side shows the linkage

from dairy producers as DHIA members to other system participants, such as National DHIA, the DRl’Cs,

USDA, and Extension.

The foundation of the NCDHIP is the collection of

dairy cow records from farms. Records are collected by

weighing each cow’s milk on a monthly basis. A milk

sample is taken to determine milk fat, protein, somatic

cell count, and other attributes. DRPCs process collected data and return the results (i.e., records) to herd

owners. These records are the sole property of the herd

owner and are used to provide a comprehensive herd

recordkeeping system and assist in dairy herd management decisions (e.g., feeding and breeding). While

private property, dairy cow records are also used for

research and industry-related purposes such as USDA

Figure 5- Snapshot of the DHI System

Information Distribution from

Dairy Records Processing Centers*

DHIA Members /‘/ DHIA *

.,. Members “, “84

/’

/

Dairy Herd Milk

Improvement ’ Laboratories

Associations \ /

I

/

Dairy Record

Processing

Centers

National DHIA

?

\ /

Performance Data /

,&##7”‘11 2 * ‘,/_ 3 ,I,

National Memorandum NCDHIP

of Understanding ,, ,i ,j Policy Board

‘. . *-_ I

ES

I

I I

/’

/,

‘,,, Associations ,*,, ‘N”

3,

’ -,-+ _,., .-. f

‘. %.IY,“_j;; 3’

Source: Fact Sheet A-7,1985, Page 3, NCDHIP Handbook

3
sire summaries with the requirement that individual

herd-owners’ data be kept confidential.

The centerpiece of the DHI system is National

DHIA, a federation of affiliate DHIAs started in 11965.

It provides farmers with a national vehicle for setting

policy and developing and enforcing rules associated

with the NCDHII? Its mission statement says it “is a

liaison between DHIAs and supporting institutions for

delivering dairy management information systems to

the industry which aids dairymen’s profitability.”

National DHIA, headquartered in Columbus, Ohio, is

governed by a 12-member board of directors elected

from dairy producers from four U.S. regions

(Northeastern, North Central, Western, and Southern).

Affiliated DHI associa lions are organized at State

and regional levels. These membership organizations

conduct the business of the NCDHIP and collect cow

milk samples. The resulting records are analyzed,

processed, and returned to their members. DHIAs also

provide a range of services such as distribution of farm

management systems (e.g., computer software programs).

Seven DRPCs process records. Some are owned

and operated by DHIAs and merely are an operational

function of the organization. Others are stand-alone.

These processing centers analyze the numbers associated with the dairy record data collected.

A National Memorandum of Understanding

(MOU) 2 provides the framework for carrying out the

2 General information on National DHIA, sponsoring groups, and

the MOU was obtained from NCDHIP Handbook, B and C series

Fact Sheets.

functions of NCDHIP. The MOU among NCDHIP

sponsoring groups outlines the responsibilities of each

party and the general manner in which the program

will be conducted.

Sponsoring groups include National DHIA,

Agricultural Research Service (ARS), and the

Cooperative Extension System (CES). Their functions

are:

National DHIA-enforces the rules, policies, and

quality certification standards of the NCDHIP.

ES-provides national coordination and leadership

of Extension education programs in record collection, evaluation, and use.

ARS-conducts the national genetic evaluation

research program using NCDHIP data.

CES and the state DHIA-guide how the NCDHIP

is conducted and have responsibility for record certification within that State via the MOU.

Authority for NCDHIP rules, policies, and quality

certification standards is vested in the NCDHIP Policy

Board. Representatives on the 12-member policy board

come from National DHIA, CES, ARS, the National

Association of Animal Breeders (NAAB), and the

Purebred Cattle Association.

Participation in NCDHIP Testing Plans

More than 30 DHI testing plans are presently recognized by NCDHIP. Improvements have been developed in line with the demand for plan flexibility by

dairy producers. Plans are designated as official and

nonofficial. Official testing plans comply with Official

Rules and the combined rules for Official Dairy Herd

Improvement Registry (DHIR) as established by the

Table I-COW and herd participation In NCDHIP plans.

1989 1990 1991 1992 1993 1994

cows 4,576,521 4,722,222 4,626,961 4,695.775 4,763,026 4,693,457

Percent of total cows 45 47 48 48 49 49

Herds 56,798 56,837 56,711 53,945 52,724 50,649

Average herd size 81 83 85 87 91 93

Total cows in U.S. 10.126,OOO 10,127,OOO 9,992,ooo 9,839,OOO 9,705.ooo 9,532,oOO

Plan Changes 1989-90 1990-1991 1991-92 1992-93 1993-94 1989-1994

Cows (percent) 3.18 2.22 -2.72 1.86 -1.87 2.56

Herds (percent) 0.07 -0.22 -4.88 -2.26 -3.94 -10.83

Source: NCDHIP Handbook.

4
NCDHIP policy board.3 Records from these plans are

accepted by the dairy industry for many purposes

such as management, research, and genetic evaluation,

for example. Nonofficial testing plans do not have to

meet all the rules and thus, are not certified. Records

from these plans are referred to as management

records. In several management plans some official

rules apply. DHI testing plans are regulated by standards from National DHIA quality certification programs to certify uniformity.

About 49 percent of the nation’s milk cows are on

some form of DHI test, up from 45 percent in 1989

(table 1). In 1994, this reflected about 4.7 million dairy

cows and 50,000 herds (table 1 and appendix figure 1).

The bottom part of table 1 shows the changes in plan

participation. From 1989 to 1994, the number of cows

participating in all NCDHIP plans increased 2.6 percent, reaching a peak in 1991. The average herd size of

DHI participators increased from 81 in 1989 to 93 cows

in 1994.

The number of cows enrolled in official plans

increased by 14 percent from 1989 to 1994, while the

number enrolled in nonofficial or management plans

decreased by 24 percent. In 1994,77 percent of all cows

enrolled in NCDHIP plans were in official plans. The

average herd size of those in official plans was 102

cows in 1994 while that of management plans was 70

cows, suggesting that more small herds tend to go the

nonofficial route.

Most Commonly Used Plans

Twenty-four percent of DHI participating producers used the DHI plan4 in January 1994, down from 36

percent in 1989 (table 2). AP-based5 plans are gaining

in popularity. In 1994, the DHI-AP-T (T refers to an onfarm DHIA-approved timing device) plan was used

with 18 percent of DHI participating cows, up from 13

percent in 1989. With AP-based plans, a DHI supervisor records milk weights and collects milk samples for

one milking each month (the specific milking timea.m. and p.m.-is alternated). AP-based plans (several

types) were used with more than 40 percent of the

cows signed up for DHI participation. All other

plans-with variations of milkings, weighing, sampling, and testing-have more limited participation (2

to 10 percent).

Producers participate in DHI testing plans through

direct contact with a DHIA. While there are subtle, and

in some cases not so subtle, differences between the

DHIAs, each organization tailors its operations to suit

its members.

Plan Changes

Member needs continue to change. Some producers are purchasing on-farm electronic metering systems and using them in conjunction with their dairy

management software programs. This technology has

3 For more information on NCDHIP Rules see the NCDHIP

Handbook, Fact Sheet series E.

4 In the DHI plan milk weights are recorded and milk samples are

collected by a supervisor for all milkings in a 24-hour period each

month.

s AP-abbreviation used to describe alternate morning/evening

monthly types of testing plans (NCDHIP Fact Sheet A-6).

1989 Percent 1992 Percent 1994 Percent

DHI 1,660,327 36.28 1,337,574 28.48 1 ,115,849 23.77

DHI-AP-T 569,093 12.87 866,035 18.44 843,613 17.97

DHI-APCS 367,632 8.03 375,991 8.42 378,784 8.07

DHIR 438,432 9.58 395,355 8.42 329,128 7.01

DHIR-AP-T 61,104 1.34 109,323 2.33 137,404 2.93

DHI-AP 338,094 7.39 375,202 7.99 640,777 13.63

DHI-OS 467,548 10.22 343,251 7.31 274,547 5.85

DHI-OS-AP 242,156 5.29 274,227 5.84 277,3577 5.91

Total 4,576,521

Source: NCDHIP Handbook.

4,695,775 4,693,457

5
encouraged some producers to voice opposition to

DHIA procedures (i.e., use of on-farm testers (technicians) for record surveillance and record processing)

and the fees charged for records.

National DHIA is developing herd and cow

profiles6 to meet the challenges posed by legal issues

(e.g., law suits from dairy producers charged with

record fraud), changes in farm management practices,

and computer technologies. Descriptions of herd and

cow profiles will replace traditional DHI record labels.

Profiles will define a herd’s records using graphs of

herd averages, lactation curves, and comparisons of

milk shipped and test-day milk totals, etc. These profiles are intended to get DHIAs out of the increasingly

difficult practice of enforcing NCDHIP rules and policing members to ensure that records are valid. Herd

profiles, and in some cases cow profiles, will be available to end users such as breed associations, AI organizations, and cattle buyers to determine record integrity. Under this concept, policing will occur through a

system of open disclosure of dairy profiles. Broad

access to these profiles would work as a form of peer

pressure to reduce the possibility of fraudulent acts

(e.g., falsifying cow data) by dairy producers.

DHI Boundary Restructuring

For nearly 90 years, DHIAs operated within fairly

strict State and county boundaries. However, in 1993,

delegates to National DHIA approved a restructuring

plan that eliminated county, State, and regional boundaries. Dairy producers can freely choose from whom

they get their DHI field and lab service and where

their records are processed. Under the restructuring

plan, the organizations in the National DHIA federation are now called service affiliates rather than State

and regional DHIAs.~

The absence of boundaries gives DHIAs the opportunity to court producers outside their traditional

jurisdictions. One result has been increased competitive pressure on many of the local/regional DHIAs.

Because of this pressure, as well as other influences

such as fewer dairy cows and changing dairy-cowpopulation demographics, some DHIAs consolidated

in recent years. Iowa and Illinois formed Dairy Lab

Services; North Carolina and Virginia formed United

6 Information obtained from the DHIA Communicator newsletter,

November-December, 1994.

