USDA 

Report to Congress 

on the 

National Dairy Promotion 

and Research Program 

and the 

National Fluid Milk 

Processor Promotion Program 

July 1, 2006 

Report to Congress 

on the 

National Dairy Promotion 

and Research Program 

and the 

National Fluid Milk 

Processor Promotion Program 

July 1, 2006 
Contact Information 

To obtain additional copies of the 2006 Report to Congress on the National Dairy Promotion and 

Research Program and the National Fluid Milk Processor Promotion Program and the complete 

independent analysis of the programs, please contact: 

Promotion and Research Branch 

Dairy Programs, Agricultural Marketing Service, USDA 

Stop 0233, Room 2958-South 

1400 Independence Avenue, SW 

Washington, DC 20250-0233 

(202) 720-6909 

http://www.ams.usda.gov/dairy/dairyrp.htm 

To obtain copies of the complete independent analysis report or for questions on Chapter 3, 

please contact: 

Harry M. Kaiser, Ph.D. 

Cornell Commodity Promotion Research Program 

Department of Agricultural, Resource, and Managerial Economics 

Cornell University 

349 Warren Hall 

Ithaca, NY 14853 

(607) 255-1620 

To obtain copies of or for questions on the Fluid Milk Market and Promotion Assessment by 

Beverage Marketing Corporation of New York, please contact: 

Gary Hemphill 

850 Third Avenue, 14 th Floor 

New York, NY 10022 

(212) 688-7640 

For additional information about the National Dairy Promotion and Research Board and Dairy 

Management Inc., please contact: 

National Dairy Promotion and Research Board 

Dairy Management Inc. 

10255 West Higgins Road, Suite 900 

Rosemont, IL 60018-5616 

(847) 803-2000 

http://www.dairyinfo.com 

ii 
For additional information about the National Fluid Milk Processor Promotion Board, please 

contact: 

National Fluid Milk Processor Promotion Board 

1250 H Street, NW, Suite 950 

Washington, DC 20005 

(202) 737-0153 

http://www.whymilk.com 

The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and 

activities on the basis of race, color, national origin, age, disability, and where applicable, sex, 

marital status, familial status, parental status, religion, sexual orientation, genetic information, 

political beliefs, reprisal, or because all or part of an individual's income is derived from any 

public assistance program. (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 USDA's TARGET Center at (202) 720-2600 (voice 

and TDD). 

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, 

1400 Independence Avenue, S.W., Washington, D.C. 20250-9410, or call (800) 795-3272 

(voice) or (202) 720-6382 (TDD). USDA is an equal opportunity provider and employer. 

Report printed on recycled paperl~using vegetable-based ink. 

III 
Contents 

Contact Information ....................................................................................................................... ii 

Executive Summary ......................................................................................................................... 1 

Chapter l: The Dairy Promotion Programs ................................................................................... 5 

National Dairy Promotion and Research Board ............................................................................... 5 

3-A-Day TM of Dairy for Stronger Bones and 3-A-Day of Dairy - Burn More Fat, Lose Weight .... 8 

Foodservice/Partnerships ................................................................................................................. 9 

Communications and Technology ................................................................................................. 10 

Export and Dry Ingredients ............................................................................................................ 10 

National Dairy Council®/School Marketing .................................................................................. 13 

Research ......................................................................................................................................... 14 

Qualified State or Regional Dairy Product Promotion, Research, or Nutrition Education 

Programs ...................................................................................................................................... 14 

National Fluid Milk Processor Promotion Board .......................................................................... 18 

Medical and Scientific Activities ................................................................................................... 19 

National Fluid Milk Programs ....................................................................................................... 19 

Sponsorships .................................................................................................................................. 20 

Advertising ..................................................................................................................................... 20 

Promotions ..................................................................................................................................... 21 

Public Relations ............................................................................................................................. 22 

Strategic Thinking .......................................................................................................................... 23 

School Marketing ........................................................................................................................... 24 

Chapter 2: USDA Activities ......................................................................................................... 25 

National Dairy Promotion and Research Board Oversight ............................................................ 25 

Nominations and Appointments .................................................................................................... 25 

Organic Exemption Amendment to the Order ............................................................................... 26 

Foreign Agricultural Service .......................................................................................................... 26 

Contracts ........................................................................................................................................ 26 

Contractor Audits ........................................................................................................................... 26 

Collections ..................................................................................................................................... 26 

Compliance .................................................................................................................................... 27 

Qualified Programs ........................................................................................................................ 27 

Litigation ........................................................................................................................................ 27 

National Fluid Milk Processor Promotion Board Oversight .......................................................... 28 

Nominations and Appointments .................................................................................................... 28 

Order Amendments ........................................................................................................................ 28 

Programs Development .................................................................................................................. 29 

Contractor Audits ........................................................................................................................... 29 

Compliance .................................................................................................................................... 29 

iv 
Contents, continued 

Chapter 3: Impact of Generic Fluid Milk and Dairy Advertising and Promotion on 

Dairy Markets: An Independent Analysis ................................................................................... 30 

Highlights ....................................................................................................................................... 31 

Analysis of Generic Fluid Milk Marketing .................................................................................... 31 

Analysis of Total Dairy Product Generic Marketing ..................................................................... 39 

Benefit-Cost Analysis of the Dairy Program ................................................................................. 41 

Chapter 4 

Part I - Fluid Milk Market and Promotion Assessment: Beverage Marketing Corporation ........45 

BMC's Assessment of the Current Milk Industry Environment ................................................... 45 

Consumer Attention ....................................................................................................................... 49 

Product Attributes and Innovation ................................................................................................. 50 

Branding ......................................................................................................................................... 50 

Distribution .................................................................................................................................... 51 

Pricing ............................................................................................................................................ 51 

BMC's Assessment of Current Milk Marketing Programs ............................................................ 51 

Part II - National Fluid Milk Processor Promotion Program: Highlights by the National 

Fluid Milk Processor Promotion Board ....................................................................................... 55 

Overall Sales and Consumption Impact ......................................................................................... 55 

Competitive Assessment of Milk Industry's Position ................................................................... 56 

Success of Weight-Related Benefit Promotion .............................................................................. 56 

Growth of Vended Milk Business .................................................................................................. 58 

Summary of Program Effectiveness .............................................................................................. 60 

Part III - National Dairy Promotion and Research Program: Highlights by 

Dairy Management Inc ................................................................................................................ 61 

Three Servings a Day of Dairy ...................................................................................................... 61 

3-A-Day of Dairy TM for Stronger Bones and Weight Management ............................................... 62 

Recapturing Milk as Kids' "Beverage of Choice". ........................................................................ 63 

Meeting Unmet Demand through Exports and Ingredients ........................................................... 65 

Conclusion ..................................................................................................................................... 66 

Appendix A 

National Dairy Promotion and Research Board: Current Member Listing .................................. 68 

Appendix B 

National Fluid Milk Processor Promotion Board: Current Member Listing ................................ 72 

V 
Contents, continued 

Appendix C 

(C-1) Regions of the National Dairy Promotion and Research Board .......................................... 76 

(C-2) Regions of the National Fluid Milk Processor Promotion Board ....................................... 77 

Appendix D 

(D-1) National Dairy Promotion and Research Board, Actual 

Income and Expenses, FY 2004-2005 ........................................................................................ 78 

(D-2) USDA Oversight Costs for the National Dairy Promotion and 

Research Board, FY 2004-2005 .................................................................................................. 79 

(D-3) National Dairy Promotion and Research Board, Approved Budgets, FY 2005-2005 ....... 80 

(D-4) National Fluid Milk Processor Promotion Board, Actual 

Income and Expenses, FY 2004-2005 ......................................................................................... 81 

(D-5) USDA Oversight Costs for the National Fluid Milk Processor 

Promotion Board, FY 2004-2005 ................................................................................................ 82 

(D-6) National Fluid Milk Processor Promotion Board, Approved Budgets, FY 2005-2006 .....83 

Appendix E 

(E-1) Independent Auditors' Report - National Dairy Promotion and Research Board ............... 84 

(E-2) Independent Auditors' Report - National Fluid Milk Processor Promotion Board ........... 100 

Appendix F 

(F-1) National Dairy Promotion and Research Board and Dairy Management Inc. 

Contracts Reviewed by USDA, 2005 ........................................................................................ 126 

(F-2) National Fluid Milk Processor Promotion Board and 

International Dairy Foods Association Contracts Reviewed by USDA, 2005 .......................... 131 

Appendix G 

(G-l) Nutrition and Health Research Institute and Dairy Foods Research Centers, 2005 ......... 132 

(G-2) Dairy Foods Competitive Research Projects, 2005 .......................................................... 134 

(G-3) Nutrition Competitive Research Activities, 2005 ............................................................. 135 

Appendix H 

Qualified State or Regional Dairy Product Promotion, Research, or Nutrition 

Education Programs, 2005 ......................................................................................................... 137 

vi 
Contents, continued 

Appendix I 

Thumbnail Images of National Fluid Milk Print and Television Advertisements ....................... 141 

vii 

Executive Summary 

The enabling legislation of both the producer and processor dairy promotion programs 

(7 U.S.C. 4514 and 7 U.S.C. 6407) requires the U.S. Department of Agriculture (USDA) to 

submit an annual report to the House Committee on Agriculture and the Senate Committee on 

Agriculture, Nutrition, and Forestry by July 1. The producer and processor programs are 

conducted under the Dairy Promotion and Research Order (Dairy Order) (7 CFR § 1150) and the 

Fluid Milk Promotion Order (Fluid Milk Order) (7 CFR § 1160), respectively. This report 

includes a description of activities for both the producer and processor programs and summarizes 

activities of the national fluid milk programs. An accounting of funds collected and spent, an 

independent analysis of the effectiveness of the advertising campaigns of the two programs, and 

an industry-commissioned review of fluid milk markets and program operations are included. 

Unless otherwise noted, this report addresses program activities for the fiscal period January 1 -

December 31, 2005, of the Dairy Promotion Program and the Fluid Milk Processor Promotion 

Program. 

Producer Dairy Promotion Program 

The Dairy Production Stabilization Act of 1983, as amended, (Dairy Act) (7 U.S.C. 4501, 

et seq.) authorized a national producer program for generic dairy product promotion, research, 

and nutrition education as part of a comprehensive strategy to increase human consumption of 

milk and dairy products. Dairy farmers fund this self-help program through a mandatory 15-cent 

per hundredweight assessment on all milk produced in the contiguous 48 States and marketed 

commercially. Dairy farmers appointed by the Secretary administer the national program 

through the National Dairy Promotion and Research Board (Dairy Board). The Dairy Act 

provides that dairy farmers can receive a credit of up to 10 cents per hundredweight of the 

assessment for contributions to qualified State or regional dairy product promotion, research, or 

nutrition education programs (Qualified Programs). 

The Dairy Order became effective on May 1, 1984. The Dairy Act required the Secretary of 

Agriculture to conduct a referendum among dairy farmers by September 30, 1985, to determine 

if a majority favored continuation of the program. Nearly 90 percent of the dairy farmers voting 

in the August-September 1985 referendum favored continuing the program. USDA held a 

second referendum on the dairy promotion program in August 1993. Approximately 71 percent 

of the dairy farmers who voted in the referendum favored continuing the program. USDA will 

hold future referenda at the direction of the Secretary or upon the request of at least 10 percent of 

the affected dairy farmers. 

Mandatory assessments collected under the Dairy Act totaled $278.7 million in 2005. The Dairy 

Board portion of the revenue from the 15-cent per hundredweight producer assessment was 

$88.6 million for 2005, and Qualified Programs revenue from the producer assessment was 

$190.1 million for the same year. Expenditures by the Dairy Board and many of the Qualified 

Programs are integrated through a joint process of planning and program implementation so that 

the programs on the national, regional, State, and local level work together. Details of the 2005 

activities of the dairy producer program can be found in Chapter 1. 
National Fluid Milk Processor Promotion Program 

The Fluid Milk Promotion Act of 1990, as amended (Fluid Milk Act) (7 U.S.C. 6401 et seq.) 

authorized the establishment of a national processor program for fluid milk promotion and 

education. The Fluid Milk Order became effective December 10, 1993. The Secretary 

appointed the initial National Fluid Milk Processor Promotion Board (Fluid Milk Board) on 

June 6, 1994. 

Processors administer the Fluid Milk Processor Promotion Program through the Fluid Milk 

Board. Since August 2002, processors marketing more than 3 million pounds of fluid milk per 

month, excluding those fluid milk products delivered to the residence of a consumer, fund this 

program through a 20-cent per hundredweight assessment on fluid milk processed and marketed 

in consumer-type packages in the contiguous 48 States and the District of Columbia. From 

1996-2002, processors marketing 500,000 pounds or more funded the program. The Fluid Milk 

Board's revenue from assessments for the January 1 through December 31, 2005, period was 

$107.1 million. 

The Fluid Milk Act required the Secretary to conduct a referendum among fluid milk processors 

funding the program to determine if a majority favored implementing the program. In the 

October 1993 referendum, 72 percent of the processors voted to approve the implementation of 

the fluid milk program. These processors represented 77 percent of the volume of fluid milk 

products marketed by all processors during May 1993, the representative period set for the 

referendum. USDA held a continuation referendum in February-March 1996. Of the processors 

voting in that referendum, nearly 65 percent favored continuation of the program. These 

processors represented 71 percent of the volume of fluid milk products marketed by all 

processors during September 1995, the representative period set for the referendum. 

In November 1998, USDA held another continuation referendum at the request of the Fluid Milk 

Board. Fluid milk processors voted to continue a national program for fluid milk promotion 

established by the Fluid Milk Order. Of the processors voting in this referendum, 54 percent 

favored continuation of the order. These processors represented 86 percent of the fluid milk 

products processed and marketed by fluid milk processors voting in the referendum. The Fluid 

Milk Act and Order state that USDA will hold future referenda upon the request of the Fluid 

Milk Board, of processors representing 10 percent or more of the volume of the fluid milk 

products marketed by those processors voting in the last referendum, or when called by the 

Secretary. 

The Fluid Milk Board continued to execute a generic national fluid milk program in 2005. The 

fluid milk marketing programs are research based and message focused. Activities of the 

national fluid milk program for 2005 are presented in the Fluid Milk Board section in Chapter 1 

of this report. 

2 
USDA Oversight 

USDA has oversight responsibility for both dairy promotion programs. The oversight objectives 

ensure that the Boards and Qualified Programs properly account for all program funds and that 

they administer the programs in accordance with the respective Acts and Orders. All advertising, 

promotional, and educational materials are developed under established guidelines. All Board 

budgets, contracts, and advertising materials are reviewed and approved. USDA employees 

attend all Board and Board Committee meetings and monitor all Board activities. USDA also 

has responsibility for obtaining an independent evaluation of the programs. Additional USDA 

responsibilities relate to nominating and appointing Board members, amending the orders, 

conducting referenda, assisting with noncompliance cases, and conducting periodic program 

audits. The Boards reimburse the Secretary, as required by the Acts, for all of USDA's costs of 

program oversight and for the independent analysis. Chapter 2 reports on USDA's oversight 

activities. 

Independent Analysis and Fluid Milk Market and Program Assessment 

Chapter 3 reports the results of the independent econometric analysis, conducted by Comell 

University, of the effectiveness of the dairy promotion programs. Since 1995, the independent 

analysis has included an analysis of the effectiveness of the producer promotion program in 

conjunction with the processor promotion program. Comell has conducted these analyses since 

1998. 

Chapter 4 presents the industry-commissioned fluid milk market and program operations 

assessment, representing the seventh year that this assessment has been conducted by Beverage 

Marketing Corporation. The review offers an evaluation of the effectiveness of the fluid milk 

advertising and promotion programs from a marketing perspective. 

Additionally, the National Fluid Milk Processor Promotion Board and Dairy Management Inc., 

provide individual highlights of 2005 program successes from the Boards' perspective in parts II 

and III of Chapter 4. 

Appendices: Supplemental Information 

This report's Appendix section (Appendix A-I) includes a variety of supplemental information 

related to the fluid milk and dairy promotion programs. Appendix A presents a listing of current 

Dairy Board members. Appendix B similarly includes a listing of all current Fluid Milk Board 

members. 