7 While the name change is recognized, this report will continue to

use the terminology DHIA rather than Service Affiliate.

Federation of DHIAs; and six Plains States-North

Dakota, South Dakota, Nebraska, Kansas, Oklahoma,

and Arkansas-created Heart of America DHIA.

DHIAs also have consolidated internally-some federated structures have centralized by unifying local associations. For example, PA DHIA, once a federated

structure, is now centralized. Most former county

(local) DHIAs consolidated into a single statewide

organization.

DHlAs

Some DHIAs are organized as cooperatives while

others are not-for-profit associations. DHIA activities

range from only collecting milk samples to operating

laboratories to analyze the samples of only their members. Others check samples of other DHIAs and a few

analyze samples for non-DHI organizations such as

dairy plants (Gray and Butler). The laboratories vary

in their technical sophistication. Some have simple

machines that only measure butterfat. Others measure

protein, somatic cell count, butterfat, and other attributes such as milk urea nitrogen. A number of DHIAs

use several laboratories to test their milk samples.

Some DHIAs process their own records in house

(e.g., PA DHIA, AgSource Cooperative Services, and

MI DHIA). Others “farm out” their processing to other

DRPCs and some affiliates use more than one DRPC.

Presently, National DHIA has 33 affiliate DHIAs,

down about 20 percent from more than 40 in 1989 due

to mergers and consolidations among States and organizations. Recently, two new DHIAs affiliated with

National DHIA-Tulare DHIA in California and

Lancaster DHIA in Pennsylvania.

A number of affiliate DHIAs operate under a federated structure that has numerous local (county) association members. (Some have a modified federated

structure where some locals have been merged or centralized into the State or regional affiliate while others

continue to be members with federated characteristics.)

The 33 DHIAs and the States with whom they are

associated are identified in table 3 and figure 6. The

Mississippi River evenly divides the number of

DHIAs, although western associations are larger and

more dispersed than their eastern counterparts. Some

DHIAs operate primarily in one State while others

serve multi-State regions.

Affiliate Manager Opinions

Twenty-one affiliate managers were contacted for

their opinions and information about their organizations and operations. They represented 3.9 million

6
cows (83 percent of total cow participation in NCDAffiliate strengths and weaknesses . DHIA managers

were asked to indicate their organization’s major

strengths and weaknesses from a given list8 (table 4).

More than 50 percent identified financial stability,

headquarter employees, the board of directors,

member service, progressiveness, and equipment as

major strengths. Other strong points were field

personnel, innovation, operational efficiency, product

consistency, and service quality.

Although fewer weaknesses were identified, most

managers saw member involvement as their primary

weakness. Some managers felt DHIAs were overly tied

to DRPCs, and, there was too much reliance on the

local structure.

8 The list was developed to contain attributes commonly associated

with well-governed, well-organized, and well-operated member

associations or cooperatives.

Financial strength . Fifty-seven percent of the

managers said their organization’s balance sheet was

strong with sound financial ratios, 24 percent called

their balance sheets fairly strong but needing some

improvement, 10 percent called their’s passable but

needing improvement in a number of areas, while 10

percent felt their balance sheet was fairly weak.

Table 4--Strengths and weaknesses of 21 SffiliStSS.

Financial stability 15

Member service 12

Member loyalty 5

Member involvement 3

Member representation structure 3

Board of directors 14

Headquarters employees 15

Field personnel 10

Progressive 12

Innovative 10

Equipment 11

Facilities 3

Operational efficiency 9

Strength Weakness

3

5

4

10

4

2

0

2

4

2

1

2

1

Managers identified the given strength or weakness traits in these

categories.

Table 3-DHIA affiliates and associated States, 1995.

(1) Alabama DHIA AL

(2) Arizona DHIA AZ

(3) California DHIA CA

(4) Tulare DHIA CA

(5) Colorado DHIA c o

(6) DHI, Inc. OH

(7) Dairy Lab Services IA, IL

(6) Florida DHIA IL

(9) Georgia DHIA GA

(10) Heart of Am DHIA KS, SD, ND, NE, OK, AR

(11) Idaho DHIA ID

(12) Indiana DHIA IN

(13) Kentucky DHIA KY

(14) Louisiana DHIA LA

(15) Michigan DHIA Ml

(16) Mid-East DHIA MD, WV

(17) Minnesota DHIA MN

(16) Mississippi DHIA MS

(19) Missouri DHIA MO

(20) New Mexico NM

(21) Northeast DHIA NY, CT, MA, RI, ME, NH, NJ

(22) Oregon DHIA OR

(23) Pennsylvania DHIA PA

(24) Lancaster DHIA PA

(25) Puerto Rico DHIA PR

(26) Rocky Mountain DHIA MT, UT

(27) South Carolina DHIA SC

(26) Tennessee DHIA TN

(29) Texas DHIA TX

(30) United Fed. of DHlAs NC, VA

(31) Vermont DHIA VT

(32) Washington DHIA W A

(33) AgSource Coop. Serv. WI (formerly Wisconsin DHIC)

Associated States are the primary States covered by the affiliate.

Source: NCDHIP Handbook.

7
Figure 6- DHI Affiliate and DRPC Locations

x Denotes DHI affiliate

CI Denotes affiliate that has a DRPC

l Denotes DRPC

1 WA DHIA 10 CO DHIA

2 OR DHIA 11 NM DHIA

3 ID DHIA 12 Heart of America

4 CA DHIA 13 TX DHIA

5 Tulare DHIA 14 MN DHIA

6 Agri-Tech Analytics 15 Dairy Lab Svs

7 Rocky Mtn. DHIA 16 Mid-States DRPC

6 DHI Computing Service 17 MO DHIA

9 AZ DHIA 18 LA DHIA

19 WI DHIC

20 MS DHIA

21 IN DHIA

22 Ml DHIA

23 DHI Co-op Inc.

24 KY DHIC

25 TN DHIA

26 AL DHIA

27 FL DHIA

28 GA DHIA

29 SC DHIA

30 DRPC @ Raleigh

31 United Federation of DHlAs

32 Mid-East DHIC

33 Lancaster DHIA

34 PA DHIA

35 Ne DHIA

36 VT DHIA

Competition g . Only 27 percent of those contacted

called competition from other DHI organizations “very

strong” or “strong,” while 73 percent said it was

“moderate, fl “weak,“ or “non-existent.” However, 14

managers (67 percent) said their organizations are

working on strategies to be more competitive.

Thirty-three percent of the managers said they expect

9 Competition for a DHIA implies that the organization is working

to increase the number of cows enrolled in its testing plans by

“going after” additional business in other territories traditionally

held by other DHIAs.

8

the number of herds and cows they serve to increase in

the next 3-to-5 years, 14 percent anticipate serving the

same number, and 29 percent expect a decrease. Two reasons were given by those seeing an increase-_(l) their

organization was in a region where cow numbers are

increasing and (2) their organization was developing and

employing competitive strategies to gain market share.

Satisfaction with DRPCs . Ten managers (48 percent)

were “very” satisfied with the level of DRPC service

they receive, five (24 percent) were satisfied, and five

were not satisfied.
Members’ rating of DHIAs . When asked how

members would rate their organizations overall (e.g.,

services, operations, member representation) on a scale

of 1 (poor) to 7 (excellent), managers ratings ranged

from a low of 3 to a high of 7. Most felt members

would rate their organization just above average.

ProgressivenesszO of board members and members .

Eighteen (86 percent) of the 21 managers said their

organization’s board of directors was progressive in

accepting and adopting new technology on their

farms. Only 3 managers (14 percent) said their boards

were not progressive.

Managers said about a quarter (26 percent) of their

members are “very” progressive, half (48 percent) are

progressive, and the rest not amenable in accepting

and adopting new technology on their farms.

Optimism for the future . A healthy 95 percent of the

managers are either very optimistic or optimistic about

their organization’s ability to adjust to dairy industry

changes and pressures and succeed in the future as

indicated by their comments:

optimistic-but DHI is not moving structure fast

enough to use technology and gain efficiencies,

optimistic-because of available people and finance

resources,

very optimistic-because our organization is strong

and progressive without being radical,

optimistic-because we’ve had planning sessions on

how to adapt,

10 Progressiveness, in this context, implies that an individual or

organization is assertive in learning about new technology and

taking an active role in employing it.

optimistic-our role will change but the need for

milk recording will continue,

very optimistic-because we believe we have a

unique product to market,

optimistic-you have to adjust to change or be

passed by,

optimistic-we’re making headway (service orientation),

very optimistic-our only concern is individual

dairymen and we deliver,

very optimistic-excellent personnel and equipment,

optimistic-but local milk market is unstable.

One manager felt changes were coming too fast for

the leaders (board of directors) to handle.

DRPCs

In recent years, DRPCs have become more competitive, with performance a major focus. The centers

have pared down record turnaround time and provided more flexibility in designing custom records processing. Conversion to electronic input and new printing technology have cut the time from when data is

gathered by a DHIA, received by the DRPC, analyzed,

and returned to dairy producers in processed form.

Seven DRPCs within the DHI system process data

and mail reports to dairy producers for the local and

affiliate DHIAs:

Agri-Tech Analytics, Tulare, CA,

Mid-States DRPC, Ames, IA,

Michigan DHIA, Inc., Lansing, MI,

DRPC at Raleigh, Raleigh, NC,

Pennsylvania DHIA Service Center,

State College, PA,

DHI Computing Service, Inc., Provo, UT, and

Table-Number of cows handled by each DRPC, 1989 and 1994.

1989 Percent 1994 Percent Percent Change

Agri Tech Analytics 414,474 9.05 561,144 12.38 35.46

Mid-States DRPC 450,876 9.64 363,893 8.02 -19.29

Michigan DRPC 154,596 3.38 156.157 3.44 1 .Ol

Minnesota DRPC 339,127 7.4 331.239 7.3 -2.33

Cornell Dairy Records 493,562 10.78 457,717 10.09 -7.26

DRPC @ Raleigh 773,274 16.88 914,705 20.16 18.29

Pennsylvania DHIA 350,546 7.65 276,250 6.09 -21 .I9

DHI Computing Service 795,524 16.37 757,880 16.71 -4.73

AgSource Coop. Serv. 808,313 17.65 716,924 15.8 -11.31

Total 4,580,292 4,536,207

Source: NCDHIP Handbook.

9
. AgSource Cooperative Services (formerly Wisconsin

DHIC), Madison, WI.

The figure 7 map shows the location of these centers. Two processing centers recently closedMinnesota DHIA and Cornell Dairy Records (formerly

associated with Northeast DHIA).

Table 5 shows the number of NCDHIP cows handled by each processing center for 1989 and 1994. In

1989, AgSource Cooperative Services (Wisconsin DHIC),

DHI Computing Service (UT), and Cornell Dairy

Records (NY) were the top three processing centers,

respectively, in terms of number of cows handled. By

1994, the top three in order were DRI’C at Raleigh (NC),

DHI Computing Service, and AgSource Cooperative

Services (WI). (Appendix table 4 shows the number of

cows handled by each DRPC by State for 1994.)

In 1994, four DRPCs-Michigan, Minnesota,

Pennsylvania, and Wisconsin’s AgSource Cooperative

Services-handled records primarily for their respective States. The other five DRPCs had multi-State business. DRPC at Raleigh and DHI Computing Service

provided records on cows from 21 States, Cornell

Dairy Records served 10 States, and Agri-Tech

Analytics (CA) and Mid-States DRPC (IA) each provided records on cows in 9 States.

From 1989 to 1994, many changes occurred in the number of cow records processed by the centers. Two

DRPCs had double-digit increases in cow records

processed and three had double-digit decreases (table

5; see appendix table 5 for changes in herds served).

DRPC @ Raleigh had an 18 percent increase and AgriTech Analytics increased 35 percent. Pennsylvania

DHIA records declined 21 percent; Mid-States DRI’C,

19 percent; and AgSource Cooperative Services, 11 percent. The four others had more moderate changes:

Michigan DHIA was up 1 percent, DHI Computing

Figure 7- DRPC Locations and Records Handled

Agri-Tech Analytics (893,000)

DHI Computing Service (758,000)

Mid-States DRPC (364,000)

AgSource Cooperative Services (717,000)

MI DHIA (155,000)

PA DHIA (276,000)

DRPC @ Raleigh (1,372,OOO)

Number in parenthesis indicates estimated number of cow records handled by DRPC,

using 1994 statistics and recent changes.

10
was down 5 percent, Cornell Dairy Records was down

7 percent, and Minnesota DHIA was down 2 percent.

(Appendix table 6 shows the States where numbers of

cow records either increased or declined between 1989

and 1994 for each processing center.)

Because of the DRPC closings in Minnesota and at

Cornell, record processing has shifted to Agri-Tech

Analytics for Minnesota DHIA and DRPC at Raleigh

for Northeast DHIA. Figure 7 indicates that DRPC at

Raleigh will handle about 1.4 million records (estimated using 1994 data and the recent change), making it

the largest of the remaining seven DRPCs. Michigan is

the smallest with about 155,000 records.

DRPC Manager Opinions

Six of the seven DRPC managers were asked about

their operations, DHIAs, general industry conditions,

and future needs. This section summarizes their views.

DRPC strengths and weaknesses . Table 6 shows the

strengths and weaknesses of the six DRPCs as

indicated by the managers. They indicated that their

operations had many strengths and few weaknesses.

Employees, records quality, efficiency (both cost and

turn-around time), progressiveness, and innovation

were cited as major strengths. One manager felt that

flexibility was a major strength.

Two managers identified cost efficiency and facilities as weaknesses and in citing a weakness, one manager said software development time was too slow.

Members’ rating of DRPCs . Based on a scale of 1

(poor) to 7 (excellent), managers said their members

would give their processing operations high ratings.

Four managers said that members would rate them at

6, one said 7, and one said 5.

Rating of DHZAs . Figure 8 shows how DRPC

managers rated the DHIAs-whose records they

Table s--Strengths and weaknesses of DRPCs.

Trait Strength Weakness

Cost efficiency 4 2

Employees 6 0

Efficiency of turn-around time 5 0

Progressive 5 1

innovative 4 0

Quality of records (consistency) 6 0

Equipment 3 1

Facilities 3 2

Numbers indicate strength and weakness traits as identified by the

managers.

process-overall and according to progressiveness,

member service, and leadership. Ratings were above

average for all four categories with progressiveness

rated slightly higher than the other areas.

Rating of affiliate field staff. Three job

characteristics of technicians or supervisors were rated

by DRPC managers (figure 9). Accuracy of data

collection received a relatively high rating of 5.5

followed by quality of data collection rated at 5.3.

Knowledge of record features received a rating of 4.2.

Milk Testing Labs. The six DRPCs receive data for

processing from a total of 56 milk labs. The average

was 9 and numbers ranged from 1 to 18. Managers

were satisfied with the quality and performance of the

labs. Five were “very” satisfied and one felt overall

satisfaction but said a number of things could be

improved.

Competition . Two managers said that competition

was “strong” from other DRPCs and three indicated

that it was “moderate.” Only one manager indicated

that competition was “weak.” While competition was

not felt to be strong overall, five managers indicated

they are employing strategies to be more competitive.

Future service expectations . Four of the six managers

said they expect to process more cow records in the

next 3 to 5 years. One manager felt that cow record

processing would decrease greatly.

Figure 6- Rating of DHIA’s by 6 DRPC Managers

Overall

Progressiveness

Member Service

Leadership

1 2 3 4 5 6 7

Scale of 1 (poor) to 7 (excellent)

11
Figure 9- Rating of DHIA Supervisors/

Technicians by 6 DRPC Managers

Knowledge of

Record Features

Quality of

Data Collection

Accuracy of

Data Collection

I I I I I I 1

1 2 3 4 5 6 7

Scale of 1 (poor) to 7 (excellent)

Optimism. All the DRPC managers were optimistic

to very optimistic about the ability of DHI

organizations to adjust to industry changes and

pressures and succeed in the future. Degree of

optimism and comments included:

very optimistic-DHIA managers are enthusiastic

and have good leadership skills,

very optimistic-organizations have shown ability

to adapt in the past,

optimistic-the quality of technical and support

people makes me optimistic,

optimistic-they can look ahead to meet future

demands,

very optimistic-DHI organizations have shown the

ability to succeed, and

optimistic-DHI organizations are making changes

now.

Progressiveness . DRPC managers believe that the

DHIAs using their service are “somewhat” to “very”

progressive in adopting new technology and

responding to change.

Status of DHI-Summary

The number of DHIAs and DRPCs have declined

in recent years largely due to consolidations and closings. The number of cows participating in NCDHIP

plans increased from 1989 to 1994, while the number of

herds decreased to a larger extent, indicating an

increase in producer-participant herd size. NCDHIP

testing plans are being customized and management

information systems developed to better meet producers varying needs.

The DHIA managers said their organizations have

many strengths, although some areas could be

improved. Overall, affiliate financial strength was

found to be adequate (most were fairly strong,

.although about 20 percent indicated significant

improvement was needed). Three-fourths of the managers said competition was “weak” but indicated that

they were working at being more competitive. Most of

the managers were optimistic about the future and

indicated that their board and members are progressive. At the same time, interestingly, the managers

indicated that members would probably rate their

organizations only slightly higher than average.

In 1995, the field of DRPCs decreased. Three of the

remaining seven increased records processed between

1989 and 1994, and the other four decreased in varying

amounts. In 1996, the largest DRPC will be at Raleigh

and the smallest will be Michigan DHIA.

Similar to their DHIA counterparts, DRI’C managers identified numerous organizational strengths

and few weaknesses. The managers also said their

members would rate them high. On the other hand,

managers rated the DHIAs and their associated field

staff at just above average, although they think the

DHIAs are progressive. Milk testing labs were given

high satisfaction ratings. While only two managers felt

that competition among DRPCs was strong, most indicated they are working at being more competitive (i.e.,

working to increase records processed through cheaper fees, greater efficiency, and flexibility). Four of the

six managers expect service (cow records handled) to

increase in the next 3 to 5 years and all six were optimistic about the future.

Strategic Planning:

Heading into the Future

The information provided through industry leader

contact indicates DHI leaders have a positive view of

their organizations and are optimistic about the future.

All managers expect that changes will continue to

occur in the dairy industry and additional adjustments

will be needed to better position their organizations. In

addition to providing information on the status of DHI

and their organizations, the managers provided substantial ideas and opinions on the future of their

industry and what changes need to occur for DHI to

remain a viable system.

This section uses those ideas and opinions in conjunction with a strategic planning model to provide a

framework for discussing goals, industry trends and

conditions, strategies, and possible strategic direction.

Strategic planning helps guide organizational

adjustment and positioning in an industry. The proce12
Figure ICI- Industry Dictated Strategic Positioning

Organization Adjustment,

Planning, and Positioning

0 External conditions

0 Decision nodes Goal Accomplishments

dures to this approach are intended to explicitly identify goals, review the current operating environment,

and evaluate strategies and alternative directions.

Figure 10 presents a general view of the strategic

positioning that firms must evaluate because of industry trends and change. The figure shows the emergence

of trends and conditions that cause an industry to

change or consider change. The movement from trends

and conditions to industry change creates situations

that require organizations to adjust, plan, and position

themselves in the changing environment. Certain strategic directions will be more effective than others in

responding to industry change. They will also vary in

facilitating the achievement of goals. The process of

decisionmaking converges to evaluation of alternative

strategies and directions. Figure 10 demonstrates activities taking place in the DHI industry quite well.

Figure 11 provides a detailed view of strategic

planning as it specifically relates to DHI organizations.