Appendix C features maps that display the Dairy Board and Fluid Milk Board regions. 

Appendix D presents tables that report the actual income and expenditures, USDA oversight 

costs, and approved budgets for both Boards. 
Appendix E-1 includes the financial statements, supplemental schedules, and the independent 

auditor's report for the Dairy Board. The accounting firm Ernst & Young conducted the 2005 

Dairy Board independent audit. Appendix E-2 includes financial statements and the independent 

auditor's report for the Fluid Milk Board. Snyder, Cohn, Collyer, Hamilton and Associates P.C., 

conducted the 2005 Fluid Milk Board independent audit. 

Appendix F-1 includes a listing of all 2005 Dairy Board and Dairy Management Inc. (DMI) 

contracts (and corresponding initiatives) reviewed by USDA. The Dairy Act and Order require 

that all contracts expending producer assessment funds be approved by the Secretary of 

Agriculture (7 CFR § 1150.140). Appendix F-2 includes a detailed listing of all 2005 Fluid Milk 

Board and International Dairy Foods Association (IDFA) contracts reviewed by USDA. The 

Fluid Milk Board contracts with IDFA to manage the day-to-day operations of the processor 

promotion program. 

Appendix G-1 includes a listing of the nutrition institute and the six dairy foods research centers 

that provide much of the research that supports the marketing efforts of the dairy promotion 

programs. Appendices G-2 and G-3 list the new and ongoing dairy foods and nutrition research 

projects that are funded by DMI. 

Appendix H lists the Qualified State or regional dairy product promotion, research, or nutrition 

education programs (Qualified Programs) for 2005. Qualified Programs are certified annually by 

the Secretary to determine whether milk producers may continue to receive credit against the 

15-cent per hundredweight assessment due to the Dairy Board when contributing to a Qualified 

Program. 

Appendix I features thumbnail images of the national fluid milk print and television 

advertisements. The advertisements are organized by message, target audience, contests, and 

sweepstakes winners. 

4 
Chapter 1 

The Dairy Promotion Programs 

In 2005, the National Dairy Promotion and Research Board (Dairy Board) and the National Fluid 

Milk Processor Promotion Board (Fluid Milk Board) continued to develop and implement 

programs to expand the human consumption of fluid milk and dairy products. Each promotion 

program has many unique activities. In 2005, the Fluid Milk Board continued to use the role of 

calcium-rich fluid milk products in successful weight management as a central theme and focal 

point for its activities. The Dairy Board focused on the away-from-home market to promote the 

expansion of flavors and a greater range of packaging in foodservice and restaurants. 

National Dairy Promotion and Research Board 

The mission of the Dairy Board is to coordinate a promotion and research program that 

maintains and expands domestic and foreign markets for fluid milk and dairy products produced 

in the United States. The Dairy Board is responsible for administering the Dairy Promotion and 

Research Order (Dairy Order), developing plans and programs, and approving budgets. Its dairy 

farmer board of directors administers these plans and monitors the results of the programs. 

The Secretary of Agriculture (Secretary) appoints 36 dairy farmers to administer the Dairy 

Order. The appointments are made from nominations submitted by producer organizations, 

general farm organizations, qualified State or regional dairy products promotion, research or 

nutrition education programs (Qualified Programs), and by other means as determined by the 

Secretary (7 CFR § 1150.133(a)). Dairy Board members serve 3-year terms and represent 1 of 13 

regions in the contiguous 48 States. Dairy Board members elect four officers: Chair, Vice 

Chair, Treasurer, and Secretary. Current Dairy Board members are listed in Appendix A. A map 

of the contiguous 48 States depicting the 13 geographic regions is shown in Appendix C-1. 

Total Dairy Board actual revenue for 2005 was $88.8 million (including assessments and 

interest). This amount was more than the Dairy Board Budget of $86.4 million for that period. 

The Dairy Board amended its budget to $88.9 million by incorporating program development 

funds not budgeted previously. The Dairy Board budget for 2006 projects total revenue of $86.7 

million from domestic assessments and interest. The Dairy Board administrative budget 

continued to be within the 5-percent-of-revenue limitation required by the Dairy Order. A list of 

actual income and expenses for 2004-2005 is provided in Appendix D-1. USDA's oversight and 

evaluation expenses for 2004-2005 are listed in Appendix D-2. Appendix D-3 displays the 

Dairy Board's approved budgets and a comparison of program funding by function for 

2005-2006. An independent auditor's report for 2005 is provided in Appendix E-1. 

The Dairy Board has two standing committees: the Finance and Administration (F&A) 

Committee and the Executive Committee. The F&A Committee is made up of the Dairy Board 

officers and appointees named by the Dairy Board Chair. The Dairy Board Treasurer is the 

Chair of the F&A Committee, and the full Dairy Board serves as the Executive Committee. 
The remaining committees for the Dairy Board are joint program committees with the United 

Dairy Industry Association (UDIA). 

In March 1994, the Dairy Board approved the creation of Dairy Management Inc. (DMI), a 

management and staffing corporation. DMI is a joint undertaking between the Dairy Board and 

UDIA. UDIA is a federation of 18 of the 59 active Qualified Programs under the direction of a 

board of directors. DMI merged the staffs of the Dairy Board and UDIA to manage the Dairy 

Board programs as well as those of the American Dairy Association ® and National Dairy 

Council ® throughout the contiguous 48 States. DMI serves both boards and is structured into 

support groups. The marketing and business development group supports retail channel 

development, marketing communications, advertising, research, analyses of domestic and 

foreign marketplaces, program effectiveness, consumption patterns and consumer perceptions for 

effective program planning, implementation, and measurement. The nutrition, public, and 

corporate affairs group supports nutrition education and consumer affairs, board relations, and 

program implementation. The industry relations group provides news about dairy topics through 

media contacts as well as communications regarding the dairy checkoff program to producers 

and the rest of the industry. The strategic operations/finance and administration group handles 

program planning and communications, information services, membership development, and 

finance and accounting activities. The export marketing group serves as a resource for U.S. 

dairy ingredient manufacturers and processors to improve export capabilities of the U.S. dairy 

industry. 

Since January 1, 1995, the Dairy Board and UDIA have developed their marketing plans and 

programs through DMI. DMI facilitates the integration of producer promotion funds through a 

joint process of planning and program implementation so that the programs on the national, 

regional, State, and local level work together. The mission of DMI is to drive increased sales of 

and demand for U.S. dairy products and ingredients, on behalf of U.S. dairy farmers. DMI 

works proactively, and in parmership with leaders and innovators, to increase and apply 

knowledge that leverages opportunities to expand dairy markets. DMI celebrated its 10 th 

anniversary in 2005. 

DMI funds 1- to 3-year research projects that support marketing efforts. Six Dairy Foods 

Research Centers and one Nutrition Institute provide much of the research. Their locations and 

the research objectives are listed in Appendix G-1. Additionally, lists of DMI's dairy foods and 

nutrition projects can be found in Appendices G-2 and G-3, respectively. Universities and other 

industry researchers throughout the United States compete for these research contracts. 

At its inception, the DMI Board of Directors consisted of 12 dairy farmers from the Dairy Board 

and 12 dairy farmers from the UDIA Board. An amendment to the articles of incorporation of 

DMI to expand the DMI Board size took effect January 1,2001, and the expanded DMI Board 

(77) now comprises all Dairy Board (36) and all UDIA (41) members. Voting is equalized 

between the Dairy Board and UDIA. 

The committees for program activities are comprised of board members from both the Dairy and 

UDIA Boards. The Dairy Board and UDIA Board separately must approve the DMI budget and 

6 
annual plan before they can be implemented. In October 2004, both boards approved the 2005 

unified dairy promotion plan budget and national implementation programs. Similar to previous 

plans, the 2005 unified dairy promotion plan continued to support the underlying theme of 

investing dollars where the consumers are - not where dairy cows are. The unified dairy 

promotion plan was consistently implemented in the top 150 demand-building consumer markets 

nationwide. 

During 2005, DMI again hosted dairy director regional planning forums across the country to 

review and create marketing strategies for development of the unified dairy promotion plan. 

These forums are designed to create one unified dairy promotion plan and allow opportunity for 

State and regional dairy board members to ask questions, raise concerns, and offer their thinking 

on the plan's direction and development. 

At the 2005 forums, dairy directors across the country reviewed and endorsed a unified 

marketing plan that continued to focus on five areas identified in 2004: (1) 3-A-Day of Dairy" 

for Stronger Bones, a nutrition-based marketing and education program developed to help solve 

the nation's calcium crisis and increase consumption of milk, cheese, and yogurt; (2) 3-A-Day of 

Dairy TM - Burn More Fat, Lose Weight, where the dairy checkoff reminds consumers that milk, 

cheese, and yogurt may help in weight-loss efforts when paired with a reduced-calorie diet and 

physical activity; (3) New Look of School Milk which includes efforts to improve the school 

milk experience for the nation's children through improvements in packaging, flavors, and 

availability; (4) Foodservice, where dairy checkoff funds are invested to help promote the 

expansion of flavors and the range of packaging for milk in foodservice and restaurants, as well 

as to help with menu concepts for cheese; and (5) Dairy Image/Confidence, which aims to 

protect and enhance consumer confidence in dairy products and the dairy industry through 

correcting misinformation and inaccurate claims against dairy. The success of the unified 

marketing plan relies heavily upon DMI's ability to expand partnerships with processors, 

retailers, schools, and health professional organizations. 

The above-mentioned focus areas continue to build upon the 2002 forum results that emphasized 

programs with less reliance upon television advertising, continuance of successful foodservice 

and retail activities, the need for heavier focus on kids and school milk problems, more focus on 

industry partnerships, and stronger, more proactive image protection of dairy products. 

Combined industry spending for the unified marketing plan totaled more than $250 million in 

2005. National and State and regional dairy producer organizations' contributions totaled over 

$158.9 million. 

The joint Dairy Board and UDIA Board committee structure provides the framework for DMI 

program activities. The Dairy Board and UDIA Board Chairs assign their respective board 

members to the following joint program committees: Cheese, Communications and Technology, 

Export and Dry Ingredients, and Fluid Milk. Each committee elects a Chair and Vice-Chair. 

The joint committees and the DMI staff are responsible for setting program priorities, planning 

activities and projects, and evaluating results. The Joint Evaluation Committee continued to 

operate in 2005. During 2005, the Dairy Board and UDIA Board met jointly 5 times. 
The following information describes Dairy Board and UDIA program activities along with new 

programs and initiatives implemented in 2005. 

3-A-Day TM of Dairy for Stronger Bones and 

3-A-Day TM of Dairy - Burn More Fat, Lose Weight 

The 3-A-Day TM of Dairy for Stronger Bones (3-A-Day TM) marketing and 

nutrition education campaign was officially launched on March 3, 2003, 

and continued in 2005. The program objectives are to increase total 

consumption of dairy products and reinforce dairy as the leading source 

of calcium by providing simple guidance about dairy food selections. 

The development of the program was a joint dairy industry effort led by 

DMI. A key component of the 3-A-Day TM program is the logo, which 

appears on packages and labels of milk, cheese, and yogurt products containing 20 percent or 

more of the daily value of calcium. 

In 2005, DMI sponsored three national promotions around 3-A- 6UPER BOWL 

DayTM. The first national promotion, "Super Bowl XXXIX 3-ForAll" launched January 9 and ran through February 13. As part of the 

promotion, a special coupon offer was released to more than 40 

million families in a special Sunday newspaper insert. The coupon 

offer included dairy product coupons and recipe ideas from major 

3-A-DayTM manufacturing partners. Other promotion elements 

included national advertising; special consumer offers for an a-F011"ALL 

exclusive, football-shaped cheese board customized with their favorite NFL ® team's logo; and 

retail sampling events at over 7,500 grocery stores. Additionally, this Super Bowl promotion 

launched the first national consumer promotion since the dairy checkoff and the NFL ® 

announced their 4-year partnership in 2004. Local dairy promotion groups also partnered with 

individual NFL ® teams to conduct local retail, school, and other consumer marketing efforts. 

The second national promotion, "Real People, Real Results" 

leveraged the public's growing awareness of dairy's connection Rea.l PeoRle 

to weight loss. The promotion featured real women who lost Real Results 

weight with dairy in a People magazine insert and a 

corresponding booklet made available to select retailers. In 

addition, new 3-A-Day of Dairy TM awards became part of the 42 nd 

PillsburyTM Bake-Off Contest. Throughout the month of April 3 servings of clair 7 a day In a reducedcalorie diet supports weight loss. 

2005, a "Real People, Real Results" booklet was available free to consumers with the purchase 

of milk, cheese, and yogurt in the same shopping trip. The insert included a special section with 

inspiring weight loss success stories, fitness and dieting tips, and dairy recipes. This promotion 

was supported by new national television and print advertising emphasizing dairy's effect on the 

waistline. The new print advertisements with a "best measure of a trimmer tummy" tagline and 

television advertisements showing dairy's ability to help "reach your weight loss goals" were 

launched along with the introduction of the program. An advertisement for the American Dairy 

Association ® sponsored 3-A-Day of Dairy Awards in the 42 nd Pillsbury TM Bake-Off Contest was 
featured in the booklet and recognized the most delicious recipes that were nutritious and 

provided a serving of dairy. The finalists received cash prizes of $10,000 each for the best 

recipes made with milk, cheese, or yogurt. 

The third national promotion, "Tackle it Today with 3-A- ~y 

Day~", '' coincided with the September NFL ® Kickoff- giving TA~"IIII' 

moms all the tools and information needed to tackle her ~H 3|i|~'[~ 

weight loss goals. With this promotion, shoppers received a ..... ~ ~, ~ ~ .~ 

free Tips and Tools for a Slimmer You CD, when they bought 

at least one each of milk, cheese, and yogurt products during the same shopping trip. The CD 

featured a 16-week food and exercise journal, expert fitness advice, success stories, recipes, and 

time-saving workouts. Morns also were invited to share on Web site www.3aday.org how they 

tackled their weight loss goals with three daily servings of dairy for a chance to win a trip to 

Hawaii and tickets to the Pro Bowl. New television and print advertisements were released in 

September and October supporting the promotion to remind people that enjoying 3 servings of 

dairy as part of a reduced calorie diet can help adults achieve better results when it comes to 

trimming the waistline rather than just cutting calories alone. 

Health professional outreach remained a critical component of the 3-A-Day TM program. The 

American Academy of Family Physicians, the American Academy of Pediatrics, the American 

Dietetic Association, and the National Medical Association all renewed their support and 

partnership with DMI and 3-A-Day TM. By working with these key health professional partners, 

DMI continued to provide a clear, practical message to the public on the importance of dealing . . . . . , TM . • with the Nation's calcium crisis. DMI s 3-A-Day advisory panel, comprised of leaders from 

these four organizations along with other nutrition experts, continued to help guide the overall 

campaign as well as nutrition philosophy and principles. DMI released several advertorials, 

including an advertorial celebrating the American Academy of Pediatrics 75 th anniversary 

highlighting their longstanding commitment to children's health and wellness. 

Foodservice/Partnerships 

DMI continued to work closely with top national restaurant chains, including McDonald's ® and 

Wendy' s ®, to ensure that milk and cheese were featured prominently in menu items and 

offerings. Building upon 2004 efforts leading to the introduction of new milk offerings at 

McDonald's ® and Wendy' s ®, DMI helped to motivate single-serve milk testing among other 

major restaurant chains including Burger King ® and Sonic ® Drive-In. These chains are expected 

to introduce milk in single-serve plastic containers nationwide in 2006. 