The left side of the diagram shows some of the goals of

a DHI participant organization. Goals can be distinguished between core and performance. Core goals

Figure I I- Strategic Planning: Evaluating the Future

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

i

Goals of a DHI Organization Alternative Strategic Directions

Core Goals

- Retain member control

l Provide quality member serMerge, or Unify Wlthln

vices and products (and new)

Leadership and or Outside System

l Supervise dairy records Environment

Niche Strategies

(embrace rules, regulations, Dairy Industry

etc.) and DHI System

. Retain member lovaltv )

l Remain competitive and viable

Performance Goals

l Maintain/expand membership

0 Gain efficiencies

n Maintain financial strength

B Develop new opportunities

B Be technologically innovative

and progressive

9 Be an industry leader (keep up)

Improve dairy cattle and benefit

the dairy industry.

Trends and

Conditions

[end and Improvements Niche Strategies 1 -N,,,

-‘\‘$ Relationships or Joint

Ventures Within or

Outside System

MISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..~ VISION

Attain the goals of 

Make the DHI System more 

NCDHIP

effect&e

Planning Directon-Bidging the Gap Over Time v

What does DHI need to be?

What should the system look like?

13
represent a standard rationale for an organization that

are less likely to be revised over time. In contrast, performance goals are continuously reviewed for accomplishments and revisions in light of emerging industry

trends. Effectiveness in accomplishing goals establishes important criteria for guiding decisions about

strategies and direction. Using this approach helps

industry participants identify potential tradeoffs

between one direction and another.

Emerging trends and conditions of the dairy

industry and DHI system are causing DHIAs and

DRPCs to adjust their operations, creating the need for

evaluating alternative strategic directions. From the

information collected from DHI managers, three

potential directions emerged: (1) status quo with modifications and improvement, (2) consolidate, merge, or

unify within or outside the system and (3) develop

working relationships or joint ventures within or outside the system.

How well DHIAs and DRPCs survive will depend on

the strategies employed and what direction they choose.

These will be contingent on whether they are accomplishing expected goals in the face of industry changes.

The major theme in strategic planning is to bridge

the gap between the mission of participating organizations and the DHI system and the vision of what a DHIA

and the DHI system needs to be in the future. In general,

the DHI mission is to attain the goals of the NCDHIP

and to make the DHI system as effective for dairy producers as possible. To attain the vision, DHI leaders need

to clearly define what the system should look like to

remain a viable and involved player in the dairy industry Once that is specified, leaders will be better able to

refine their goals and determine the strategies and direction necessary to close the gap from mission to vision.

DHI Goals

Potential core and performance goals are listed in

figure 11. The core goals are a synthesis of the goals or

missions of DHIAs, while performance goals reflect

DHIA intentions for operating, progressing, and positioning in their industry. The ultimate goal of a DHIA

(DRPC) is to “improve dairy cattle and benefit the

dairy industry” Core and performance goals work

toward that common end.

Core Goals

l Retain member control.

l Provide quality member services and products (and

new ones).

l Supervise dairy records (embrace NCDHIP rules,

regulations, etc.).

l Retain member loyalty.

l Remain competitive and viable.

Performance Goals

l Maintain/expand membership.

l Gain efficiencies.

l Maintain financial strength.

l Develop new opportunities.

l Be technologically innovative and progressive.

l Be an industry leader by keeping up with industry

counterparts.

For a DRPC, these goals could be narrowed and

revised. For core goals, a DRPC needs to provide quality service and record processing and work with

DHIAs in meeting their, and NCDHIP, goals. For performance goals, DRPCs need to expand services (e.g.,

be flexible to their customers), maintain or increase the

number of cow records processed, gain efficiencies

(e.g., be cost efficient and competitive in turn-around

time), remain price-competitive and financially sound,

and be technologically innovative and progressive.

These goals will be discussed later in assessing the

strategies and strategic directions available to DHI

organizations. But first, further review of the dairy

industry and DHI system is provided.

Industry Trends and Conditions

This review further explores the dairy and DHI

industry by providing the opinions of DHI managers,

reviewing the dairy cow population and where DHIAs

are in relation to cows, examining trends of dairy producer income and assessing the system’s market life cycle.

How Managers See the Industry

The DHIA and DRPC managers contacted provided these opinions on the trends and conditions of the

dairy and DHI industry:

Structural Changes

l Fewer but larger dairy herds.

l Declining overall cow numbers.

l Greater milk productivity.

0 Continued tough economics on dairy farms (e.g.,

low milk prices, financial stress).

l Changing demographics of the cow population.

l Increasing DHI competition on a national level.

l DHIA consolidation and/or forming alliances or

special relationships.

Processing and Management Tools

l More technology on farms (e.g., computers, electronic meters, bST, etc.).

14
Processing and report generation will continue to

get closer to the farm while data retention and storage will be further centralized.

Continued development of dairy management software for use by producers, DHI technicians, and

industry consultants.

Distribution and processing systems will get better

and better.

More processing on farms.

Better computers.

Laser printing and on-line services.

More on-farm computers.

Member Needs

l Farmers closely watching the dollars they spend on

supplies.

l Increased demand for specialized services.

l Increasing need for member loyalty.

l Less intrusive procedures on test day.

l Cow-side testing and new types of testing plans.

l Better trained and educated field technicians.

DHI managers have definite opinions about where

they think the industry is headed. I%ese observations

provide part of the foundation on which to develop

strategies. A closer look at U.S. cow populations will

add to that foundation. a

Dahy Cow Population Changes

Recent movements of the U.S. dairy cow population provide insight on emerging trends in the DHI

industry. U.S. dairy cow numbers have declined significantly during the past 55 years to the current standing

of less than 10 million dairy cows (9.5 million as of

January 1,1995). The U.S. maps depicted in figures 12

and 13 show that certain areas of the country continue

to be strong dairy areas. The top five States in cow

numbers are Wisconsin, 1,500,OOO cows; California,

1,250,OOO; New York, 710,000; Pennsylvania, 639,000;

and Minnesota, 600,000 (appendix table 3). Figure 12

shows the ranges of the percent of cows enrolled in

Figure 12- Percentage of Dairy Cows in NCDHIP, by State, 1995

15
NCDHIP for each State. The percents vary widely

among the States, ranging from a high of 77 percent in

South Carolina to a low of 18 percent in North Dakota.

Figure 13 shows ranges of dairy cow numbers by

State, but there is no clear pattern across the nation.

For precise cow population data, see appendix table 1.

The table shows the number of cows in each State for

1985,1990, and 1995. It also indicates lo- and 5-year

changes, and the relative proportion of cow numbers

in each State to the total number of cow numbers in

the U.S. In 1995, the total number of cows was down

13 percent from 1985, and down 5 percent from 1990.

Figure 14 illustrates cow changes from 1990 to

1995. The map shows the States that increased in cow

numbers, had cow numbers decrease slower or faster

than the average of 4.95 percent from 1990 to 1995

(appendix table 2). Cow numbers in 1lStates increased

while the rest declined. Numbers increased in the

western and southwestern regions of the country

while decreasing over the rest of the U.S. The largest

increases (in numbers not percents) from 1990 to 1995

were in California, New Mexico, Idaho, Washington,

and Arizona, while the largest decreases were in.

Wisconsin, Minnesota, New York, Ohio, and

Pennsylvania. While total cow numbers are not expected to decline much in the near future, the location of

dairy cows in the U.S. will likely continue to change.

DHIA Location and Cow Populations

In assessing how the present DHIAs will fit into

the future DHI system, it is important to examine

DHIA locations in relation to the cow populations.

Figure 15 outlines the four regions identified by

National DHIA. The Western region has 2.3 million or

25 percent of the nation’s cows and 9 affiliates, the

North Central region has 3.8 million or 40 percent of the

cows and 8 affiliates, the Northeastern region has 1.8

million or 19 percent of the cows and 5 affiliates, and

the Southern region has 1.6 million or 16 percent of the

cows and 11 affiliates. Interestingly, the Southern region

Figure 13- U.S. Dairy Cow Population, by State, 1995

n 250,001 to 500,000 COWS

q 100,001 to 250,000 cows

100,000 cows or less

16
has the most affiliates even though it has the lowest

number of cows and the lowest percent (42 percent) of

its cows enrolled in NCDHII? The Western region has

the highest percent of cows enrolled in NCDHII?

This analysis is not meant to suggest that the cows

in the various regions are linked to the DHIAs of the

same region. Some enrollment crosses over the depicted regional boundaries to other regions. However, this

map does suggest considerable disparity in the number of cows available geographically for handling by

DHIAs. For example, some DHIAs, such as those in

the Southwest have a much greater population of cows

for potential enrollment than other DHIAs such as

those in the Southeast.

Trend of Dairy Producer Income

While studying cow numbers is necessary, it is also

important to examine the income available to dairy

producers to fund the many needed operational supplies. As service providers to a specific sector of the

farm economy, DHI organizations must be concerned

with how receptive dairy producers will be to paying

for dairy management records and the other services

that DHI organizations can provide.

Figure 16 illustrates the trend in dairy producer

gross income. In real terms, using cash receipts from

dairy products as a proxy, gross farm income of U.S.

dairy producers decreased from 1984 to 1992, from $18

billion to $14.4 billion. Unfortunately, this suggests

dairy producers face increasing pressure related to the

quantity and type of operational supplies and services

they can afford. As these costs increase without complimentary increases in income, those experiencing

any economic hardship will find it necessary to pick

and choose what they can afford. While DHIAs and

many dairy producers fully understand the value of

farm records and management information for the successful operation of a dairy farm, other producers,

including some presently using DHI, may become

increasingly reluctant to pay for DHI services if the

Figure 16 Dairy Cow Number Changes, 1990-1995

* Decreased faster and slower refer to changes in cow numbers relative to the average decrease of 4.95 percent.

17
trend shown in figure 16 continues and they can’t find what dairy legislation is enacted. Conversely, larger

ways to shave other operational expenses. dairies will be better equipped to thrive in future years.

In addition, some question the ability of small- and

moderate-size dairy farms to survive in the future. A

study reported in Feedstuffs” (carried out by Knutson,

et al.) of dairy farm performance relative to the status

quo and alternative potential government dairy legislation indicated that many smaller dairies (55~0~ herd

size) will continue to struggle into the future no matter

These findings and general concern for the fate of

small dairy farms given current trends toward larger

operations suggest that DHIAs need to be aware of

how well the smaller dairy farms are fairing. Those

with a proportionately large population of smaller

farms in their total member base must consider this in

future planning.

11 Article by House, Charles. “Congress Can’t Stop Trend Toward

Large Dairy Farms, Economist Says,” Feedstuffs, Volume 68,

Number 11, March 11,1996, p.10.

Assessment of Overall Market Conditions

The information outlined throughout this report

strongly suggests that the DHI system is confronted

Figure iti- 1995 Dairy Cow Numbers and Those in NCDHIP, by Region

North Central North Eastern

3,837,OOO dairy cows (40% of U.S.)

1,799,038 cows in NCDHIP (47% of region’s cows)

8 affiliates

1,772,100 dairy cows (19% of U.S.)

891,870 cows in NCDHIP (50% of region’s cows)

5 affiliates

WesterIn

2,348,700 dairy cows (25%

1,320,567 cows in NCDHIP (56% of region’s cows)

9 affiliates

X Denotes DHI affiliate location.

1,574,OOO dairy cows (16% of U.S.)

659,944 cows in NCDHIP (42% of region’s cows)

11 affiliates (includes Puerto Rico)

18
with a mature market. While changes are continuing,

the market in the traditional sense of DHI service, is

stagnant. In the business world, a stagnant market is

considered to be mature when characterized by such

factors as choice among brands and competitors, little

Figure 16 Gross Farm Income from Dairy

Products (cash receipts)

DO//~fS (1,000,000,000)

25

20

10

5

0 ’ 1 I I I , I I I

1984 85 88 87 88 89 90 91 92

n Actual (nominal) m Adjusted CPI (1984=100)

product/firm differentiation, strong competition,

broadening product lines, prevalent service and deals,

fewer customers for traditional cash cows, price competition, and lower margins and profits. All of these

factors are present in the current DHI industry. (See

appendix figure 2 for an illustration of the four phases

of the industry/business/product life cycle.)

In the maturity phase, a number of strategies are

available to firms. Which ones to pursue depend on a

firm’s position compared with competitors and its outlook of the future.

Market strategies. Figure 17 indicates major

strategies available in a mature market under three

organizational positions. If a firm has strengths

relative to competitors, the strategies to pursue are

leadership and niche-position/scope (A). Leadership

is seeking a prominent or leading position in terms of

market share and working to increase and hold it. For

DHIAs, this clearly is the strategy being pursued in

continuing the service of providing dairy records and

management information. A niche strategy is creating

and employing a special opportunity in a particufar

segment of the market. DHIAs are also doing some of

this. Examples include business activities outside of

traditional services, such as selling computer hardware

Figure 17- Strategies in a Mature Market Environment

(A) Have strengths relative to competitors; continue on course

(B) Seeking new or renewed opportunities for synergy and enhanced strength

(C) Lack strengths relative to competitors; make

structural change or get out

Strategies to Pursue

Leadership Seek a leadership position in terms of

market share.

Niche Create and/or defend a strong position in a

particular segment (products/service) (Breaking

into or developing new markets).

Consolidation Seek partners for consolidation or

merger to develop or maintain leadership

Joint Ventures Seek partners for joint venture or

partnership activities to gain economies of size in

certain areas.

Harvest or Divest Manage a controlled disinvestment taking advantage of strengths, or liquidate

(Usually not a palatable option for any firm. It normally comes about only as a last resort-when things

have gone from bad to worse and no other strategy is

feasible.) If not an option, look again to (B).

Source: Porter, Michael. Competitive Strategy

19
and software or testing soil and forage samples. Over

time, successful niche strategies diverge to leadership.

Often, a firm in a mature market will seek new or

renewed opportunities for creating synergies or

enhancing position and strength-position/scope (B).

Consolidation or joint venture opportunities are two

such strategies to pursue for firms looking in that

direction.

(1) Consolidation. Combining operations with a

compatible organization carrying out the same activities in a nearby geographic region is a strategy for

maximizing the probability of maintaining a leadership position. The individual DHIAs that combined to

form the three recently unified DHIAs (Heart of

America DHIA, Dairy Lab Services, and United

Federation of DHIAs) took this approach.

(2) Joint venture. Developing a joint-business

arrangement with other associations/firms to gain size

economies is also a strategy to enhance strength and

perhaps secure a brighter future (AgSource

Cooperative Services is using this approach as a jointfunction of Cooperative Resources International-the

holding company that includes AgSource Cooperative

Services and three artificial insemination cooperatives

as subsidiaries).

Unification and/or joint-venture strategies often

come into play through the sheer force of market pressures. In other words, not every organization operating in a mature market can maintain a leadership position or be successful at developing niche markets.

Eventually, some will be pressured into consolidation

or joint-working relationships, or, will be forced to

take other actions. Leadership and niche strategies are

not mutually exclusive from the structural change

strategies. In fact, they usually interlock-firms often

pursue consolidation and joint-venture strategies to

gain a position that will enable them to better employ

leadership and niche strategies.

If an organization lacks strength relative to competitors-position/scope (C)-and lacks the resources

or market presence to make leadership or niche strategies successful, it may need to either look at restructuring (i.e., consolidate or develop working relationships

as in position/scope (B)), or, divest its assets.

Divesting is not a very palatable option for any firm,

and even less for a cooperative or member-oriented

service organization such as a DHIA formed by producers.

In sum, these strategies, given current market conditions, suggest that DHI organizations have limited

strategic directions available. The next section outlines

three primary directions.

Alternative Strategic Directions

A necessary part of strategic planning is anticipating and evaluating alternative strategic directions

where organizations in the industry are headed or may

be headed. Given industry conditions and the mature

market DHIAs are facing for carrying out traditional

services, three strategic directions are defined in figure

11:

(1) continue status quo with modifications and

improvements,

(2) consolidate within or outside the system, and

(3) develop working relationships or joint ventures

inside or outside the system.

While these directions may be rather vague, a myriad of choices or alternative sub-strategies fit within

each. This section describes these directions-what

they entail and how they fit into the scope of operations for DHI organizations.

status Quo

With Modifications and Improvements

Status quo in the DHI context using the terms

“modifications and improvements” indicates that

under existing conditions a framework is in place for

pursuing change given the climate. Most DHI organizations are following this strategic direction-working

with what they have and striving to be more member

responsive, more efficient in carrying out their basic

DHI functions, and in some cases, providing additional services beyond their traditional roles. Under status

quo, DHIAs use leadership and niche strategies to

modify and improve their organizations. They seek a

leadership position in the area they serve by capitalizing on their traditional strengths (e.g., laboratory

analysis, dairy record provision, and information

resources). Many also work to identify and develop

niche markets for new products and/or services (e.g.,

working to take advantage of new technology-i.e.,

computer hardware and software-being achieved at

the farm level). An explicit example of a niche strategy

is the water-testing outside service recently developed

by AgSource Cooperative Services.

Also implicit in this strategic direction is the ongoing strategy of working to build additional business

with dairy farm operators not using DHI. Although

progress has been made in increasing the percentage of

dairy cows enrolled in NCDHIP, a sizeable population

of cows are not enrolled (figure 12).

The status quo, as defined here, has worked well

for many DHIAs for some time, but how long it can

continue is questionable. In general, cooperatives try

to stretch out the maturity phase of their industry life

20
cycle to remain a strong entity for members. However,

the maturity phase can not be stretched out indefinitely and eventually industry restructuring must occur.

The status quo will continue to work for DHIAs in

some areas for a fairly long time, for some in other

areas for a short time, and for others it may not work

much longer. The ability to remain viable taking this

direction will depend on a number of factors-the

pace of continuing technological change on dairy

farms, the economic health of dairy producers, the

location relative to cow populations, the financial

strength, the willingness and propensity to make

changes, and how well the DHIA leaders define and

implement strategies for modification and improvement. The DHIA and DRPC managers contacted provided strategy ideas.

DHI strategy ideas . Managers were asked what

adjustments their organizations have to make to

increase the number of dairy producers using DHI

services and to provide better service. Most said

“educate and sell dairy producers on the benefits of

DHI services.” Others suggested (1) being more

aggressive in soliciting business from dairy producers;

(2) providing services cheaper; (3) providing more

services; (4) adopting new technology more quickly;

(5) developing more programs tailored to individual

producer needs; (6) removing traditional DHIA

blinders and recognize that DHIAs must be service

organizations in a larger industry; and (7) emphasizing

DHI as a management tool-too many perceive it as a

breed improvement program.

The managers also provided a number of strategies for making the DHI system and their organizations more effective. Suggestions for improving operations/service were:

l Reduce the number of rules.

l Develop a program to work with stand-alone systems.

l Pursue lower prices for in-barn automation of data

collection.

l Lessen National DHIA’s involvement in the business.

l Make functions faster, simpler, and less expensive.

l Increase service value in mind of the dairy farmer.

l Establish reasonable levels of quality and enforce

requirements.

l Operate the organizations in a more businesslike

manner.

l Meet dairy producers needs as they change.

l Incorporate financial management into the system.

l Continue to reduce many of the artificial lines (e.g.,

county and State) between DHIAs.

l End National DHIA’s role in mandating programs

which make DRPCs less competitive with private

software developers.

l Develop more uniformity within DRPCs.

l Have less top down direction and more reliance on

dairy producers themselves.

l Make system less regimented; consider developing a

direct tie between the producer and the DRPC for

those producers not wanting lab component information.

l Continue to adapt the system to changes in technology.

l Progress quickly or DHI will find itself without anyone to serve.

l Use the wealth of data available, assume new direction, and get going-DHI was fostered through

Extension involvement which has and will continue

to decline.

Here are their suggestions for improving education/promotion/training:

l Develop marketing training for field forces.

l Promote the benefits of the system and its functions

and de-emphasize competition among service affiliates.

l End National DHIA assistance to competing affiliates in training, marketing, or similar endeavors.

Instead, National DHIA should set meaningful standards and enforce them.

l Develop more cooperation between States.

l Build more trust between DHIA affiliates and also

between DHIA and other industry farmer cooperatives.

l Weed out traditional thinkers.

l Compete with the private independent organizations carrying out record services and prove to the

large commercial dairymen that DHI has something

they really need.

l Invest more money to push technology and information highway services related to the dairy industry.