In addition to milk, Wendy's ® also worked with DMI to test and market a 7-ounce yogurt cup 

that is now a permanent menu option. The new introduction moves 7 million incremental 

pounds of milk used through foodservice. Also, DMI helped increase cheese use by partnering 

with national restaurant chains to introduce cheese-friendly items and drive innovation. Pizza 

Hut ®, the Nation's top pizza chain, featured three new cheese-friendly items that DMI helped to 

develop and promote. During the four-week promotion of the new product "Dippin' Strips," 

Pizza Hut®'s cheese usage was up 3 million pounds over the previous 4 weeks. 
Communications and Technology 

Consumers receive mixed messages through the media about the nutritional value and benefits of 

food. DMI worked to provide consumers with education and information based on sound 

nutritional science and communicated the value of dairy products to consumers as well as to 

health professionals and educators. DMI also worked to inform dairy farmers about how their 

assessment dollars were being used. The organization continued to communicate to dairy 

producers and other industry audiences through publications (such as the annual report, joint 

newsletters with State and regional dairy promotion groups, and dairy cooperative check 

stuffers), dairy industry events (including major trade shows and producer meetings) and media 

relations (including press releases, feature placement, and farm broadcast interviews). For the 8 th 

year, DMI continued its "Dairy Ambassadors" program which uses a select group of board 

members to deliver consistent messages about the dairy promotion program to producers and 

other industry audiences. 

DMI continued its support for butter through cooperation and public relations activities with the 

American Butter Institute, including the Web site www.butterisbest.com, a consumer resource 

center with current cooking trends and ideas, butter recipes, and links to other butter-related Web 

sites. DMI also continued to work with Wisconsin Milk Marketing Board to execute co-funded 

retail butter promotion activities. The national effort helped to drive incremental retail butter 

sales in select markets across the United States. 

Another activity of the Communications and Technology program was the issues management 

program. The objective of this program is to identify, monitor, and manage key issues that may 

influence consumer perceptions of dairy products. DMI coordinated its issues management 

activities with State and regional dairy promotion groups as well as with other dairy and 

agricultural groups. The organization worked with these groups to bring forth sound, sciencebased information to address consumer issues. Dairy Reputation Management, and industrywide 

efforts that interact with the Issues Management, Industry Relations, and Dairy Image programs, 

continued a proactive program to educate consumers and to reinforce the positive attributes of 

dairy foods, dairy farmers, and dairy farming practices to this audience. 

Export and Dry Ingredients 

DMI's export enhancement program is implemented by the U.S. Dairy Export Council 

(USDEC). USDEC receives primary funding from three sources: DMI, USDA's Foreign 

Agricultural Service (FAS), and membership dues from dairy cooperatives, processors, 

exporters, and suppliers. In 2005, USDEC received $7.5 million from DMI; $3.9 million from 

USDA's Market Access Program and the Foreign Market Development Program, which support 

commodity groups in promotion of their commodities in foreign markets; and $685,000 from 

membership dues. USDEC celebrated its 10-year anniversary in 2005 and its total budget was 

$13 million. 

10 
Figure 1-1. Record Dairy Export Values 

Record-high value 

Value of U.S. dairy exports 

$17OO 

J$1 .il]i66cn 

$1450 

$1200 

$950 

I I I I I I $'700 ' ' ' ' 

"94 "95 "~ "97 "98 °~ "00 "01 "02 "03 "04 "05 

Source: USDEC 

USDEC has offices in Mexico City, Tokyo, Seoul, Hong Kong, Shanghai, Bangkok, Taipei, 

London, and Sao Paulo. In 2005, strong global demand for dairy protein led to another record 

year for dairy exports. 

Final 2005 export data confirm that U.S. dairy product exports reached $1.66 billion in 2005. 

Figure 1-1 shows dairy export values have increased 55 percent in the last 2 years. Similarly, 

Figure 1-2 shows that the dairy export volume is also a record high at 1.81 billion pounds of 

milk solids. This value has increased 52 percent over the last 2 years. Economic growth in Asia 

Figure 1-2. Record Dairy Export Volume 

Record-high volume 

Volume of U.S. dairy exports (total milk solids) 

2000 

1.81 

billion lbs. 

1600 

400 , , i i i J i i , i i , 

"94 "95 "96 "97 "98 "99 °00 "01 "02 "03 "04 "05 

Source: USDEC, USDA 

11 
- China in particular - Russia, Mexico, and the Middle East created opportunities for increased 

sales of milk components. According to data from USDA and USDEC, the United States 

exported approximately 35 percent of all the nonfat milk powder produced, 40 percent of sweet 

whey and whey protein concentrate, 55 percent of whey protein isolate, and 61 percent of 

lactose. 

USDEC continued working to improve the export capabilities of domestic dairy companies. The 

organization assists U.S. dairy exporters by providing up-to-date information on market 

conditions, global trade trends, and regulatory requirements for export. Ongoing reverse trade 

mission activities provide opportunities for domestic dairy product suppliers to meet potential 

importers visiting the United States. 

DMI's 2005 ingredients program was conducted through DMI's Innovation Program and 

through the new Web site www.innovatewithdairy.com. This program replaced the "Do it with 

Dairy" ingredient marketing campaign. DMI's Innovation Program supports dairy product and 

nutrition research, ingredient applications development and technical assistance for the dairy, 

food, and beverage industries. 

Dairy, food, and beverage manufacturers look to DMI as a partner and resource. DMI assists 

dairy processors in creating and introducing new and/or improved dairy products, processes, and 

packaging and meeting their innovation challenges. With food and beverage manufacturers, 

DMI provides know-how and laboratory and professional resources to help develop or improve 

foods using dairy ingredients. 

DMI's Innovation Program hosted the 2005 Dairy Innovation Forum (Forum) in New Orleans, 

Louisiana. The invitation-only Forum continued an 8-year DMI tradition of bringing together 

top decision makers in science and marketing to develop ways to increase consumption of dairy 

products. The forum attracted more than 150 participants and included industry representatives 

such as dairy processors and cooperatives, food manufacturers, Government officials, ingredient 

suppliers, State and regional representatives, and university researchers. This year's Forum 

focused on innovation - a key to the future of the dairy and dairy ingredient industries. Dairy is 

positioned to be a key protein ingredient in beverages of the future according to a beverage 

expert that presented at the Forum. 

DMI publications that support the Innovation Program include: (1) Dairy Council Digestpublished six times per year and focuses on the latest dairy nutrition research relevant to dairy, 

food and beverage manufacturers and health professionals; (2) Ingredient Specification Sheetscover technical basics of a variety of dairy ingredients and are updated as new data is available; 

(3) Dairy Herald-reports on how food formulators and markets can take advantage of taste, cost, 

functional, and nutritional appeal of dairy ingredients; (4) Application Monographs-provide a 

comprehensive look at how whey protein and other dairy ingredients can be used in foods and 

beverages for different functionality needs; (5) Tools for Innovation-a supplement from DMI 

and Dairy Foods magazine that covers dairy product trends and research; (6) Innovations in 

Dai~-a technical bulletin, published two to three times a year on specific topics in dairy 

products, ingredients, processing, and packaging; and (7) Dairy Business View-an e-newsletter 

12 
published bi-monthly with Dairy Foods magazine and covers dairy industry news, new 

technologies, business trends, innovative ideas, and research. 

National Dairy Council®/School Marketing 

The National Dairy Council ® www.nationaldairvcouncil.org (NDC), A[~Olj/]11¢~ 

the nutrition marketing arm of DMI, has been the leader in dairy Sch~OOIMil~''v'" ~a,~,,,, 

nutrition research, education, and communication since 1915. NDC 

provides timely, scientifically sound nutrition information to the _,d~"~ 

media, physicians, dieticians, nurses, educators, consumers, and other ~ "-

health professionals. NDC continues to work closely with school 

foodservice professionals and milk processors vis-a-vis the benefits of offering an enhanced milk 

product in the school cafeteria. The foundation of these efforts is comprised of the results of a 

year-long School Milk Pilot Test conducted in 2002. Currently, more than 3,400 schools 

representing nearly 2.4 million students nationwide now offer milk in single-serve plastic 

resealable containers on the school meal line. This number grows each year as DMI continues to 

implement its "New Look of School Milk" initiative. DMI funded market research shows that 

improving students' school milk experience can help recapture school milk consumption of up to 

400 million gallons lost since 1993. The Fluid Milk Board also implemented a program to 

educate milk processors about the benefits of offering an enhanced milk product in the Nation's 

elementary and secondary schools. Milk processors have exhibited widespread support for the 

program and it is reported on in greater detail in the National Fluid Milk Program summary. 

NDC also continues its active support of and participation 

in the Action For Healthy Kids (AFHK) initiative. 

AFHK (www.actionforhealthykids.org) was created in 

response to the Healthy Schools Summit in 2002 and its KIdB" 

mission is to inform, motivate, and mobilize schools, 

school districts, and States to chart a healthier course for the Nation's children and adolescents. 

AFHK is comprised of 51 State teams (including all 50 States and the District of Columbia) and 

a partnership of more than 40 national organizations and Government agencies spanning 

education, health, fitness, and nutrition arenas. AFHK hosted the Healthy Schools Summit 2005 

in September and challenged a gathering of over 600 leaders to "raise the bar" on how to 

approach the national epidemic of childhood obesity in this country. 

In September 2005, recognizing the importance of getting the 

nation's youth back on a healthier and more active track, the 

National Football League and AFHK announced the launch of 

"ReCharge!," an after-school program that encourages kids to get 

active and eat healthy. ReCharge! is the first nationally 

distributed after-school program that fully integrates nutrition 

and physical activity though team-based strategies for youth in 

grades 3-6. The program is available nationwide to schools and 

after-school facilities. ReCharge! coaches children on "energy13 
in and energy-out" while focusing on goal-setting and teamwork through fun age-appropriate 

activities designed for the athlete and non-athlete alike. 

In addition to reaching kids through the classroom with "Pyramid Caf~" 

and "Pyramid ExplorationsTM, '' NDC introduced in 2005 "Little D's 

Nutrition Expedition" and "Arianna's Nutrition Expedition" as the 

primary focus of nutrition education activities. Similar to "Pyramid Cafr" 

and "Pyramid ExplorationsTM, '' these two programs also are targeted to 

second and fourth grades and reach millions of students with messages 

that milk and dairy products are a key part of a healthy diet. Survey 

results continue to show a high utilization rate for these programs. These 

programs and other resources are available for teachers, school 

foodservice professionals, and consumers at 

www.nutritionexplorations.org. 

Research 

In 2005, milk and dairy-related nutrition and product research was continued in the following 

areas: 

1. The role of milk and milk products in the prevention of colon cancer and reduction of blood 

pressure. 

2. Establishing the genetic basis for the activity ofprobiotic cultures. 

3. Demonstration of milk consumption by teens to meet their calcium needs without adversely 

affecting weight. 

4. The contribution of dairy's nutrient package in the development and maintenance of strong 

bones. 

5. Investigation of the added value of fortification through the use of probiotics, nutraceuticals, 

nutrient delivery, and flavor enhancement. 

6. The impact of differing milk options and experiences in schools on childhood fluid milk 

consumption behavior and attitudes. 

7. The role of dairy as part of a heart-healthy diet. 

8. The role of calcium-rich dairy products in successful weight loss and maintenance. 

Qualified State or Regional Dairy Product Promotion, Research, or Nutrition Education 

Programs 

Qualified Programs are certified annually by the Secretary. To receive certification, the 

Qualified Program must: (1) conduct activities that are intended to increase human consumption 

of milk and dairy products generally; (2) have been active and ongoing before passage of the 

Dairy Act, except for programs operated under the laws of the United States or any State; (3) be 

primarily financed by producers, either individually or through cooperative associations; (4) not 

use a private brand or trade name in its advertising and promotion of dairy products (unless 

14 
approved by the Dairy Board and USDA); and (5) not use program funds for the purpose of 

influencing governmental policy or action (7 CFR § 1150.153). A list of the 59 active programs 

is provided in Appendix H. 

The aggregate revenue from the producers' 15-cent per hundredweight assessment directed to the 

Qualified Programs in 2005 was $190 million (approximately 10 cents out of the 15-cent 

assessment). The Qualified Programs manage State or regional dairy product promotion, 

research, or nutrition education programs. See Table 1-1 and Table 1-2 for aggregate income 

and expenditure data of the Qualified Programs. 

Some of these Qualified Programs participate in cooperative efforts conducted and coordinated 

by other Qualified Programs and/or other organizations such as DMI, the Dairy Board, and 

UDIA. Their goal in combining funding and coordinating projects is more effective and efficient 

management of producers' promotion dollars through larger, broad-based projects. For example, 

UDIA coordinates nationally through DMI the programs and resources of 18 federation members 

and their affiliated units to support the unified marketing plan. 

15 
l 

Table 1-1 

Aggregate Income and Expenditure Data Reported to USDA 

by the 59 Active Qualified Programs 

2004 2005 

(in $000's) (in $000's) 

Income 

Carryover from Previous Years 47,947' 48,939 l 

Producer Remittances 187,457 190,079 

Transfers from Other Qualified Programs 2 55,439 60,338 

Transfers to Other Qualified Programs 2 -67,222 -68,676 

Other ~ 3,657 4,076 

Total Adjusted Annual Income 227,278 234,756 

Expenditures 

General and Administrative 7,919 9,133 

Advertising and Sales Promotion 75 799 71,485 

Unified Marketing Plan 4 50 124 54,057 

Dairy Foods and Nutrition Research 4 091 4,996 

Public and Industry Communications 14.958 13,811 

Nutrition Education 16 590 16,455 

Market and Economic Research 1.872 3,141 

Other ~ 2 081 2,001 

Total Annual Expenditures 173,434 175,079 

Total Available for Future Year Programs 53,8441 59,677 

Differences are due to audit adjustments and varying accounting periods. 

2 Payments transferred between Qualified Programs differ due to different accounting methods 

and accounting periods. 

3 Includes interest, income from processors and handlers, sales of supplies and materials, 

contributions, and rental income. 

4 Unified Marketing Plan: Reported local spending by United Dairy Industry Association units 

participating in the DMI unified marketing plan to fund national implementation programs. 

5 Includes capital expenses and contributions to universities and other organizations. 

'Source: A~re~ate income and expenditure data reported by the 59 active Qualified Programs. 

16 
Table 1-2 

Aggregate Advertising Expenditure Data Reported to USDA 

by the 59 Active Qualified Programs 

2004 2005 

(in $000's) (in $000's) 

Advertising Programs 

Fluid Milk 16,100 [21.2%] 16,262 [22.8%] 

Cheese 48,170 [63.6%] 44,164 [61.8%] 

Butter 2,835 [3.7%] 2,583 [3.6%] 

Frozen Dairy Products 71 [0.1%] 121 [0.1%] 

Other I 8623 [11.4%] 8.355 [11.7%] 

Total 75,799 I100%] 71,485 [100%] 

'~ Includes "Real Seal," holiday, multiproduct, calcium, evaporated milk, foodservice, product 

donation at State fairs, and other events and contributions for displays or promotional events. 

Source: Aggregate income and expenditure data reported by the 59 active Qualified Programs. 

17 
National Fluid Milk Processor Promotion Board 

The Fluid Milk Board, as authorized in the Fluid Milk Promotion Act of 1990, as amended, 

(Fluid Milk Act), administers a generic fluid milk promotion and consumer education program 

that is funded by fluid milk processors. The program is designed to educate Americans about the 

benefits of milk, increase fluid milk consumption, and maintain and expand markets and uses for 

fluid milk products in the contiguous 48 States and the District of Columbia. 

The Secretary of Agriculture appoints 20 members to the Fluid Milk Board. Fifteen members 

are fluid milk processors who each represent a separate geographical region and five are at-large 

members. Of the five at-large members, at least three must be fluid milk processors and at least 

one must be from the general public. Four fluid milk processors and one public member serve as 

at-large members on the current Fluid Milk Board. The members of the Fluid Milk Board serve 

3-year terms and are eligible to be appointed to two consecutive terms. The Fluid Milk 

Promotion Order (Fluid Milk Order) provides that no company shall be represented on the Board 

by more than three representatives. Current Fluid Milk Board members are listed in 

Appendix B. A map of the Fluid Milk Board regions is shown in Appendix C-2. 