There are many fitting strategies in this listing.

However, some of the responses are general expressions of everyday DHI operations-“meet dairy producer needs as they change” and “continue moving

toward change.” Although these common sense concepts are well understood, they are not always well

followed and are worth discussing from time to time.

Indeed, such phrases emphasize focus and leaders

need to take them to heart and evaluate their organizations in their regard on a regular basis. Some of the

other ideas or responses are rather fresh, however, and

21
should be given more thought and discussion. If fitting, they should be developed into concrete strategies.

For example, “develop marketing training for field

forces” and “develop more cooperation between

States” should be further defined and discussed.

A snapshot of the current DHI system would

reveal its strategic direction amounting to the status

quo with modifications and improvements. To enhance

that direction further, DHI leaders should closely

examine the strategies listed earlier (and even brainstorm for others) and decide which ones need more

attention relative to their organizations and/or the

DHI system and incorporate them into plans. DHI

leaders are saying that more work is needed on the

efficiency and promotion ends of operations, and concurrently, that the relationships between DHIAs themselves, and the DHIAs and National DHIA, need to be

more harmonious and further refined.

Structural Change Strategies

Some organizations in a mature market will find it

mandatory to look at structural change strategies.

Figure 11 presents two strategies for DHIAs: (1) consolidation or (2) greater coordination, including working relationships or joint ventures. These directions

can occur inside or outside the DHI system. The three

DHIA consolidations previously mentioned are an

example of organizations taking the former direction.

AgSource Cooperative Services implemented the latter

direction through the development-in conjunction

with cooperatives in the artificial insemination industry-of the holding company, Cooperative Services

International.

Attrition will likely reduce the number of DRPCs

as evidenced by the closing of Cornell Dairy Records

and the Minnesota DRPC in 1995/1996. However, this

does not preclude DRPCs from pursuing structural

change strategies. Further opportunities should be

explored.

The structural changes (e.g., consolidations, closings, boundary changes) that have taken place are significant, but may only be just the beginning of a longer

process of change for the DHI system. The DHI managers contacted were asked whether their organizations

had merged or consolidated with other DHIAs in the

past 5 years. Five (24 percent) said yes. Those managers

were then asked to rate how well the consolidation was

working in the areas of member acceptance and representation, operational efficiency, and financial performance. Three said that member acceptance and representation worked well, one said it was adequate, and

the other said that there were problems but progress

22

was being made. For operational efficiency, two said it

was working beyond expectations, two said it was

working well, and one said there were problems but

progress was being made. One said financial performance was beyond expectations, three indicated that

financial performance was strong, and the other said

that progress was being made despite some problems.

Those that have undergone structural change

appear to be satisfied. This finding begs the question,

are further structural changes likely? Managers

expressed their opinions on that.

Manager opinions on further restructuring

possibilities . Twenty-nine percent of the managers

said consolidation with other DHIAs is likely in the

future, 62 percent said it may be likely, and 9 percent

said it is not likely.

Most of the managers (62 percent) who expected

consolidations said only a couple of DHIAs would

make compatible consolidation partners. Twenty-four

percent felt that most DHIAs would make compatible

partners.

DRPC managers were evenly split on whether they

thought that consolidation or linkages with other

dairy-related organizations (e.g., AI or milk marketing

cooperatives) are likely in the future. Two said consolidations are likely, two said maybe, and two said no.

One of those who said no felt that outside linkages

would foster the idea that DHI is for genetic improvement rather than a dairy management system.

In reference to the number of DRPCs, 33 percent of

the DHIA managers said there are just the right number and 52 percent said there should be fewer. When

asked, how many processing centers there should be, 4

was the average number.

Similarly, four of the six DRPC managers indicated

that they felt there are too many DRPCs. One said that

there should be more and one said that there are just

the right number. Two felt that the name “dairy record

processing center” didn’t apply to their operation, that

their processing is merely a function of their DHIA

coordinated with an entire process of carrying out DHI

services. Thus, these leaders may not view consolidation of their “DRPC” with another “DRPC” as an

available option-i.e., any such consolidation would

need to entail the whole DHIA operation. Managers

offered these thoughts on restructuring:

Merge or federate AI, breed associations, and

DHIAs.

Reduce DRPC number to three.

Merge with neighboring state DHIAs to reduce

National DHIA dues and annual fees.
Have fewer and larger direct-member DHI cooperatives.

Eliminate local association structure.

Consolidate organizations.

Maintain key elements in DHI that have helped

make the U.S. dairy industry the best in the world.

Management information, genetic evaluations, and

all elements of industry that work in these areas

must seek new and non-traditional ways to work

together (merge or federate) to maintain the

advancement of the U.S. dairy industry.

With 91 percent of the DHIA managers indicating

that consolidation is likely or may be likely and many

of the managers saying there are too many DRPCs,

along with the associated statements on restructuring,

there is considerable agreement that structural change

strategies should be seriously examined.

Because of obvious similarities and potential compatibility of fit, consolidations and/or working relationships among DHIAs should probably be given first

review. However, that does not mean that reviews of

potential outside consolidations or working relationships should not be made. In fact, the references about

breed associations and financial management firms

made by managers may indicate that some potential

consolidation outside the system is being contemplated.

Goal Evaluation

DHIAs need to determine the strategic direction

that will best allow them to continue achieving their

goals. In other words, what direction is needed for the

future? That will depend on the circumstances surrounding each DHIA and the time period being considered. In the short run, many DHIAs will likely fare

well enough to continue status quo operations. Some

may be able to continue this way even for the longer

run.

Those able to sustain longer-term success with the

status quo will have stronger financial and human

resources, a prime location relative to cow numbers,

and the ability to adapt quickly to change. However,

even those that fit such criteria will likely find defense

of their market position increasingly difficult given the

competitive pressures that steadily arise in a mature

market environment. On the other hand, DHIAs in a

relatively worse position in terms of resources, location, and ability to adapt, may be forced to pursue

structural change.

Comparing strategic directions and the ability they

present an organization in the achievement of goals is

an important aspect of strategic planning. In cooperatives, as in all businesses, the ability to achieve goals is

the justification for existing. Because assessing goals

relative to one strategic direction versus another can be

complex, planners often use a goal evaluation matrix

to simplify the process.

Table 7 provides an example of a goal evaluation

matrix for DHI organizations to consider. The matrix is

set up in conjunction with the DHI goals and strategic

directions identified in this report. Goals are listed in

Table 7-DHI goal evaluation matrix-example

Strategic Direction

Core Goals 1 status Quo Consolidation Joint Venture other

Member control

Quality services/products

DHI record supervision

Member lovaltv

Competitive/viable

other

Advantage

Advantage

Performance Goals

Maintain (expand) membership Advantage

Gain efficiencies

Financial soundness

Advantage

New opportunities I Advantage 1

Technolooical innovation I I I I

Industry leadership -I- ~ I I I

other

Some cells are filled in merely for the purpose of example.

23
the far left cells of the matrix and strategic directions

(or strategies) are listed along the top. The next step is

to identify whether a particular strategic direction has

an advantage relative to other strategic directions for

achieving each specified goal. The cells would be

labeled in that regard. Because of the differences in the

location and operational characteristics of the DHIAs,

completing a goal evaluation matrix for the entire system would be too complex an endeavor and would be

ambiguous at best. Therefore, in planning, each DHIA

should complete a matrix. The matrix would prove

useful when done on a regional basis also, when

potential parties have mutual interest.

DHIA Goal Evaluation

DHIAs completing a goal evaluation matrix relative to their goals and the strategic directions specified

in this report will need to consider a number of questions. Some include:

l What is happening to the cow population in their

State/region of location?

l How close are competitors?

l How loyal are members?

l How well are programs being implemented (by

itself and by competitors)?

l How financially viable is the organization?

Questions such as these must be answered in the

context of both the present and the future. This will

help clarify whether a particular strategic direction has

advantages over others for achieving given goals. For

example, if a DHIA is in a region where the cow population is declining and there are competitors in surrounding States, consolidation may have an advantage

over the status quo for achieving the goal of gaining

efficiencies, because consolidation would generate

economies of scale and provide greater resources.

In assessing the strategic directions, DHI leaders

should closely examine the strategy ideas and restructuring possibilities identified by the 27 managers (21

DHIA and 6 DRPC managers). If possible, more

should be defined. Then, leaders will need to determine how well those identified can be implemented

given their current structure and direction. Issues,

opportunities, and strategies may need to be discussed

on a regional, as well as independent, basis.

For most DHIAs, structural-change directions are

worth closely evaluating now. Both DHI managers and

the mature market environment are saying so.

Evaluation is especially needed by the weaker or

smaller DHIAs in low-cow population areas. At the

same time, structural-change directions do not fit some

as well. For instance, the DHIAs that have recently

24

restructured may still be working out some related

problems, such as attaining the full impact of

economies of size. Indeed, some may need to continue

working toward realizing potential gains before looking to possible further restructuring. Furthermore,

other DHIAs with established leadership positions in

strong cow-population areas may not yet feel any need

or pressure to consider consolidation or working relationships. Some areas may still have room for developing leadership and/or niche strategies and DHIAs in

those locations should pursue those efforts.

At the same time, market conditions suggest that

all DHIAs must have some concern given the overall

mature market environment and technological and

operational innovations (e.g., on farm milk recording

systems, lower cost services) that members expect.

These conditions may eventually weaken even wellestablished and financially sound DHIAs as competition heats up for both traditional DHI business and

certain developed niche markets (e.g., computer management programs). These statements are associated

with the likelihood that DHI organizations that do not,

or can not, embrace change and better position themselves in the industry will be forced to make changes

(e.g., significantly downsize). That would decrease

their strength and ability to employ and defend leadership strategies. It can be argued that in the longer run,

only resource-superior organizations that possess a

broad and solid member base, operational efficiencies,

and the ability to develop and implement advanced

technologies, will be able to effectively achieve the

core and performance goals of a DHIA.