The Fluid Milk Board elects four officers: Chair, Vice-Chair, Secretary, and Treasurer. Fluid 

Milk Board members are assigned by the Chair to the following committees: Advertising, 

Finance, Promotions, Public Relations/Medical and Scientific, Strategic Thinking/Research, and 

Hispanic. The program committees are responsible for setting program priorities, planning 

activities and projects, and evaluating results. The Finance Committee reviews all program 

authorization requests for funding sufficiency, the Fluid Milk Board's independent financial 

audit, and the work of the Board's accounting firm. The Fluid Milk Board met three times 

during 2005. 

The National Fluid Milk Processor Promotion Program (MilkPEP) is funded by a 20-cent per 

hundredweight assessment on fluid milk products processed and marketed commercially in 

consumer-type packages in the contiguous 48 States and the District of Columbia. The program 

exempts from assessment those processors who process and market 3 million pounds or less of 

fluid milk products each month, excluding fluid milk products delivered to the residence of a 

consumer. Assessments generated $107.1 million in 2005. The Fluid Milk Order requires the 

Fluid Milk Board to return 80 percent of the funds received from California processors to the 

California fluid milk processor promotion program. For 2005, the amount returned to California 

from the assessments was $10.2 million. The California fluid milk processor promotion program 

uses the funds to conduct its promotion activities, including the "got milk?*" advertising 

campaign. 

The actual income and expenses for 2004-2005 are provided in Appendix D-4. The Fluid Milk 

Board's administrative expenses continued to be within the 5-percent-of-assessments limitation 

required by the Fluid Milk Order. USDA's oversight and evaluation expenses for 2004-2005 are 

detailed in Appendix D-5. Appendix D-6 contains the Fluid Milk Board's approved budgets for 

2005 and 2006. Appendix E-2 contains an independent auditor's reports for the period of 

January 1 through December 31, 2005. 

18 
The following summarizes Fluid Milk Board medical and scientific activities for the period of 

January 1 through December 31, 2005. The Fluid Milk Board's advertising, promotions, public 

relations, school marketing, sponsorships, and strategic thinking activities are incorporated in the 

National Fluid Milk Programs section. 

Medical and Scientific Activities 

The Fluid Milk Board's Medical Advisory Board (MAB), comprised of academic, medical, and 

health care professionals with expertise relevant to the health benefits of fluid milk, met twice in 

2005. The MAB provides guidance to the Fluid Milk Board's development of key nutritional 

and health messages for consumers and health professionals. MAB members assisted the Fluid 

Milk Board in forging relationships with health and health professional organizations such as the 

American Academy of Pediatrics, the American Dietetic Association, the American Heart 

Association, the National Cancer Institute, and the National Medical Association. Members also 

appeared as medical professionals in the media providing science-based statements supporting 

the health benefits of milk. 

The medical and scientific activities of the Fluid Milk Board also included preparing press 

materials and acting as spokespersons on breaking research with relevance to fluid milk. The 

MAB worked extensively over the past year to inform others in the scientific community of the 

new and emerging research showing that 24 ounces of milk each day as part of a weight loss 

plan--including exercise can help people lose more weight than calorie-restricted diets that do 

not include milk. Numerous studies in recent years have pointed to similar conclusions--that 

milk, dairy foods, and calcium may be important when addressing the issue of overweight and 

obesity. These communications and activities continue to highlight milk's nutritional profile 

which includes nine essential vitamins and minerals. 

The 2005 "Good For You" (GFY) program, whose primary goal is to promote milk's nutritional 

benefits, continued to leverage breaking research with relevance to milk and is supported with 

advertising and public relations. The focus of GFY efforts was to inform consumers and the 

public about emerging research regarding the role fluid milk may play in preventing weight gain 

and maintaining a healthy weight. The MAB was very involved in helping the Fluid Milk Board 

explore ways to leverage the information in public relations and advertising messages 

surrounding breaking research. A detailed listing of 2005 research may be found in the got 

news? section at www.milkpep.org. 

The Fluid Milk Board continued its lactose intolerance initiatives. These efforts focus on 

educating Hispanic Americans and others on the importance of incorporating milk into their diets 

and why lactose intolerance should not be a barrier to including milk in the diet. 

National Fluid Milk Programs 

The Fluid Milk Board continued to execute a generic national fluid milk processor promotion 

program in 2005. The fluid milk marketing programs are research based and message focused. 

19 
The purpose of the national fluid milk program is to positively change the attitudes and purchase 

behavior of Americans regarding fluid milk. The 2005 fluid milk marketing plans were designed 

to continue marketing and promotional activities emphasizing milk's weight-loss benefits, to 

increase the consumption of fluid milk, and to identify and support growth opportunities for the 

industry. Many communication media were used to accomplish this objective including 

television and print advertising, public relations, promotions, and the Internet. The program's 

target audiences include women and moms, teens, and Hispanics. 

In 2005, the got milk?~/Milk Mustache advertising campaign, which provides the basis for 

advertising activities and other program delivery methods, was continued. A description of the 

2005 program activities for the Fluid Milk Board follows. 

Sponsorships 

In 2005, the got milk?®/Milk Mustache campaign continued leveraging a multi-year partnership 

with Walt Disney Corporation s. The sponsorship provides a unique opportunity to raise milk's 

image among teens and young adults by highlighting the message that milk is a great beverage of 

choice for active teens and for athletes of all ages. As part of the partnership, milk continued to 

be "the official training fuel" of Disney's Wide World of Sports TM while the "Milk House," a 

state-of-the-art facility that hosts more than 30 championships and 20 tournaments for more than 

40 different amateur sports (including baseball, football, soccer, volleyball, and inline hockey) 

annually, remained the centerpiece arena. The "Milk House" features prominently displayed got 

milk? ® signage and milk mustache posters throughout the complex. 

The Fluid Milk Board moved into the fifth and final year of its partnership with the National 

Basketball Association (NBA ®) during 2005 as part of a multi-year sponsorship. Through this 

sponsorship, the Fluid Milk Board utilized an additional mechanism to reach teens with sports 

nutrition and growth messaging through the NBA*/got milk? ® "Rookie of the Month/Year" 

program that features popular NBA ® stars and highlights the important nutrients that milk 

provides for active, growing bodies. The sponsorship also includes the got milk? ® Rookie Game 

that is televised during the NBA ® All-Star weekend. 

The Fluid Milk Board continued in its eighth year sponsoring the Scholar Athlete Milk Mustache 

of the Year (SAMMY) award and selected 25 high school students from various regions across 

the United States to receive a $7,500 scholarship. Each applicant is required to list his/her high 

school achievements and tell why milk is an important beverage to include in his/her daily 

regimens. This year SAMMY received 35,000 applications. In addition to the scholarship 

award, each of the 25 winners are inducted into the SAMMY Hall of Fame and are featured in a 

special milk mustache advertisement (Appendix I) that appears in USA Today, Sports Illustrated, 

and ESPN magazine. 

Advertising 

The Fluid Milk Board advertising program consists of television and print advertising as well as 

media-driven promotions. The advertisements highlight specific, relevant health-benefit 

20 
messages about milk and its nutrient content, while media-driven promotions serve to extend the 

advertising campaign. In 2005, the Fluid Milk Board created three new television 

advertisements encouraging women to include 24 ounces daily of fat-free or reduced-fat milk as 

part of a reduced-calorie diet to promote milk's weight loss benefits. 

Fluid milk print advertisements produced in 2005 

included celebrity weight loss advertisements targeting 

moms and women (7); celebrity advertisements with the milk 

active, bone growth, and fracture messages targeting teen gogrdiel. ose .. 

boys and girls (12); NBA ® Rookies of the Month (6) and ' tueighl! + 

Rookie of the Year (1); contest winners (4); Hispanic (7); t/. 24 school milk posters (4); and trade advertisements (1). 

This year continued leveraging the new logo for milk's Ir~lud*~ 14 c~nces o| LOw~AY o~ ~A, ~ lie t ~'t K 

weight ~very ~14 h¢~ I~ ~llr| 0| • DEOUCI[D-C~,LOglE Olftr mlqy loss message: "24/24 Milk your diet/Lose 

~|p y~ LO~I[ M~[ wEIG~, ~ IEU~N ~O q, F At 

weight!" Additional t~ ¢~I t~,~ calooe~ ~ . information regarding these 

advertisements can be found at www.milkpep.org and at www.whymilk.com. Appendix I 

includes thumbnail images of the above noted television and print advertisements. 

To initiate the celebration of its 10-year anniversary, the Milk Mustache campaign launched its 

200 th celebrity advertisement featuring actress/singer Lindsay Lohan. The campaign first 

launched in 1995, with a print advertisement featuring Naomi Campbell, to help educate 

Americans about the nutritional benefits of milk and to increase milk consumption. Boardfunded research shows that it has helped raise awareness of the many reasons to drink milk-from 

reducing the risk of high blood pressure and osteoporosis to weight management. Campaign 

messages have included promoting the importance of milk's nine essentials nutrients, including 

calcium, to help bones grow and to help keep them strong and healthy. 

The national Hispanic advertising campaign continued as part of industry outreach to the 

growing Hispanic population. The advertisements continued to feature the popular tagline, 

"'Mrs leche, Mrs logro'" ("More milk, More achievement"), as well as "24 oz./24 horas'" which 

reminds Hispanic moms to include 24 ounces daily of fat-free or reduced-fat milk as part of a 

reduced-calorie diet to promote milk's weight loss benefits. Hispanic print advertising featured 

celebrities Dr. Aliza and Giselle Blondet, along with several Hispanic advertorials designed to 

compliment the general market's weight loss message with an integrated Hispanic overlay. 

Hispanic consumers were directed to www.24241eche.com for more information on Hispanic 

weight loss activities. 

Promotions 

The Fluid Milk Board conducts promotions to help increase fluid milk sales in retail outlets. The 

promotions work to move more milk out of the store refrigerator and to increase sales in other 

retail outlets such as convenience stores, independent grocery stores, drug stores, and mass 

merchandisers. For some promotions, the Fluid Milk Board works with partners to increase the 

appeal to consumers. In 2005, promotions continued to focus on feature incentives such as 

promotional vehicles used to increase advertisements, displays of milk, and programs offering 

21 
prizes directly to consumers to help drive incremental purchases. Of note, regional producer 

groups play an important role in the execution of these retail programs. 

The Fluid Milk Board conducted three national promotions in 2005. The first promotion, "A 

New View of You" was launched January 1 st to coincide with healthy New Year's resolutions 

and was featured in a segment of"The View" morning talk show. The promotion offered 

consumers a "Get a New View of You" 12-month calendar with any milk purchase and featured 

an online sweepstakes for a chance to win one of 24 trips for two to New York City. 

The second promotion, "Fuel Up With Milk/Gear Up With the NBA®, '' was a 5-week feature ad 

incentive program designed to drive sales of flavored milk in which retailers could run featured 

ads on flavored milk in exchange for Fuel Up With Milk/NBA®/got milk? ® prizes. Point-of-Sale 

kits were shipped to retailers who signed up. Retailers would assemble kits, promote any size 

flavored milk at a feature price, send in proof of compliance, and receive prizes for giveaways. 

Retailers then used the prizes to execute their own in-store sweepstakes, contests, or giveaways. 

Additionally, the incentive featured an on-line auction in which kids could bid on NBA ® star 

Carmelo Anthony gear and win prizes. The promotion celebrated flavored milk as a healthy 

alternative to soda. 

The third promotion, "Get the Curves You Want," held in 

May, focused on the importance of including 24 ounces of 

reduced-fat or fat-free milk a day in a reduced-calorie diet 

combined with exercise to support healthy weight loss. 

Consumers could purchase two gallons of milk and take 

their milk caps to Curves ® fitness centers to earn a 2-week 

free membership. Consumers could also visit www.2424milk.com and enter an online 

sweepstakes for their chance to win one of twenty-four 24-month Curves ® memberships. 

Public Relations 

The public relations programs continued to focus on (1) the nutritional benefits of milk, (2) 

emerging scientific studies that highlight milk's benefits, (3) leveraging the high interest 

generated by the celebrities and the got milk?®/Milk Mustache campaign, and (4) preparing for 

and responding to misinformation and negative news about milk or the educational campaign. A 

wide variety of initiatives were implemented to reach specific target audiences. For 2005, over 

1.65 billion media impressions were garnered through the integrated public relations program. 

The program provided support for the three national retail promotions by helping to build public 

awareness and increase retailer participation. 

For the eighth consecutive year, the Milk Mustache Mobile Tour made its way around the United 

States. This year's program, the "Great American Weight Loss Tour 2005," (GAWL) ran from 

March through September covering 75 cities nationwide. Events included GAWL sign-ups, 

22 
Curves ® workout equipment, processor 

sampling, and health assessments by a 

nutritional expert. This year's tour trucks 

were dedicated solely to moms and women, 

featuring celebrity moms and the Milk 

Your Diet-Lose Weight/GAWL themes on 

the trucks' side and end panels. 

The 2005 "Healthy Schools Challenge"(Challenge) encouraged students to write testimonials 

regarding the efforts their school had made in getting students fit and healthy. Fifty schools each 

won a $1,000 grant for school improvements such as installing milk vending machines or buying 

new athletic equipment. The students were visited by either an NBA ® or WNBA ® player and 

received other NBA ® prizes such as autographed merchandise or game tickets. The grand prize 

winner was Bronx, New York's Preston High School nominated by student Cymone Bedford. 

Her school received a gym make-over, and Cymone appeared in her own milk mustache ad. The 

Challenge was one part of the "Fuel Up with Milk/Gear Up with the NBA ®'' program. 

To educate Americans about the nutritional and taste benefits of chocolate and other flavored 

milk, the Fluid Milk Board continued its partnership with MTV and Rolling Stone magazine. 

The magazine offered teens the chance to participate in the "got milk? ® Roadie for a Day" 

contest. The contest winner, Nathan Hernandez, was featured in his own got milk? ® print 

advertisement (Appendix I) in Rolling Stone magazine. 

The "got news?" section at www.milkpep.org continued in 2005 to help processors with their 

local media efforts. This feature gave processors access to customizable media materials from 

national programs such as the Milk Mustache Mobile to use in their own public relations efforts. 

Additionally, the Web site provided a daily email to processors for breaking news, a list of 

dietetic spokespersons for use as a resource, processor success stories, and links to a searchable 

library of medical research studies. 

Brochures, news releases, and other information on milk were made available to consumers 

through Web sites www.whymilk.com, www.milkpep.org, and www.2424milk.com. 

Strategic Thinking 

The Fluid Milk Strategic Thinking Initiative (FMSTI) is a joint effort of the Fluid Milk Board, 

processors, and suppliers. This ongoing effort was established to address barriers to fluid milk 

consumption not targeted by the advertising, promotion, and public relations activities of the 

Fluid Milk Board. 

Over the years, FMSTI has conducted market tests and studies in various business channels to 

develop proven ways to increase milk sales and subsequently turned these studies into customerfriendly processor materials that may be found at www.milkdelivers.org. These materials 

include reports on milk's opportunities in vending, foodservice, convenience and drug store, 

supermarket and school foodservice channels. Some of the materials included are brochures 

23 
focusing on new ways to get kids to drink more milk, a one-page fact sheet explaining the 

science behind milk's weight-loss claims, vending sales kits containing results from the 2003 

Multi-Channel Vending Test, and other reports and studies published in prior years highlighting 

opportunities for increased milk sales. 

Complete reports, studies, executive summaries, and press releases for FMSTI's ongoing 

initiatives are available for processors on Web site www.milkpep.org and for customers at 

www.milkdelivers.org. The presentations, videos, and printed materials are available by calling 

the milk hotline at 1-800-945-MILK (6455.) 

School Markefing 

In 2005, FMSTI continued to conduct seminars to educate processors on how to increase their 

milk sales at schools. The seminars were part of the "Capturing the School Milk Opportunity" 

program that presents processors with a myriad of options they can implement to improve school 

milk. More seminars were scheduled this year in various regions across the United States due to 

the growing demand by processors. 