Many factors (e.g., regional industry conditions

and association attributes) will alter how each DHI

organization assesses strategic direction and strategies

and the associated ability to achieve its goals. The

point of the goal-evaluation planning approach is that

strategies and direction can be more readily and accurately determined when measured against an organization’s explicit core and performance goals and how

the organization sees itself fitting within its industry.

DRPC Goal Evaluation

Evaluating strategic direction is different for

DRPCs given that their strategies and direction are

most often simply developed in line with their customer needs and demands. However, DRPCs can use

the approach of table 7 to plan their future. Most currently use leadership and niche strategies to remain

technologically proficient and quality-service oriented.

Given the high ratings and the number of strengths

DRPC managers identified about their operations, it’s
probably safe to assume that DRPCs are achieving

desired goals. However, since their two primary goals

are to maintain or increase the number of cow records

processed and to deliver product efficiently, how long

all seven DRPCs will remain satisfied in the current

environment is questionable. Those that are large and

still growing are probably well positioned, while those

that have seen significant decreases in the number of

cow records handled may need to question their staying power and whether it will be feasible to continue

processing records in the future.

Managers indicated there are too many DRPCs,

but information on if, when, or how, the number can

be narrowed was not ascertained. Given market and

system conditions, the number will likely be reduced

either by attrition or consolidation. Those with university affiliation may have neither the opportunity nor

the incentive to pursue a structural-change direction

(the two DRPCs that closed in 1995/1996 were associated with universities). Thus, reduction most likely

will occur from closings.

Strategic Planning Summary

and Implications

Strategic planning permits DHI system participants to systematically evaluate their future. Goals

must be defined and refined; the associated local market and industry continually assessed; strategies must

be developed, implemented and defended; and in light

of an organization’s ability to achieve its specified

goals, strategic direction must be explored and determined.

The needs of the DHI system and the examination

of industry trends suggest many possible goals. From

an outside vantage point, 11 core and performance

goals were provided for evaluating different strategic

directions as part of a strategic planning process. These

goals can be modified and reworded and if other goals

can be defined, DHI leaders should identify and evaluate them.

The DHI managers contacted provided a sound

assessment of their industry and espoused ideas on

strategies and strategic direction that DHIA leaders

need to independently, and in some cases, collectively,

further discuss and define. In sum, strategies and

strategic direction ideas indicated that DHIAs should

focus on these areas:

l Education and promotion of DHI benefits.

l Aggressive solicitation of business.

l Progressive programs and services.

l Flexibility for meeting the needs of individual dairy

producers.

l Efficiency.

l Further coordination between DHIAs, DRPCs, regulations, etc.

l Continued development of technological (on-farm

and program related) capabilities.

l Improved marketing, training, and promotion of

DHI.

l Consolidation within and/or outside the system.

l Seeking non-traditional ways to make system better.

The service provision role of DHI organizations is

becoming increasingly difficult. With a shrinking base

related to traditional sources of revenue (i.e., per cow

dues/fees), DHI organizations are being forced into

developing and providing other dairy-related services

and products. They are feeling greater pressure to be

both more efficient and cheaper while providing

greater technical support and innovative programs.

Flexibility, ingenuity, and extensive resources are fast

becoming imperative ingredients for working in that

direction. Additionally, on-farm electronic metering

systems and dairy management programs are gaining

in popularity, although primarily by producers progressive and/or large enough to afford them. These

are increasing the pressure on DHI because this equipment challenges the traditional methods of DHI testing

(i.e., technician surveillance and the “official” label of

records).

The technological arena will continue to change

and grow and become highly competitive. To effectively compete, DHIAs will need a broad and solid member-cow base, operational efficiencies, the ability to

develop and implement advanced technologies, and

considerable resources. The prospect that DHIAs will

continue to have a strong role in providing services is

based on the fact that most of the managers contacted

identified numerous strengths and few weaknesses.

They are optimistic about the future and feel their

director leaders are progressive.

While many structural changes have occurred to

DHI system participants over the years, this study

defines their current strategic direction. DHIAs are

working under existing conditions while continuously

modifying and improving their operations in line with

new developments and member demands. It is from

this direction that strategic planning for the future

needs to continue. DHIAs need to build on their

strengths (managers identified many) and improve on

their weaknesses. DHIAs will either proceed with the

status quo (with modifications and improvements) or

explore and determine other directions. Two strategic

25
directions likely to receive further exploration in

strategic planning are consolidations and joint ventures within or outside the DHI system. How those

directions are defined and whether they are further

explored will depend on the circumstances surrounding each DHIA and its market position.

Leaders of one or more DHIAs in low-cow-population regions need to carefully analyze the current conditions of their respective market and thoroughly

assess their organization’s ability to achieve goals

related to available strategies and directions.

In a mature market, continuing with the status quo

will require competitive advantage: the ability to

defend leadership strategies and the resources to

develop niche strategies. Those who can do that may

not need to examine other directions for some time.

Conversely, those that are competitively disadvantaged-finding it increasingly difficult to defend leadership strategies and develop niches in their marketplace-will be forced to examine structural-change

directions. It is important to note that those DHIAs

that have been structurally changed in recent years

have found their new structure well accepted by members and enhancing operational efficiency and financial performance.

Structural change within the DHI system will

occur, but what type of change is necessary and will

develop remains to be seen. Several directions of

change are likely-more streamlining in the form of

fewer DHIAs, fewer DRPCs, fewer milk labs, more

streamlined regulations, more direct information

flows, and more outside working relationships. Most

DRPCs will struggle to maintain the number of records

they process. Closings are likely to happen. For

DHIAs, coming changes are likely to result from their

individual initiatives. Some will be forced to restructure. This will consist of consolidations between existing DHIAs or outside relationships will be initiated

with AI firms, holding cooperatives, dairy cooperatives, or financial management service firms.

While it may have been somewhat difficult to

imagine the DHI system with such a varying array of

potential participants in the past, such possibilities are

gaining acceptance. Many leaders have suggested that

they can foresee joining forces with outside service-oriented firms to provide the types of specialized services

dairy producers are demanding.

The surviving DHI organizations will employ

strategies and position themselves in the market to be

flexible enough to deliver the varying programs and

services producers demand, efficient enough to be

affordable, and resource-strong enough to be progressive.

This report voices some opinions, thoughts, and

expectations of DHI leaders. These can provide focus

and stimulation for further discussions by DHI managers, directors, and members. A continuing dialogue

requires progressive steps for planning and action.

Sound strategic planning by DHI organizations will

help determine the correct avenue for future success.

System leaders and members need to be progressive,

open minded, and involved. They must collectively

brainstorm and listen to each other and the marketplace. Alternative strategies and directions must be

explored in light of industry conditions and with a

keen eye on crucial organizational and systemwide

goals. Leadership must work and plan to properly

position their organizations to continue their important contribution to the U.S. dairy industry.

References

Gray, Thomas W. and Gillian Butler, Membership

Structural Design: A Pilot Test On DHI

Cooperatives, CS RR 131, USDA,

RBS-Cooperative Services, Washington, D.C.,

November, 1994.

House, Charles. “Congress Can’t Stop Trend Toward

Large Dairy Farms, Economist Says,” Feedstuffs,

Volume 68, Number 11, March 11,1996, p.10.

Ring, Gerald J., The National Cooperative Dairy Herd

Improvement Program, Dairy Herd Improvement

Letter, ARS, ARS-NE-29, USDA, Washington,

DC., Vol. 49, No. 4., July-August-September 1973.

National DHIA, “DHIA Communicator,” NovemberDecember, 1994.

Porter, Michael E. Competitive Strategy, The Free

Press, a division of Macmillan, Inc., New York,

NY, 1980.

USDA, ES, ARS, et al. National Cooperative Dairy

Herd Improvement Program Handbook, Fact

Sheets A through M of various years: 1985-1994.

Wiggins, G.R. “National Genetic Improvement

Programs for Dairy Cattle,” Journal of Animal

Science, No. 69,199l.