Additionally, FMSTI conducted a school milk test in St. Louis, jointly sponsored by Prairie 

Farms, MilkPEP, and the St. Louis Dairy Council, to determine the impact of flavor variety, 

improved flavor formulations, and enhanced paperboard packaging on milk sales. The test 

involved about 165,000 students at almost 300 area schools during the January-June 2005 

semester. The test demonstrated an overall average increase in milk sales of more than 12 

percent per school, with 35 percent increases at the best performing schools. If applied 

nationally, results could translate into more than 600 million more unit sales of milk annually 

and 11 more units of milk per student each year. Part of the test's objective was to show that no 

one solution fits all situations, and there are multiple opportunities for success with school milk. 

The schools demonstrating the largest sales increases incorporated simultaneous marketing 

tactics such as displaying milk mustache celebrity posters and point-of-sale materials in the 

cafeteria, hosting sampling events, and giving away prizes through special promotions. 

The Fluid Milk Board continued its School Image Poster Program in 2005 to help educate 

students and school food service professionals about the role milk plays in good nutrition. 

Two large got milk? ~ posters were sent to 32,000 participating public middle and high school 

foodservice directors in August for the beginning of the school year, educating almost 24 

million students. Smaller posters were sent to schools with cafeteria size limitations. This year's 

posters featured pop singer Kelly Clarkson, NBA ~' star Tracy McGrady, professional ice skating 

star Michelle Kwan, and NFL ® quarterback Donovan McNabb. Surveys of the schools' 

foodservice directors revealed that of those schools receiving posters, over 80 percent hung them 

in the school cafeteria with more than one-third leaving the posters up until they were no longer 

in good condition. 

24 
Chapter 2 

USDA Activities 

Dairy Programs of USDA's Agricultural Marketing Service has day-to-day oversight 

responsibilities for the Dairy Board and the Fluid Milk Board. Dairy Programs oversight 

activities include reviewing and approving the Dairy and Fluid Milk Board's budgets, budget 

amendments, contracts, advertising campaigns, and investment plans. Approval of program 

materials is a major responsibility of Dairy Programs. Program materials are monitored for 

conformance with provisions of the respective Acts and Orders, My Pyramid, Dietary 

Guidelines, and with other legislation such as the Nutrition Labeling and Education Act. 

Dairy Programs continues to ensure that the collection, accounting, auditing, and expenditure of 

promotion funds is consistent with the enabling legislation and orders; to certify qualified State 

or regional dairy product promotion, research, or nutrition education programs (Qualified 

Programs); and to provide for evaluation of the effectiveness of both promotion programs' 

advertising campaigns. Dairy Programs assists the Boards in their assessment collection, 

compliance, and enforcement actions. 

Other Dairy Programs responsibilities relate to nominating and appointing Board members, 

amending the orders, conducting referenda, and conducting periodic program audits. Dairy 

Programs representatives attend full Board meetings, Board committee meetings, and other staff 

and member meetings of consequence to the program. 

National Dairy Promotion and Research Board Oversight 

Nominations and Appointments 

The 36 members of the Dairy Board who administer the program serve 3-year terms, with no 

member serving more than two consecutive terms. Dairy Board members must be active dairy 

producers and are selected by the Secretary of Agriculture from nominations submitted by 

producer organizations, general farm organizations representing dairy producers, Qualified 

Programs, or other interested parties. 

Thirty-four nominations were received by USDA for the 12 Dairy Board members whose terms 

expired October 31, 2005. A press release issued on August 16, 2005, announced the 

appointment of ten new members and two incumbents. All will serve 3-year terms ending 

October 31, 2008. Newly appointed members were: Ronald L. Koetsier, Visalia, California 

(Region 2); William R. D. Anglin, Bentonville, Arkansas (Region 4); Donna L. Sharp, Bath, 

South Dakota (Region 5); Carl F. VanDen Avond, Green Bay, Wisconsin (Region 6); Bradford 

A. McCauley, Viola, Wisconsin (Region 6); Douglas D. Nuttelman, Stromsburg, Nebraska 

(Region 7); Carl A. Schmitz, Wadesville, Indiana (Region 9); Joyce A. Bupp, Seven Valleys, 

Pennsylvania (Region 11); Ronald R. McCormick, Java Center, New York (Region 12); and 

Debora A. Erb, Landaff, New Hampshire (Region 13). Reappointed to serve second terms were: 

Lester E. Hardesty, Windsor, Colorado (Region 3) and Michael M. Ferguson, Senatobia, 

Mississippi (Region 8). 

25 
A list of the 2005 Dairy Board members appears in Appendix A. Appendix C-1 is a map of the 

contiguous 48 States depicting the 13 geographic regions under the Dairy Promotion and 

Research Order (Dairy Order). 

Organic Exemption Amendment to the Order 

Effective February 14, 2005, any persons producing and marketing solely 100 percent organic 

products were exempted from paying assessments to any research and promotion program 

administered by the Agricultural Marketing Service (70 FR 2743, published January 14, 2005). 

The final rule amended section 1150.157 of the Dairy Order. In States that have mandatory 

assessment laws, dairy producers are only exempt from the Federal assessment. Producers are 

still responsible for remittance of State assessments. In 2005, approximately 500 dairy producers 

were granted exemptions. The Dairy Order requires producers to re-apply annually to continue 

to receive the exemption. 

Foreign Agricultural Service 

The Secretary of Agriculture has delegated oversight responsibility for all foreign market 

development activities outside the United States to the Foreign Agricultural Service (FAS) 

(7 CFR 2.43(a)(24)). FAS reviews the USDEC foreign market development plan and related 

export contracts. USDEC export contracts also are reviewed by AMS Dairy Programs to ensure 

conformance with the Dairy Production Stabilization Act of 1983 (Dairy Act), Dairy Order, and 

with established USDA policies. In 2005, the USDA's Foreign Market Access Program and the 

Market Promotion Program provided matching funds to USDEC for dairy product promotion and 

market research in Japan, Mexico, Southeast Asia, South Korea, and Latin America. 

Contracts 

The Dairy Act and Dairy Order require that all contracts expending assessment funds be 

approved by the Secretary (7 CFR 1150.140). During 2005, Dairy Programs reviewed and 

approved 250 Dairy Board and DMI agreements, amendments, and annual plans. Funding 

approvals were from the 2003, 2004, and 2005 fiscal periods. Appendix F-1 lists the contractors 

and corresponding Board initiatives approved by USDA during 2005. 

Contractor Audits 

At the time of publication, DMI had not completed its 2005 contractor audits. DMI retained a 

new certified public accounting firm in 2005, Ernst & Young, for their audit services. 

Collections 

The Dairy Act specifies that persons who pay producers and producers marketing milk directly 

to consumers, commonly referred to as "responsible persons," shall remit assessments to the 

Dairy Board or to Qualified Programs for milk produced in the United States and marketed for 

commercial use. 

26 
The Dairy Act provides that dairy farmers can direct up to 10 cents of their 15-cent per 

hundredweight assessment to Qualified Programs. During 2005, the Dairy Board received about 

5.07 cents of the 15-cent assessment. 

Compliance 

Compliance by responsible persons in filing reports and remitting assessments continues in a 

timely manner and at a high rate. No significant differences were discovered when comparing 

the audit results to what was reported by the responsible persons. The Dairy Board verifies that 

the credits claimed by responsible persons are actually sent to Qualified Programs. This 

verification is done by contract with each Qualified Program. When noncompliance exists, the 

Dairy Board takes initial action on the matter. If the Dairy Board is unsuccessful in resolving the 

violation, the matter is referred to USDA for further action. 

Qualified Programs 

Dairy Programs reviewed applications for continued qualification from 59 Qualified Programs. 

A list of the 59 active Qualified Programs is provided in Appendix H. Consistent with its 

responsibility for monitoring the Qualified Programs, Dairy Programs obtained and reviewed 

income and expenditure data from each of the programs. The data reported from the Qualified 

Programs are included in aggregate form for 2004 and 2005 in Chapter 1. 

Litigation 

The Dairy Board and the Secretary of Agriculture were named as defendants in a lawsuit in the 

U.S. District Court for the Middle District of Pennsylvania by dairy producers seeking a 

declaration that the Dairy Act violates their First Amendment rights of free speech and 

association. In March 2003, a Federal trial court in Pennsylvania found that the Dairy Program 

does not violate the claimants' right of free speech and association. Upon appeal, the U.S. Court 

of Appeals for the Third Circuit reversed this decision. The Appeals Court found that the Dairy 

Program does violate the claimants' right of free speech and association rights by compelling 

them to subsidize speech with which they disagree. The Department of Justice (on behalf of the 

Secretary of Agriculture and Dairy Board) filed a petition for an En Banc rehearing, but the 

petition was subsequently denied. On October 1, 2004, the U.S. Solicitor General filed a writ of 

certiorari with the U.S. Supreme Court (Court). The petition for writ was granted on 

May 31, 2005; the judgment was vacated and the case was remanded to the Third Circuit Court 

of Appeals for further consideration in light of Court's decision in Johanns, Secretary of 

Agriculture, Et Al. v. Livestock Marketing Association Et Al. In this decision, the Court held that 

commodity promotion programs are considered Government speech and therefore are not subject 

to First Amendment protections. On September 15, 2005, the Third Circuit Court of Appeals 

ruled that "the teachings ofJohanns v. Livestock Marketing Association, control the matters 

presented in this case" and ordered that the March 2003 judgment of the District Court for the 

Middle District of Pennsylvania that the Dairy Program does not violate the claimants' right of 

free speech and association be affirmed. 

27 
National Fluid Milk Processor Promotion Board Oversight 

Nominations and Appointments 

The 20 members of the Fluid Milk Board serve 3-year terms, with no member serving more than 

2 consecutive terms. The Fluid Milk Promotion Order (Fluid Order) provides that no company 

shall be represented on the board by more than three representatives. Fluid Milk Board members 

who fill vacancies with a term of 18 months or less are permitted to serve 2 additional 3-year 

terms. Fluid Milk Board members are selected by the Secretary from nominations submitted by 

fluid milk processors, interested parties, and eligible organizations. In a news release issued on 

March 28, 2006, the Secretary of Agriculture announced four reappointments and five new 

appointments to the Fluid Milk Board, including two members filling vacancy terms. Newly 

appointed to serve their first terms were: Edward L. Mullins, Carlinville, Illinois (Region 9); 

Patrick R. Beaman, Dallas, Texas (Region 12); and Lisa M. Hillenbrand, Geneva, Switzerland 

(At-Large Public). Reappointed to serve a second term were: Michael F. Nosewicz, Cincinnati, 

Ohio (Region 3); William R. McCabe, Orrville, Ohio (Region 6); Paul W. Bikowitz, City of 

Industry, Califomia (Region 15); and Susan D. Meadows, Dallas, Texas (At-Large Processor). 

The newly appointed and reappointed members were officially seated at the July 12-15, 2006, 

Fluid Milk Board Meeting. The terms for these appointees will expire on June 30, 2009. 

Additionally, filling vacancies with less than 18 months remaining were: Charles L. Gaither, Jr., 

Asheville, North Carolina (Region 4); and Teresa E. Webb, Wallington, New Jersey (At-Large 

Processor). Both were officially seated at the April 6-8, 2006, meeting. The terms for the two 

vacancy positions will expire June 30, 2007. 

A list of the 2005 Fluid Milk Board members appears in Appendix B. Appendix C-2 shows a 

map depicting the 15 geographic regions under the Fluid Milk Order. 

Order Amendments 

Effective February 14, 2005, any persons producing and marketing solely 100 percent organic 

products were exempted from paying assessments to any research and promotion program 

administered by the Agricultural Marketing Service (70 FR 2743, published January 14, 2005). 

The final rule amended section 1160.211 of the Fluid Milk Order. In 2005, no fluid milk 

processors were granted exemptions. The Fluid Milk Order requires processors to re-apply 

annually to continue to receive the exemption. 

The second Fluid Order amendment became effective May 1, 2005, (70 FR 14974-14976, 

published March 24, 2005). This final rule amended section 1160.200 of the Fluid Milk Order 

by modifying the terms of membership of the Fluid Milk Board. The amendment requires that 

any change in a member's employer or change in ownership of the member's employer would 

disqualify that member. The member would continue to serve on the Board for a period of up to 

6 months until a successor was appointed. In addition, a public member on the Board who 

changes employment or whose business focus with an employer is substantively changed would 

be disqualified in a manner similar to a fluid milk processor member. The amendments ensure 

28 
that the Board is able to equitably represent fluid milk processing constituents and the public's 

interest. 

Program Development 

The Fluid Milk Board contracted with the International Dairy Foods Association (IDFA) to 

manage the program. IDFA contracted with Lowe Worldwide, DRAFT, Weber Shandwick, and 

Siboney USA to develop the Fluid Milk Board's advertising, promotions, consumer 

education/public relations, and Hispanic advertising/public relations, respectively. 

Contractor A udits 

The Fluid Milk Board retained the certified public accounting firm of Synder, Cohn, Collyer, 

Hamilton & Associates P.C. to audit the records of Weber Shandwick, in order to determine if 

the agency had conformed to the financial compliance requirement specified in its agreement 

with the Board for the period of January 1, 2004, through December 31, 2004. The Board 

continues to enhance its internal contract control system in order to ensure that the amounts 

invoiced to the Board are in compliance with established contracts and procedures. 

Compliance 

Compliance by fluid milk processors in filing reports and remitting assessments continues in a 

timely manner and at a high rate. In 2005 one delinquent account was referred to the USDA as a 

result of bankruptcy proceedings. 

29 
Chapter 3 

Impact of Generic Fluid Milk and Dairy Advertising and Promotion on 

Dairy Markets: An Independent Analysis 

The Dairy Production and Stabilization Act of 1983 (Dairy Act; 7 U.S.C. 4514) and the Fluid 

Milk Promotion Act of 1990 (Fluid Milk Act; 7 U.S.C. 6407) require a yearly independent 

analysis of milk industry programs. These promotion programs operate to increase milk 

awareness and thus the sale of fluid milk and related dairy products. From 1984 through 1997, 

USDA conducted the independent evaluation of the National Dairy Promotion and Research 

Program (Dairy Program), as authorized by the Dairy Act, and issued an annual Report to 

Congress on the effectiveness of the Dairy Program. Beginning in 1995, the Congressional 

report began including analyses of the effectiveness of the Dairy Program in conjunction with the 

National Fluid Milk Processor Promotion Program (Fluid Milk Program) authorized by the Fluid 

Milk Act. Since 1998, these independent analyses have been conducted by agricultural 

economists from Comell University (Cornell). 

The following economic evaluation focuses on the combined generic marketing activities by 

dairy farmers and fluid milk processors that are designed to increase the demand for fluid milk 

and dairy products. The results of two separate models are presented. 

The first model is a fluid milk-only demand model used to evaluate the economic impacts of all 

generic fluid milk marketing activities of both programs on fluid milk demand. The genetic fluid 

milk marketing activities include fluid milk advertising and non-advertising marketing activities 

used to increase demand including public relations, sales promotions, nutrition education, and 

sponsorships conducted by fluid milk processors and dairy farmers. While the dairy farmers' and 

fluid milk processors' programs utilize various types of marketing strategies to increase fluid 

milk consumption, the effects of fluid milk marketing under both programs are combined 

because the objectives of both programs are the same and data cannot be satisfactorily segregated 

to evaluate the two programs separately. 

The second model is a total dairy demand model for all fluid milk and dairy products used to 

evaluate the economic impacts of all generic marketing activities for those products. The total 

dairy demand model is included because the dairy farmer programs now emphasize an "all dairy" 

promotion strategy (e.g., 3-A-Day TM)over product-specific campaigns. Similar to the first model, 

marketing activities in the second include generic advertising, sales promotions, public relations, 

nutrition education, and sponsorships. Unlike the first model, the marketing activities in the 

second model include activities for all dairy products (fluid and manufactured dairy products). 

This model provides a measure of the economic impact of all demand-enhancing, generic 

marketing activities by both programs. 

The following summarizes the findings of the report. 