26
AppendlxTabloI~ilk cows and heifers that have calved, United States 1985, 1990, 1995

1985

Numbers

As of January 1,

1990

Numbers

1995

Numbers

10 year-change 5year change

1985-95 1990-95

Percent Percent

Relative

weight

Alabama 49,000 40,000 36,000 -26.53 -10.00

Alaska 1,300 1,400 700 -46.15 -50.00

Arizona 83,000 91,000 116,000 39.76 27.47

Arkansas 79,000 69,000 61,000 -22.78 -11.59

California 974,000 1 ,115,ooo 1,250,OOO 28.34 12.11

Colorado 75,000 76,000 83,000 10.67 9.21

Connecticut 48,000 34,000 32,000 -33.33 -5.88

Delaware 10,000 9,000 10,000 0.00 11.11

Florida 164,000 182,000 170,000 3.66 6.59

Georgia 118,000 109,000 102,000 -13.56 -6.42

Hawaii 12,000 11,000 11,000 -8.33 0.00

Idaho 165,000 170,000 222,000 -33.33 -29.41

Illinois 216,000 195,000 165,000 -23.61 -15.38

Indiana 197,000 160,000 145,000 -26.40 -9.38

Iowa 345,000 308,000 265,000 -23.19 -13.96

Kansas 108,000 98,000 81,000 -25.00 -17.35

Kentucky 232,000 210,000 165,000 -28.88 -21.43

Louisiana 95,000 85,000 79,000 -16.84 -7.06

Maine 56,000 43,000 39,000 -30.36 -9.30

Maryland 121,000 106,000 91,000 -24.79 -14.15

Massachusetts 47,000 31,000 28,000 -40.43 -9.68

Michigan 390,000 344,000 333,000 -14.62 -3.20

Minnesota 890,000 715,000 600,000 -32.58 -16.08

Mississippi 84,000 63,000 57,000 -32.14 -9.52

Missouri 225,000 226,000 195,000 -13.33 -13.72

Montana 27,000 24,000 21,000 -22.22 -12.50

Nebraska 102,000 105,000 75,000 -26.47 -28.57

Nevada 18,000 20,000 23,000 27.78 15.00

New Hampshire 29,000 19,000 19,000 -34.48 0.00

New Jersey 39,000 26,000 23,000 -41.03 -11.54

New Mexico 65.000 71,000 170,000 161.54 139.44

New York 942,000 790,000 710,000 -24.63 -10.13

North Carolina 127,000 101,000 89,000 -29.92 -11.88

North Dakota 97,000 88,000 65,000 -32.99 -26.14

Ohio 380,000 354,000 293,000 -22.89 -17.23

Oklahoma 107,000 100,000 98,000 -8.41 -2.00

Oregon 96,000 98,000 100,000 4.17 2.04

Pennsylvania 735,000 694,00 639,000 -13.06 -7.93

Rhode Island 3,600 2,200 2,100 -41.67 -4.55

South Carolina 47.000 36,000 28,000 -40.43 -22.22

South Dakota 161,000 140,000 120,000 -25.47 -14.29

Tennessee 210,000 195,000 160,000 -23.81 -17.95

Texas 314,000 390,000 400,000 27.39 2.56

Utah 80,000 80,000 85,000 6.25 6.25

Vermont 186,000 167,000 157,000 -15.59 -5.99

Virginia 162,000 141,000 129,000 -20.37 -8.51

Washington 211,000 225,000 263,000 24.64 16.89

West Virginia 33,000 25,000 22,000 -33.33 -12.00

Wisconsin 1,837,OOO 1,760,OOO 1,500,000 -18.35 -14.77

Wyoming 12,000 10,000 6.000 -50.00 -40.00

TOTAL 10,804,900 10,152,600 9.531,800 -11.78 -6.11

AVERAGE 216,098 203,052 190,636 -12.81 -4.95

0.38

0.01

1.22

0.64

13.11

0.87

0.34

0.10

1.78

1.07

0.12

2.31

1.73

1.52

2.78

0.85

1.73

0.83

0.41

0.95

0.29

3.49

6.29

0.60

2.05

0.22

0.79

0.24

0.20

0.24

1.78

7.45

0.93

0.68

3.07

1.03

1.05

6.70

0.02

0.29

1.26

1.68

4.20

0.89

1.65

1.35

2.76

0.23

15.74

0.06

Source: National Agricultural Statistics Service, USDA.

Relative weight = percent of total.

2 7
Appendix Table ^OW COW l’lUItlbe?‘S changed from

1990-l 995 by State’

Arizona

California

Colorado

Delaware

Idaho

Nevada

New Mexico

Oregon

Texas

Utah

Washington

asedHawaii

Michigan

New Hampshire

Oklahoma

Rhode Island

Alabama

Alaska

Arkansas

Connecticut

Florida

Georgia

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Minnesota

Mississippi

Missouri

Montana

Nebraska

New Jersey

New York

North Carolina

North Idakota

Ohio

Pennsylvania

South Carolina

South Dakota

Tennessee

Vermont

Virginia

West Virginia

Wisconsin

Wyoming

A-IX TW s-Top cow number States

State 1995 COWS

(1) Wisconsin 1,500,000

(2) California 1,250,OOO

(3) New York 710,000

(4) Pennsylvania 639,000

(5) Minnesota 600,000

(6) Texas 400,000

(7) Michigan 333,000

(6) Ohio 293,000

(9) Iowa 265,000

(10) Washington 263,000

1 Milk cows and heifers that have calved, 1995.

Source: NASS, USDA.

1 The decreased slower and decreased faster columns reflect States

where cow numbers decreased slower and faster than the average

decrease (4.95 percent), respectively.

28
Ap~ndixTsble*--Number of cow records handled by each DRPC by State, 1994

State

Agri-Tech Mid-States Michigan Minnesota Cornell DRPC@ Penn DHI AgSource

Analytii DRPC DHIA DRPC Dairy Rec. Raleigh DHIA Provo CO-OP Totals

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Id&ho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Puerto Rico

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

2,265

14,387

492,373

619

7,705

74,300

124,047

166 41,355

1,875

34,599

1,458

8,479

13,017

22,787

45.194

37,526

3,183

20,401

18,955

206

18,992

5.699

19,468

12,525

156,157

331,239

84,726

65.743

211

29,084

279,681

30.178

45,149

3 4

59,124

37,422

29,595

138

205

48,595

185

290

21,801

61,428

8,662

7,879

11,677 820

11,983

1,945

366,573

60,368

58,723

38,782

790

22,263

9,814

52,706

138,769

59,817

80,654

23,904

127,041

12,005

276,250 166

2,692

43,146

95,920

920

375 716,924

1,763

20,401

211

50,304

14,387

772,054

31,003

18,992

5,699

84,726

65,743

0

52,854

74,334

59,124

124,047

41,521

37,422

29,595

19,458

48,733

12,730

156,342

331,529

21,801

63,303

8,662

34,599

9,337

12,497

11,983

34,328

366,573

60,368

13,017

127,041

22,787

57,199

335,139

38,782

790

22,263

37,526

52,706

141,461

43,146

59,817

80,654

99,103

10,734

717,299

1,763

Total 561,442 363,893 156,157 331,239 457,717 914.385 276,250 757,880 716,924 4,535,887

Source: NCDHIP Handbook.

29
Appendix Table Change in numbers of cow records handled by each DRPC by State, 1989 to 1994

State

Agri-Tech Mid-States Michigan Minnesota Cornell DRPC @ Penn DHI AgSource

Analytics DRPC DHIA DRPC Dairy Rec. Raleigh DHIA Provo Coop Totals

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Puerto Rico

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

188

1,095

142,180

619

5,247

(8,721)

(W

(276)

18,955 (18,251)

208

(2,436)

187

15,301

10,103

(10.910)

1,348

(9,108)

3,322

34

(4,357)

(10,059)

166 (6,675)

(4,717)

351

(2,640)

(2,833)

1,561

(7,888)

(59,040)

(2,990)

(553)

7,662 1,945 954

511

14

(11,722)

(1,197)

(2,818)

W235)

138 (4,729)

205

185

290

1,069

61,428

(596)

(410)

820

(9,183)

(12,823)

10,188

58,723 (74,296) 166

(3,719)

(22)

(4,324)

(1,118)

3,183

(1,057)

(6,991)

18,375 (2,194)

4,688

(5,551)

(7,354)

(1,787)

920

MY

(276)

890

1.095

131,270

2.173

(2.436)

187

15,301

10,103

(9,108)

8,569

(8,687)

(4,357)

(10,059)

(6,509)

(4,717)

351

(2,640)

(4,591)

(2,628)

1,746

(7,598)

1,069

2,388

(596)

(2,990)

(963)

(377)

(2,818)

10,561

(23,235)

(9,183)

511

(12,823)

14

(1,534)

(15,407)

(3,719)

(22)

(4,324)

(1,118)

(6,991)

16,181

4,688

(5,551)

(7,354)

1,396

(137)

375 (91,389) (91,014)

970 970

Total 146,968 (86,983) 1,561 (7,888) (35,845) 141 ,111 .(74,296) (37,644) (91,389) (44,405)

Source: NCDHIP Handbook.

30
Appendix Table s--Number of herds handled by DRPC, 1989 and 1994

DRPC 1989 Percent 1994 Percent Percent Change

Agri Tech Analytics

Mid-States DRPC

Michigan DRPC

Minnesota DRPC

Cornell Dairy Records

DRPC @ Raleigh

Pennsylvania DHIA

DHI Computing

Service

AgSource Coop. Serv

Total

7,248

1,954

6,569

6,496

6,634

6,145

5,307

15,451

56,800

1.75 973 1.98 -2.31

12.76 5,528 11.22 -23.73

3.44 1,794 3.64 -8.19

11.57 6,021 12.23 -8.34

11.44 5,433 11.03 -16.36

11.68 7,562 15.35 13.99

10.82 4,584 9.31 -25.40

9.34

27.20

4,690

12,695

49,250

9.52

25.78

-11.63

-17.84

-13.29

Source: NCDHIP Handbook.

Appendix Table T-Gross farm income from dairy products, cash receipts’

Actual (nominal)

$ Billion

Real (adjusted CPl)*

$ Billion

1984 18.0 18.0

1985 18.1 17.2

1986 17.8 16.3

1987 17.8 15.7

1988 17.7 15.0

1989 19.5 15.6

1990 20.3 15.3

1991 18.2 13.3

1992 19.9 14.4

1 Cash receipts from marketings of milk and cream plus value of milk used for home consumption and producer-churned butter.

2 Figures are adjusted by the CPI (Consumers’ Price Index), 1994=100.

Source: NASS, USDA.

31
Appendix Figure I- U.S. Dairy Cow Enrollment in

NCDHIP Plans

Number (l,OOO,OOO)

I27

2

0' I I I I I I

1989 90 91 92 93 94

H Cows Cows Enrolled

32
Appendix Figure 2- Industry Life Cycle for Cooperatives

Phases Introduction Growth Maturity

(As the industry goes through its life

cycle,the nature of the competition will

shift.)

Choice among brands, competitors

Less product/firm differentiation

Strong competition

Broadening lines

Service and deals more prevalent

Fewer customers for cash cows

Price competition

Lower margins and profits

Decline

Time

Penetrate and Grow Protect and Defend Opportunities Divest

& Efforts to Extend Life Cycle I

33
U.S. Department of Agriculture

Rural Business-Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business/Cooperative Service (RBS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders and Federal and State

agencies to improve organization, leadership, and operation of cooperatives and to give

guidance to further development.

L

The cooperative segment of RBS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5) encourages

international cooperative programs. RBS also publishes research and educational

materials and issues Farmer Cooperafives magazine.

The United States Department of Agriculture (USDA) prohibits discrimination in its

programs on the basis of race, color, national origin, sex, religion, age, disability, political

beliefs and marital or familial status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program

information (Braille, large print, audiotape, etc.) should contact the USDA Office of

Communications at (202) 720-2791.

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, DC. 20250, or call (202) 720-7327 (voice) or (202) 720-l 127 (TDD). USDA is

an equal employment opportunity employer.