3O 
Highlights 

Generic fluid milk marketing activities sponsored by dairy producers and fluid milk processors 

have helped mitigate a long-term decline in per capita fluid milk consumption in the United 

States. Cornell estimates that these marketing efforts have had a positive and statistically 

significant impact on per capita fluid milk consumption. Specifically, over the period 1995 

through 2005, it is estimated that a 1.0 percent increase in generic fluid milk marketing 

expenditures resulted in a 0.051 percent increase in per capita fluid milk consumption when 

holding all other demand factors constant. 

What about the impact on total consumption of fluid milk? From 2001 through 2005, generic 

fluid milk marketing activities increased fluid milk commercial disappearance by 22.5 billion 

pounds in total or 4.5 billion pounds per year. Alternatively stated, had there not been generic 

fluid milk marketing conducted by the two national programs, fluid milk consumption would 

have been 8.2 percent less over this time period. Hence, the combined efforts of the two 

programs to market fluid milk have had a positive and statistically significant impact on fluid 

milk consumption. 

Regarding the total dairy product demand analysis, the average generic dairy marketing elasticity 

for the period 1990-2005 was 0.074 -- a 1.0 percent increase in expenditures for these marketing 

activities increased per capita dairy demand by 0.074 percent. Thus, the total marketing program 

effort had a positive and statistically significant impact on dairy consumption. 

The benefit-cost ratio (BCR) for the Dairy Program for the period 2000 through 2005 was 

calculated. The benefits of the Dairy Program were calculated as the change in dairy farmers' net 

revenue due to demand enhancement from all marketing activities under the Dairy Program. The 

costs of the Dairy Program were calculated as the difference in total assessment revenues before 

and after the national program was enacted. The results show that the average BCR for the Dairy 

Program was 4.33. This means that each dollar invested in genetic dairy marketing by dairy 

producers returned $4.33, on average, in net revenue to farmers. 

To make allowances for the error inherent in any statistical estimation, a 95 percent confidence 

interval was calculated for the average BCR. The confidence interval provides a lower and an 

upper bound for the average BCR. One can be "confident" that the true average BCR lies within 

these bounds 95 percent of the time. The estimated lower and upper bounds for the average BCR 

were 3.70 and 4.95, respectively. This confidence interval demonstrates that one could be 

confident 95 percent of the time that the true average BCR lies between a low of 3.70 and a high 

of 4.95. Hence, it is reasonable to conclude that the benefits of the Dairy Program's marketing 

activities have been considerably greater than the cost of the program. 

Analysis of Generic Fluid Milk Marketing 

Per capita fluid milk consumption in the United States has been trending downward for many 

years. Among the factors behind this decline are changes in U.S. demographics, changes in 

31 
consumer preferences for fluid milk, how and where people consume food, and aggressive 

advertising and marketing by producers of beverages that compete with fluid milk. The model 

described in this report uses quarterly data covering the period 1995 through 2005 and the 

following is a brief graphical overview of changes in per capita fluid milk consumption and 

factors hypothesized to affect milk consumption over this time period. It is important to 

emphasize, however, that the decline in per capita fluid milk consumption has occurred over a 

significantly longer period of time than since 1995. 

Figure 3-1 illustrates the steady decline in per capita fluid milk commercial disappearance since 

1995 (along with seasonal and quarterly changes). From 1995 to 2005, per capita commercial 

disappearance declined by 11.3 percent. This translates into an average annual rate of decline of 

a little more than 1.0 percent annually. 

One potential cause of declining per capita fluid milk consumption may be the positive trend in 

food consumed away from home. As people consume more food away from home, fluid milk 

consumption may be diminished by the lack of availability of many varieties of fluid milk 

products at the nation's eateries as well as the expanding availability of fluid milk substitutes. 

Many eating establishments carry only one type of milk product that causes some people who 

would normally drink milk to consume a different beverage if the preferred milk product is not 

available. 

Figure 3-2 illustrates the trend in expenditures on food consumed away from home as a 

percentage of total food expenditures since 1995. Betweeen 1995 and 2005, the annual average 

percentage of expenditures on food consumed away from home increased by 11.4 percent. While 

there were some ups and downs in the percentage of food consumed away from home over 

Figure3-1. Per Capita Fluid Milk Commercial Disappearance 54.0"r 

52.0 

50.0t I~ 48.0 

44.0 

42.0 

40.0 

Year.Quarter 

32 
Figure 3-2. Expenditures on Food Consumed Away From Home as a 

Percentage of Total Food Expenditures 

54.5 

53.5 

52.5 

51.5 

50.5 

~ 49.5 

48.5 

47.5 

46.5 

45.5 

e.i 

Year.Quarter 

this period, the general trend is increasing from 1995 to 2005. It is evident from Figures 3-1 and 

3-2 that per capita fluid milk consumption and eating away from home are negatively related. 

Thus the increase in food consumed away from home likely has been responsible for some of the 

decrease in per capita fluid milk consumption. 

Another potential reason why per capita fluid milk consumption has declined may be changes in 

U.S. population. One important change is the declining proportion of young children in the 

population since 1995 (the decline has leveled out since 2003). Since young children are one of 

Figure 3-3. Percentage of Population Under Six Years of Age 7.6% 

7.4% 

7.2% 

q~ 

t.. 7.0% ~D 

~h 

6.8% 

6.6% 

6.4% 

Year.Quarter 

33 
the largest milk-consuming cohorts, any decline in that cohort negatively impacts per capita fluid 

milk consumption. Figure 3-3 shows the percentage of the population that was less than 6 years 

old from 1995 to 2005, a segment of the population that has decreased by almost 8.0 percent 

since 1995. Therefore, there is a positive correlation between per capita milk consumption and 

this age cohort--both are declining.1 

Since 1995, the retail price of fluid milk products has been rising relative to other nonalcoholic 

beverages. This pattern is displayed in Figure 3-4. Note that any value above 1.0 means the 

consumer price index for fluid milk is higher than the consumer price index for nonalcoholic 

beverages. While there have been some periods since 1995 where retail fluid milk prices 

declined relative to other beverage prices, two-out-of-three periods have been characterized by 

rising relative retail prices for fluid milk. From 1995 through 2005, annual average fluid milk 

prices rose 28.5 percent relative to other beverages. These retail fluid milk price increases are 

likely responsible for some of the decline in per capita fluid milk consumption. 

Fluid milk's loss of market share to other beverages also may be due to aggressive marketing by 

competing beverage producers. Indeed, both dairy farmers and fluid milk processors started 

generic marketing programs to combat competing marketing from other beverage producers. 

Since 1995, two beverages that have grown the most in per capita consumption are bottled water 

and soy beverage, due in part to increased advertising and promotion by these beverages. Figure 

3-5 displays real (inflation-adjusted) per capita advertising expenditures for bottled water and 

soy beverage. Combined advertising for bottled water and soy beverage (in 2005 dollars) 

increased from about $98 million in 1995 to $224 million in 2005, 129.0 percent increase. Both 

Figure 3-4. Retail Price of Fluid Milk Relative to Other Beverage Prices 

1.50 

140 

1.30 

~ 1.2o 

"~ 1,10 

II~ l.OO 

I 0.90 

o.so 

I

t 

0.70 

Year.Quarter 

i Since 2000, the positive relationship between per capita fluid milk consumption and the percent of the population 

under 6 years old has weakened considerably with the flattening out of the age demographic variable. However, this 

positive relationship nevertheless holds for the period 1995 through 2005. 

34 
Figure 3-5. Real Bottled Water and Soy Beverage Advertising 

160,000 

140,000 

120,000 

100,000 

~ 80,000 

60,0t)0 /

40,0t)0 

20,000 

0 

. ~ . ~ . ~ . .~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Year.Quarter 

of these products experienced large increases in per capita consumption over this time period, 

undoubtedly taking away some market share from fluid milk. 

One factor that may have diminished some of the long-term decline in per capita fluid milk 

consumption is the growth in real income over this period. Fluid milk is considered to be a 

"normal" good -- meaning consumption increases as consumers' disposable incomes 

Figure 3--6. Real Per Capita Personal Disposable Income 

I0,000 

9,000 

8,000 

_.-~ 

7,000 

6,000 

5,000 

p=q 4,000 

3,000 

2,000 

1.000 

0 , 'e~' ,-, 

Year.Quarter 

35 
Figure3-7. Real Total Fluid Milk Expenditures 

iii? l 

70,000 

60,000 

~ 50,000 

40,000 

30,000 

20,000 

10,000 

Year.Quarter 

increase. Figure 3-6 illustrates the steady positive trend in real per capita income (in 2005 

dollars) from 1995 to 2005. Since 1995, real per capita income has increased by 30.3 percent. 

Another factor that may have mitigated some of the long-term decline in per capita fluid milk 

consumption over part of this time period is generic marketing efforts by dairy producers and 

fluid milk processors. The producer checkoff program is the largest checkoff program in the 

United States in terms of revenue and the second largest is the fluid milk processor program. 

Figure 3-7 shows the combined real expenditures (in 2005 dollars) on generic fluid milk 

marketing efforts by these two programs. From 1995 to 1998, there was steady growth in real 

expenditures for generic fluid milk marketing, from about $168 million in 1995 to $232 million 

in 1998. Since 1998, however, such expenditures have been declining. Between 1995 and 2005, 

combined annual average real expenditures declined nearly 10.0 percent reaching a low of $152 

million in 2005. This decline may have had an impact on declining per capita fluid milk 

consumption over this period. 

To more formally evaluate the relationship between per capita fluid milk consumption and 

factors hypothesized to influence that consumption, an econometric modeling approach was 

developed. Because there are factors other than generic advertising that influence the demand for 

fluid milk, this model was used to identify the effects of individual factors affecting demand. 

The following variables were included as factors influencing per capita fluid milk demand: the 

consumer price index (CPI) for fluid milk; the CPI for nonalcoholic beverages, which was used 

as a proxy for fluid milk substitutes; the percentage of the U.S. population less than 6 years old; 

per capita disposable income; variables to capture seasonality in fluid milk demand; expenditures 

on food consumed away from home as a percentage of total food expenditures; per capita 

36 
expenditures on bottled water and soy beverage advertising (combined); and expenditures on 

generic fluid milk marketing. As mentioned in the introduction, the marketing expenditures 

included funds spent on fluid milk advertising, public relations, sales promotions, nutrition 

education, and sponsorships. Since the goals of the two marketing programs are the same with 

regards to fluid milk, all generic fluid milk marketing activities by both programs were 

aggregated into a single marketing variable. 

The model was estimated with national quarterly data from 1995 to 2005. To account for the 

effects of inflation, all prices and income were deflated by the appropriate consumer price index. 

Generic fluid milk marketing and bottled water and soy beverage advertising expenditures were 

deflated by a media cost index computed from annual changes in promotion and advertising costs 

by media type supplied by Dairy Management Inc. Because marketing has a carry-over effect on 

demand, past fluid milk marketing expenditures also were included in the model as explanatory 

variables using a distributed-lag structure. 2 Similar procedures were used to capture this carryover effect for bottled-water and soy beverage advertising. 

The impact of variables affecting demand can be represented by elasticities. Elasticity measures 

the percentage change in per capita demand given a 1.0 percent change in one of the identified 

demand factors while holding all other factors constant. Table 3-1 provides average elasticities 

for the period 1995 through 2005 for variables found to have a statistically significant effect on 

consumption. For example, a price elasticity of demand for fluid milk equal to --0.114 means 

that a 1.0 percent increase in the real (inflation-adjusted) retail fluid milk price decreases per 

capita fluid milk quantity demand by 0.114 percent. 

The most important factors influencing per capita fluid milk demand are the percentage of the 

population under 6 years of age and the proportion of food expenditure on food eaten away from 

home. While not as large in magnitude, retail fluid milk prices, income, expenditures on generic 

milk marketing efforts, and bottled water plus soy beverage advertising expenditures also 

significantly impacted per capita fluid milk demand. 

The amount of food that is consumed away from home, which was measured in this model as 

real per capita expenditures on food eaten away from home as a percentage of total expenditures 

on food, was the most important factor affecting milk consumption. The estimated elasticity for 

this factor was --0.709. A 1.0 percent increase in the percentage of food consumed away from 

home would result in a 0.709 percent decrease in fluid milk demand. As mentioned previously, 

this negative relationship may be due to the limited availability of fluid milk products versus the 

high availability of fluid milk substitutes at many eating establishments that frequently offer only 

one or two types of milk beverages. One can hypothesize that because of these limited choices, 

some people who would ordinarily choose milk choose another beverage instead. This result 

2 Specifically, a second-degree polynomial lag structure with both end point restrictions was imposed. The demand 

model included current expenditures and eight quarters of lagged real generic milk marketing expenditures to capture 

the carry-over effect of the marketing activities. The length of lag used here indicates that such demand enhancing 

activities as the got milk? ® and milk mustache campaigns have long-lasting effects on consumers. 

37 
suggests the need to target the retail food service industry in an effort to increase away from 

home consumption. Efforts to increase the variety of fluid milk beverages offered to dining-out 

customers may increase the competitiveness of fluid milk. 

Another important milk demand factor continues to be demographic changes. Specifically, the 

percentage of the population under 6 years of age had an estimated elasticity of 0.366. This 

means that a 1 percent increase in this age cohort would result in a 0.366 percent increase in per 

capita fluid milk demand when holding all other demand factors constant. This result is 

consistent with previous studies (including last year's analysis) that show one of the largest milkconsuming segments of the population is young children. 

Not surprisingly, the retail price of fluid milk has a negative and statistically significant impact 

on per capita demand. The results indicate that a 1 percent increase in the real retail price of 

fluid milk would result in a 0.114 percent decrease in per capita fluid milk quantity demanded. 

The magnitude of this elasticity is relatively small indicating that U.S. consumers' milk 

purchasing behavior is relatively insensitive to changes in the retail price. This result, which is 

consistent with the other studies, is likely due to the fact that fluid milk is generally regarded as a 

staple commodity in the United States. However, as described in the previous section, the retail 

price of milk has increased substantially since 1995 (28.5 percent) relative to the price of other 

beverages. Consequently, the increase in fluid milk prices has contributed to the decline in per 

capita consumption. 

Per capita disposable income had a positive and statistically significant impact on per capita fluid 

milk consumption. A 1.0 percent increase in real per capita income would result in a 0.108 

percent increase in per capita fluid milk demand holding all other demand factors constant. 

Similar to the price elasticity in magnitude, the income elasticity is consistent with the notion of 

Table 3-1. Average Elasticity Values (1995-2005) for Factors Affecting the Retail Demand for 

Fluid Milk.1 

Demand Factor Elasticity 

Retail price -0.114" 

Per capita income 0.108"* 

Percent of food-away-from-home expenditures -0.709* 

Percent of population younger than six years of age 0.366* 

Bottled water + soy beverage advertising -0.008** 

Generic milk marketing 0.056* 

1 Example: A 1.0 percent increase in the retail price of fluid milk is estimated to reduce per capita sales of fluid 

milk by 0.114 percent. For more information on the data used, see Table 3-3. *Statistically significant at the 5.0 

percent significance level or less. **Statistically significant at the 10.0 percent significance level or less. 

38 
milk products as a staple commodity in the United States. With income up by over 30 percent 

since 1995, this has lessened the decline in per capita fluid milk consumption. 

Combined bottled water and soy beverage advertising also had a negative impact on fluid milk 

demand during the study period. The estimated fluid milk demand elasticity with respect to 

bottled-water advertising was -0.008 and statistically significant. While relatively small in 

magnitude, the huge percentage increase in competing advertising likely had a negative impact 

on fluid milk consumption over this time period. 

Finally, the generic fluid milk marketing activities by the checkoff had a positive and statistically 

significant impact on per capita fluid milk demand. The average marketing elasticity was 0.056 

and was statistically significantly different from zero at the 1.0 percent significance level. Thus, 

a 1.0 percent increase in generic fluid milk marketing would increase per capita fluid milk 

consumption by 0.056 percent holding all other demand factors constant. This generic marketing 

elasticity is virtually identical to the one estimated last year of 0.054. 

To examine the impact on total consumption of fluid milk for the period 2001 through 2005, the 

economic model simulated the estimated demand equation for two scenarios: (1) a baseline 

scenario in which the combined fluid milk marketing expenditures were equal to actual 

marketing expenditures under the two programs, and (2) a no-national-Dairy-Program, no-FluidMilk-Processor-Program scenario in which there was no fluid milk-processor-sponsored 

marketing and dairy producer-sponsored fluid milk marketing was reduced to 42 percent of 

actual levels to reflect the difference in assessment before the national program was enacted. A 

comparison of these two scenarios provided a measure of the impact of the two national 

programs. 

Figure 3-8 displays the simulation results for quarterly fluid milk commercial disappearance for 

the two scenarios. It clearly shows the positive impact on total fluid milk consumption due to the 

milk-processor and dairy producer marketing programs. From 2001 through 2005, these 

marketing activities increased fluid milk commercial disappearance by 22.5 billion pounds in 

total, which is 4.5 billion pounds per year. Put differently, had there not been generic fluid milk 

marketing conducted by the two national programs, fluid milk consumption would have been 8.2 

percent less than it actually was over this time period. Hence, the bottom line is that the fluid 

milk marketing efforts by dairy producers and fluid milk processors combined have had a 

positive and statistically significant impact that is partially mitigating declines in fluid milk 

consumption. 

Analysis of Total Dairy Product Generic Marketing 

To examine the overall impact of the dairy producer and fluid milk processor programs on 

overall dairy demand, a combined fluid milk/dairy product demand model was developed that 

included all demand-enhancing marketing activities as one of the demand determinants. Per 

capita commercial disappearance of fluid milk, cheese, butter, and frozen products was used to 

39 
Figure 3-8. Simulated Base and No-National Fluid Milk and Dairy 

14.5 

14.0 

~ 13.5 

13.0 Base 

aa No 

12.0 -- --

11.5 

11.0 

~. ~. ~. "z. ~. ~. ~. ~ ~. ~. ~. -'z. ~ ~. ,n- "7. ~. ~ ,nYear.Quarter 

represent total dairy demand. 3 Expenditures for the following marketing activities were 

aggregated into one variable assumed to impact the total dairy demand model: total dairy 

producer expenditures for generic milk and cheese advertising, public relations, sponsorships, 

retail promotions, and nutrition education and total milk-processor expenditures for generic milk 

advertising, public relations, and promotions. 4 In addition, the following variables were included 

as factors influencing per capita dairy demand: the CPI for all dairy products, per capita 

Table 3-2. Average Elasticity Values (1990-2004) for Factors Affecting Total Dairy Retail 

Demand. 

Demand Factor Elasticity 

Retail price -0.671" 

Per capita income 0.175"* 

Per capita food-away-from-home expenditures 0.770* 

Generic dairy marketing 0.074* 

*Statistically significant at the 1 percent level or less. **Statistically significant at the 10.0 percent level. 

3 Since all products were expressed on a milk-fat equivalent basis, non-fat dry milk is not included. The summation 

of fluid milk, cheese, butter, and frozen dairy products on a milk fat equivalent basis is used as a measure of total 

dairy demand. 

4 Considerably more than 90 percent of the combined marketing budgets of dairy farmers and fluid milk processors 

is spent on fluid milk and cheese marketing activities. Hence, expenditures on fluid milk and cheese marketing are 

used as a measure of the overall dairy marketing efforts of the two programs. 

40 
disposable income, variables to capture seasonality in dairy product demand, and per capita 

expenditures on consumption of food away from home. The model was estimated with national 

quarterly data for 1990-2005. 2 To account for the impact of inflation, all monetary variables 

were deflated by the CPI for all items. Generic fluid milk and cheese marketing expenditures 

were deflated by a weighted average media cost index (television, radio, print, and outdoor) for 

fluid milk and cheese. 

Table 3-2 provides selected elasticities for the total dairy demand model. All demand elasticities 

were statistically significantly different from zero at the 1.0 percent significance level, except for 

income which was significant at the 10.0 percent level. The most important factor in the model 

impacting per capita disappearance of all dairy products was per capita expenditures on food 

consumed away from home. The results indicate that a 1.0 percent increase in per capita foodaway-from-home expenditures would result in a 0.77 percent increase in combined per capita 

total dairy demand. The average price elasticity for 1990 through 2004 was -0.671; in other 

words, a 1.0 percent increase in the retail price of dairy products would result in a 0.671 percent 

decrease in per capita quantity demanded for all dairy products. Income was also an important 

factor in the total demand model. The estimated income elasticity was 0.175, indicating that 

these dairy products are normal goods; that is, consumption rises with increases in income. 

The major interest here is the combined advertising and promotion or "marketing" elasticity. 

The average marketing elasticity for this period was 0.074; a 1.0 percent increase in expenditures 

for these combined marketing activities would increase per capita total dairy demand by 0.074 

percent. Thus, the total marketing effort by dairy producers and fluid milk processors has had a 

positive and statistically significant impact on dairy consumption. 

Benefit-Cost Analysis of the Dairy Program 

One way to measure whether the benefits of a program outweigh the cost is to compute a benefitcost ratio (BCR). A BCR can be computed as the change in net revenue 6 due to genetic dairy 

marketing divided by the cost of the checkoff program. A BCR was estimated for producers for 

the Dairy Program but one could not be computed at this time for fluid milk processors for the 

Fluid Program because data on packaged fluid milk wholesale prices, which are necessary in 

calculating processor net revenue, are proprietary and therefore not available. 

5 Unlike the fluid milk demand model, data for the total dairy demand model went farther back in time to 1990. We 

could not go back prior to 1995 for the fluid milk model because it was impossible to separate fluid milk marketing 

expenditures from total dairy marketing expenditures before 1995. Since extra data existed for the total dairy 

demand model, it was used. 

6 "Net revenue" is defined as the aggregate gain in total revenue from price and product disappearance enhancements 

due to generic dairy marketing less the increase in supply costs for the additional milk marketed by dairy farmers. 

41 
The BCR 7 was calculated by simulating two scenarios: (1) a baseline scenario in which 

combined marketing expenditure levels were equal to actual marketing expenditures under the 

two programs and (2) a no-national-Dairy-Program scenario in which there was fluid milk 

processor-sponsored marketing but dairy producer-sponsored marketing was reduced to 42 

percent of actual levels to reflect the difference in assessments before and after the national 

program was enacted. A comparison of these two scenarios provides a measure of the impact of 

the Dairy Program. The benefits of the Dairy Program were calculated as the change in dairy 

farmer net revenue (what economists refer to as "producer surplus") due to demand enhancement 

from all marketing activities under the Dairy Program (i.e., the difference in net revenue between 

scenarios 1 and 2). The demand enhancement reflects increases in quantity and price as a result 

of the marketing program. The costs of the Dairy Program were calculated as the difference in 

total assessment revenue before and after the national program was enacted. 

The average all milk price over this period in the baseline scenario was $14.61 per 

hundredweight. In the no-national-Dairy-Program scenario, the average all milk price was 

$14.23 per hundredweight, which is 38 cents lower. Thus, had there been no national program 

over this period, the price farmers receive for their milk would have been 2.6 percent lower than 

it actually was. 

The results show that the average BCR for the Dairy Program was 4.33 from 2000 through 2005. 

This means that each dollar invested in generic dairy marketing by dairy producers during the 

period would return $4.33, on average, in net revenue to farmers. The level of the marketing 

BCR suggests that the combined marketing programs supported by dairy producers have been a 

successful investment. 

In another interpretation of the BCR, the increase in nominal generic dairy marketing 

expenditures resulting from the Dairy Program costs dairy producers an additional $130 million 

per year on average (i.e., the difference between $304 million annually under the baseline 

scenario and $174 million under the no-Dairy-Program scenario). The additional generic dairy 

marketing resulted in higher demand, prices, and net revenue for dairy producers nationwide. 

Based on the simulations conducted, it is estimated that the average annual increase in producer 

surplus (reflecting changes in both revenues and costs) due to the additional generic marketing 

under the Dairy Program was $562.9 million. Dividing $562.9 million by the additional Dairy 

Program cost of $130 million results in the estimated benefit-cost ratio of 4.33. 

To make allowance for the error inherent in any statistical estimation, a 95 percent confidence 

interval was calculated for the average BCR providing a lower and upper limit for the average 

BCR. One can be "confident" that the true average BCR lies within those bounds. The 

estimated lower and upper bounds for the average BCR were 3.70 and 4.95, respectively. Hence, 

it is reasonable to conclude that these confidence intervals give credence to the finding that the 

7 To measure market impacts, supply equations at the retail and farm levels were estimated to simulate supply 

response to any price increase due to a marketing-induced increase in demand. The results of these estimates are 

available from the authors upon request. 

42 
benefits of the Dairy Program's marketing activities have been considerably greater than the cost 

of the programs. 

Questions often arise with respect to the accuracy of these BCR estimates. BCRs for commodity 

promotion programs are generally found to be large because marketing expenditures in relation to 

product value are small and, as such, only a small demand effect is needed to generate large 

positive returns. For example, the change in generic dairy marketing expenditures noted 

previously is 0.55 percent of the average annual value of farm milk marketings from 2000 

through 2005 ($23.58 billion). The generic marketing activities resulted in modest gains in the 

quantity of dairy products and a positive effect on milk prices, resulting in large positive net 

revenue from the marketing investment. 

43 
Table 3-3. Description of Variables Used in Econometric Models. 1 

Variable 

RFDPC 

RDDPC 

RFPCPI 

RDPCPI 

RBEVCPI 

INCPC 

AGE5 

FAFH% 

GMM 

GMMD 

GMMP 

GMCM 

BWA 

Description 

Consumption Variables 

Quarterly retail fluid demand per capita 

Quarterly retail total dairy demand per capita 

Price Indices 

Units Mean 2 

lbs MFE 13.77 

(0.32) 

lbs MFE 41.33 

(2.28) 

Consumer retail price index for fresh milk and cream # 1.15 

deflated by consumer price index for nonalcoholic (0.09) 

beverages (1982-84= 1) 

Consumer retail price index for all dairy products # 0.93 

deflated by consumer retail price index for all items (0.03) 

(1982-84=1) 

Consumer retail price index for non-alcoholic # 136.51 

beverages (1982-84= 1 ) (4.65) 

Demographic and Income Variables 

Quarterly per capita disposable income, deflated by the $ 8,101 

consumer retail price index for all items (2005=1) (717.86) 

Percent of the population under age six % 6.97 

(0.21) 

Food away from home expenditures as percent of total % 49.87 

food expenditures (1.82) 

Marketing Expenditures 

Quarterly genetic fluid milk marketing expenditures $mil 50.60 

deflated by media cost index (2005 $) (12.72) 

Quarterly generic fluid milk marketing expenditures, $mil 29.55 

Dairy Program, deflated by media cost index (2005 $) (10.27) 

Quarterly generic fluid milk marketing expenditures, $mil 21.05 

Fluid Milk Program, deflated by media cost index (10.53) 

(2005 $) 

Quarterly generic fluid milk and cheese marketing $mil 74.79 

expenditures, Dairy and Fluid Milk Program, deflated (22.75) 

by media cost index (2005 $) 

Quarterly soy milk plus bottled-water advertising $mil 55.6 

expenditures deflated by media cost index (2004 $) (38) 

1 Quarterly dummy variables are also included in the model to account for seasonality in demand. 

2 Computed over the period 1995-2005. Standard deviation in parentheses. 

44 
Chapter 4 

Part I - Fluid Milk Market and Promotion Assessment: 

Beverage Marketing Corporation 

For the seventh consecutive year, Beverage Marketing Corporation (BMC) has been 

commissioned by Dairy Management Inc. (DMI) and the National Fluid Milk Processor 

Promotion Board to review the national fluid milk advertising and promotional programs. This 

review offers a subjective evaluation of the effectiveness of those programs and provides a thirdparty marketing perspective of these efforts for inclusion in USDA's Report to Congress. It also 

evaluates milk's position relative to milk's competitive beverage set, including its respective 

marketing efforts and market performance. BMC believes milk's competitive set includes most 

non-alcoholic refreshment beverages, specifically carbonated soft drinks, bottled water, fruit 

beverages, ready-to-drink teas, and sports beverages. This year BMC examines both the overall 

milk industry's performance as well as the effect that targeted advertising and promotion have 

had on milk's crucial demographic cohorts. The following summarizes our findings based on the 

analysis of available data. 

BMC's Assessment of Current Milk Industry Environment 

In summary, BMC believes that the collective efforts of the producer and processor generic milk 

programs in 2005 continued to effectively utilize available resources for driving incremental 

sales of fluid milk by focusing on high-opportunity consumer targets, relevant product benefits, 

and powerful communications/messaging. However, milk's competitors continue to increase 

their own marketing spending and programs and pace of innovation, leaving milk at a relative 

competitive disadvantage. 

Figure 4-1. 

FluidMilk VolumeandGrowth 

2000-2005 

7,000" 

i: 

0 

: 

6,000-

5,000-

I CAGR 00/05: 

-0.4% 

i 

ql 

o 4,000-

3,000

Z 

2,000-

1,000" 

2000 2001 2002 2003 2004 2005 

Source: Beverage Marketing Corporation, USDA 

45 
Figure 4-2. 

Milk's CompetT"t~'ve Set Volume Shares 

2005 

Sports Bevs RTD Tea 

3.So/n --~ 1"6°/° 

Source: Beverage Marketing Corporation 

In 2005, fluid milk volume declined by 0.1 percent to 6.20 billion gallons, a smaller decline than 

the previous year. Over the last 6 years, fluid milk volume has essentially been stable, 

fluctuating within a narrow band of volume between 6.2 and 6.3 billion gallons. Milk volume 

declined 6 million gallons in 2005 compared to 50 million gallons in 2004. The history of 

volume changes for fluid milk sales over the past 6 years is shown in Figure 4-1. Milk's 

compound annual growth rate (CAGR) for the five-year period of 2000 to 2005 was -0.4 

percent, a reflection of the negligible swings in year-over-year milk consumption since 2000. 

Within its competitive set, milk is the third-largest beverage category by volume (Figure 4-2). 

In 2005, bottled water, which has been showing dramatic growth for the last decade, 

strengthened its position as the second-largest beverage category. Meanwhile, carbonated soft 

drinks remain the largest category in the competitive set, by far, with 15.3 billion gallons in 

2005. While the "new age" type beverages (i.e., sports beverages and RTD tea) experienced 

some sort of an increase over the previous year, fruit beverages, milk, and carbonated soft drinks 

suffered minor declines. 

As a whole, volume of the combined competitive set categories increased by 2.4 percent to 34.9 

billion gallons, up from 34.1 billion gallons in 2004. This increase was primarily driven by 

bottled water, sports beverages, and ready-to-drink teas. From 2000 to 2005, the competitive set 

has grown at a CAGR of 2.1 percent (Figure 4-3). Without milk, the performance of the 

competitive set would have been slightly better- increasing at a CAGR of 2.7 percent from 2000 

to 2005. Without bottled water, the competitive set grew by a CAGR of 0.5 percent over that 

same 5-year time span. Bottled water accounted for nearly 89 percent of the volume increase of 

the competitive set in 2005. 

BMC has quantified milk's share of the volume increase compared to that of the entire 

competitive set annually over the last 18 years. This index reveals whether milk has gained or 

46 
Figure 4-3. 

Competitive Beverage Set Growth 

5 Year CAGR 

zqoo- 2oos., 3.0% 

2.5% 

2.00/o 

1.5% 

1.0% 

0.5% 

0.0% 

-0.5% 

-1.0% 

Milk Competitive I Competitive '1 Competitive Set Competitive 

Set I Set w/o Milk I w/o Bottled Set w/o Fruit 

I _ I Water Beverages 

Source: Beverage Marketing Corporation 

lost competitive share over this time span. This measure of milk's performance is an index 

based on its share of competitive volume change, divided by milk's market share of the 

competitive set at the onset of the year. An index greater than one indicates milk is improving its 

share and thus outperforming the competitive set; an index less than one reveals that milk's share 

of the competitive set is declining. In Figure 4-4, this index for milk is illustrated over an 

18-year period. 

Milk has consistently underperformed the competitive set and has thus lost competitive share 

each year since 1987 as Figure 4-4 illustrates. Conversely, bottled water and sports drinks have 

consistently outperformed the competitive set and have gained competitive share (Figure 4-5). 

Bottled water, in particular, has shown dramatic growth in recent years, driven primarily by 

heightened consumer demand for healthier beverage alternatives and greater convenience. 

Figure 4-4. 

Milk Indexed Share of Competitive Turnover(I) 

1987- 2005 

[ I I I I I I I I I t I I I I I I 

i 1.0 

0.8 I 1.0 = maintain 

~" 0.6 >, competitive position 

'.= 0.4 

0.2 

8

E 

o.o 

"6 -O.2 

~ -0.4 

-0.6 

-0.8 

-1.0 

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 

(zJ 5hare of compet/~ve turnover divided by share of compe~tive set 

Source." Beverage Marketlng Corporation 4 7 
Figure 4-5. 

Indexed Share of CompetiD've Turnover(1) 

2005 1.0 = maintain 

cornpetitive position 

8.0 

7.0 

I 

I 

I 

6.0 I 

5.0 4.1 

I 

I 

4.0 m~ 

3.0 

2.0 

1.0, I 

I 0.0 

0.0 

-1.0 

-2.0 

-0.3 

CSD B. Water 

r 

I

I Hilk 

I 

I

I 

-1.7 

Fruit Sports RTD Tea 

----w ........ capturedless 

than fair share 

of inawnental 

I I Beverages volume 

. . ~ .................. : x.3....~... ...... .u..6.~._.l._.:.o_.?~...i...:.e.~ ~ ....... ~.6~ ....... .s...7~ ........ 

ShareofCompet~r~ 43.8% 21.6% I 17.8% I 11.8% 3.5% 1.6% 

(~J Shareofcompet/~veturnoverdividedbyshareofcornpeDtiveset 

Source:BeverageMarkebngCorporab'on 

While there are many factors associated with these consumption trends, advertising expenditures 

is one factor that is easily measured. In 2005, every category within the competitive set except 

for milk experienced an increase in media spending per gallon (Figure 4-6). Just as in previous 

years, milk is one of the lowest categories in media spending per gallon. The milk category 

spent about 2 cents on advertising for every gallon of milk sold, whereas carbonated soft drinks 

spent about 5 cents for every gallon sold. Only bottled water spends less per gallon than milk. 

Bottled water's success has been primarily distribution- and consumer-driven and has continued 

even without significant marketing dollar expenditures. 

Figure 4-6. 

Competitive Set Media Spending per Gallon 

2005 

$0.25 I l l l l

$0.211 

$0.20 

_o 

i $o.:s 

i $0.115 

m $0,10 $o.oso 

$o.o53 

$o.o5 

$0.024 ; i $0.021 

$o.oo 

Sports Fruit SoftDrinks I Milk I RTDTea PETBotUed 

Drinks Beverages I I Water 

I'o~'oscha.ge +xx.s~b +12.7~ +7.9~ , -S.Z~b ,+247.8~ +2S.S~ I 

I iI 

Source:BeverageMarkeDngCorp.;Lowe;Ad ~ews 

48 
Figure 4-7. 

Media Spending by Category 

2005 

(Millions of Do//ars) 

Bottled Water d~l ~Q a 

RTD Tm 

S44.7 

2.4% 

Sports Dr 

$255.S 

13.5o/( 

Source." Beverage Marketing Corporation 

In 2005, all categories in the competitive set except for milk increased advertising from 2004. 

Carbonated soft drinks accounted for approximately 40 percent of all advertising dollars spent 

within the competitive set, at approximately $808 million. At $475 million in spending, fruit 

beverages accounted for approximately 25 percent. At $147 million in 2005, milk ranked 5 th 

within the competitive set, accounting for less than 8 percent of spending (Figure 4-7). Milk 

advertising spending is comprised primarily of the national generic campaign, regional generic 

spending and limited branded product spending. While such spending is significant, milk 

accounts for about 18 percent of the competitive set volume and thus, remains significantly 

underrepresented in share of voice. 

Clearly, simple measurement of media spending does not take into account the effectiveness of 

the campaigns, nor does it measure the impact of millions of dollars spent on promotions and 

other non-media programs. Promotional expenditures can not be measured in an objective 

manner because promotions are not tracked by syndicated methods and companies tend not to 

divulge this data. Nevertheless, millions of dollars are spent on promotional programs within the 

competitive set, including for milk. BMC believes that milk, despite past year increases in nonmedia programs, continues to be outspent on promotional programs and that this is a 

contributory factor to milk's flat volume performance. 

Furthermore, the milk category is disadvantaged relative to the other competitive set categories 

for other reasons, outlined below. While the milk category has begun to make progress in many 

of these areas, it continues to trail the other categories in all of them. 

Consumer Attention 

Consumer penetration of milk and awareness of milk advertising is high; however, the category 

lacks other competitive categories' high-level of consumer-focused marketing brand activities 

(e.g., promotions and innovations). 

49 
The consumer-relevant new science that links milk to weight loss has been effectively 

communicated through advertising, public relations, and other tools. However, in 2005, milk 

once again lagged the competitive set in its share of advertising expenditures in contrast to its 

volume share. Milk's low share of voice, declining over a number of years, is likely to have both 

real-time immediate as well as cumulative negative impact on milk consumption, despite the 

category's highly relevant and differentiated messaging. 

Beverage product innovation has accelerated in recent years for all categories within the 

competitive set. Innovation adds news and excitement to categories, bringing more focus and 

attention to them compared to less innovative categories. Limited innovation in the milk 

category has caused milk to lag other competitive set categories in number of new product 

introductions. Additionally, milk new products have largely been limited to package changes, 

with little creativity around flavors and/or added functionality. The net result is that consumers 

have more choices than ever outside of milk. The news related to innovation has the added 

effect of increasing the impact of advertising. Many of these new products, such as soy 

beverages and calcium fortified fruit beverages, have innovated into milk's territory co-opting 

milk's healthy positioning. 

Product Attributes and Innovation 

Recent innovation in the milk category has centered on flavored milk--primarily variations of 

chocolate and single-serve packaging. There have been additional pockets of growth in specific 

milk segments including organic, reduced lactose and fortified milk products. While this 

represents an improvement after years of very little innovation, other competitive set categories 

have been more aggressive with a wider variety of product innovation and a greater assortment 

of packaging formats and sizes. Among other innovations, beverage fortification with vitamins, 

minerals, herbs, and other ingredients have added functional benefits in many categories. 

In 2005, milk's new product introductions dropped to 174, while other categories within the 

competitive set experienced a large increase in new product introductions. Milk ranks last in the 

competitive set for new product introductions in 2005, dropping two places from third in 2004. 

The category is in need of more innovation, both evolutionary (e.g., packages and flavors) and 

revolutionary (e.g., functionality and technology) in the coming years. 

A new product is only an innovation for a short time--until consumers become accustomed to it 

or competitors meet or beat the innovation. Thus, continued innovation is a requirement for 

competitive advantage. 

Branding 

One of the more significant disparities in milk versus its competitive set is the distinct lack of 

large milk brands and the impact of brand-building support on the total category. In comparison, 

the competitive set is dominated by mega-brands that have been built and nurtured by worldclass marketing organizations. 

50 
The milk category is dominated by private label. In 2005, only 32.7 percent of milk volume in 

the grocery channel was accounted for by branded products. No other category in the 

competitive set has less than half its volume accounted for by branded products. BMC believes 

this disparity places milk at a distinct disadvantage with the rest of the competitive set because of 

the challenges inherent in marketing a category versus brands. 

Additionally, private label products, particularly milk products, are generally sold in lesspremium, undifferentiated packages and with little or no marketing support. Thus, the high ' 

of private label milk reinforces milk's commodity image, making competitive premium-image 

branded products more attractive to consumers. 

Distribution 

Milk is widely available; nevertheless, its availability does continue to have some significant 

limitations. Milk availability is concentrated in take-home retail channels, especially 

supermarkets. In other outlets where milk is available, it often does not have the range of 

packaging and flavor options that consumers seek and that are offered by other competitive set 

products. This places milk at a competitive disadvantage. 

As consumer lifestyles become more and more on-the-go, beverage manufacturers respond by 

developing products in convenient single-serve packaging distributed in immediate consumption 

channels such as convenience stores, foodservice, and vending. In 2005, only about 19 percent 

of milk volume was sold for immediate consumption, whereas about half the volume of 

carbonated soft drinks, sports drinks, and ready-to-drink tea was purchased for immediate 

consumption. 

Pricing 

Price promotion is a key tool beverage marketers have used to spur sales, and this is true of all 

categories in the competitive set except for milk. The industry is limited structurally and legally 

in its use of price promotion. Because flavored milk is responsive to price changes, price 

increases impact volume sales significantly. 

In 2005, milk experienced a lower consumer price index increase compared to 2004, a year that 

saw large year-over-year price increases. In 2005, milk's was also one of the lower price increases 

out of all the categories in the competitive set tracked by the Bureau of Labor Statistics. However, 

milk prices in 2005 remained historically high (Figure 4-8). 

BMC's Assessment of Current Milk Marketing Programs 

BMC believes the marketing campaign developed under the Dairy Production Stabilization Act of 

1983 and the Fluid Milk Promotion Act has served to stem declines in milk consumption in the 

face of vastly heightened competition. While over the last five years there has been a slight 

decline in milk consumption, BMC believes these declines would have been more significant 

without the industry's weight loss messaging, 3-A-Day TM for Stronger Bones, and got milk? ® 

51 
Figure 4-8. 

.4°'O.o ,,' Changein Consumer Price Index (CPI) 

2004- 2005 

3.1% t I

I 1,9%o / 1.6% I mmm 

1%0 0.7O/o 

0%0 

I 

- 1% I 

I 

"2% I 

-3% I 

I 

"4°/° I 

.5O/o I 

I 

-6% I -5.5O/o 

All Items I

I Milk, All Non- Carbonated Non-Frozen Retail PET 

Types Alcoholic Drinks Juice & Water* 

I Beverages Drinks 

* Estimated 

Source:BeverageMarketingCorp.;BureauofLaborStaD'~cs 

celebrity milk moustache campaigns. This belief is supported by the milk category marketing 

mix analysis conducted in 2005 by Marketing Mix Analytics. 

Supported by dairy farmers' investment in the weight and dairy science, in 2005, milk 

advertising continued to build on the emergence of new scientific evidence that milk 

consumption can be linked to weight loss. This has allowed for differentiated opportunity to 

drive milk sales. With the generic program shifting gears and realigning the advertising budget 

and other program efforts (e.g., public relations, promotions, and research) behind weight loss 

communications, there has been measurable success in achieving consumer acceptance of the 

weight loss-milk link. In addition, dairy processors have integrated the weight loss programming 

into their own business and brand-building initiatives. 

In accordance with the new weight loss efforts, there has been a shift in target and product focus. 

Generic media spending allocations have continued to move from kids and teens to 

women/moms. The continuation of the milk moustache campaign driven by new celebrities is 

also tied-in with weight loss. Despite the shift away from teen-targeted advertising, grassroots 

sponsorships focusing on teens continued, and included a 3v3 soccer tournament, action sports, 

Disney Wide World of Sports, and the NFL partnership. 

Programs from DMI and MilkPEP continued to focus on milk vending, foodservice, and school 

milk improvements in 2005, as did Hispanic consumer-targeted programs--all with positive 

results. The milk vending initiative appears to be gaining momentum, with BMC estimating 

there are now approximately 9,500 dedicated milk vending placements, many in the key 

secondary school channel. 

52 
Recapturing milk as the beverage of choice for children continues to be the primary, overarching 

goal that guides DMI's school foodservice/quick service restaurant (QSR) marketing efforts. 

Foodservice milk sales, especially through QSRs, are gaining traction after the industrysponsored tests with Wendy's ® and McDonalds ® (Figure 4-9). Additionally, more schools than 

ever are involved in upgrading school milk to drive increased consumption for kids and teens. 

Currently, The New Look of School Milk Program has been adopted in 3800 schools (over 500 

school districts with 38 processors) and is reaching 2.3 million kids with an improved singleserve milk in plastic package product. Tracking studies show that this program has generated 30 

million incremental pounds of milk sales to date. 

Even against these improvements, milk remains at a disadvantage against the competitive set. Its 

price has increased faster than any other category, while its spending is declining. The last four 

years have seen declines in the fluid milk generic media budget - from $82 million in 2001 to 

$48.6 million in 2005, with a particular large decline this year from $65.7 million in 2004. BMC 

believes this decline in spending may have a negative impact on milk consumption in the face of 

sizeable spending by other categories in the competitive set. Most of the categories in the 

competitive set (except ready-to-drink tea, a much smaller category) outspent milk again in 

2005. 

On the other hand, the generic milk programs recognize that there are increasing limitations to 

traditional media advertising, particularly for some target consumers such as kids and teens, in 

part due to increasing media costs. Thus, the generic programs have been increasingly and 

successfully utilizing alternative communications and marketing vehicles to drive milk sales. 

Total spending budget has shifted from 69 percent spent on advertising in 2002 to 60 percent in 

Figure 4-9. 

QSRMilkServings(inbillions) 

2001-2005 

+18% 

e - "E 

(/I 

~D 

2001 2002 2003 2004 2005 

QSR= Quick Service Restaurants 

Source." Beverage Marketing Corporation; NPD 

53 
Figure 4-10. 

Historica/ Spending by Discipline 

In % Budget Allocation 

MilkPEP & DM1r 

200Z 2003 2OO4 200S 

Advertising 69.0 70.7 58.6 59.9 

Promotion 10.0 11.7 15.0 14.5 

Events/ 

Sponsorship 8.0 7.1 9.5 10.2 

PR 10.0 6.4 4.7 4.5 

Research 2.0 2.3 2.4 2.8 

Othe~ ~) 1.0 1.5 9.9 8.2 

(1) Other includes FMSTI (MilkPEP), School Marketing and Foodservice Programs (DMI) 

Source: Beverage Market/ng CorporaD'on; M#kPEP; DMI 

2005 (Figure 4-10). This portion of the advertising budget has been strategically reallocated to 

increase promotions, events/sponsorships, and other programs that are focused largely on 

expanding milk availability and consumer appeal through innovation. 

The new emphasis on weight-loss benefits also has invited new challenges for milk. The set of 

direct competitors may now include other weight-loss products such as meal replacement 

beverages and bars, and even programs such as Weight Watchers and Jenny Craig. Additionally, 

with competitors' aggressive advertising, promotion, as well as focus on convenience and 

innovation, BMC believes that milk is perceived by consumers as being less contemporary 

compared to the alternatives. 

The shift in target to women/moms has lessened milk advertising focus on previously targeted 

teens/kids. Positive consumption trends were seen with teens/kids in prior years and the industry 

should be concerned about losing traction with those consumers. It will be critical for the 

generic programs to continue to focus or refocus resources at the primary targets-- 

including teens, while continuing to evolve the messaging. The industry will have to accurately 

gauge consumer response to the weight-loss message and its sustainability, and eventually 

evolve or perhaps move onto another benefit communication. Additionally, the focus on weightloss should not be at the expense of other long-term relevant industry platforms such as product 

innovation, availability enhancements and significant brand-building focus. 

With price increases stabilizing, continued focus against strategic consumer targets and market 

opportunities and improving integration of generic programs into processor and retailer 

marketing tactics in 2006, the outlook seems positive, especially given the growing acceptance 

of the weight-loss platform and its expansion into the teen segment. BMC predicts a slight 

increase or at least no decline in volume for the upcoming year. 

54 
Part II - National Fluid Milk Processor Promotion Program: Highlights by 

the National Fluid Milk Processor Promotion Board 

This section, prepared by the staff of the National Fluid Milk Processor Promotion Board (Fluid 

Milk Board), will examine the overall impact of the Fluid Milk Program in terms of its impact on 

the core measures of sales and consumption, an estimate or the impact of industry investment, 

and the competitive situation in which the fluid milk industry competes. It also will detail one of 

the main program areas (promoting weight loss benefits of milk consumption to women), as well 

as an example of a longer-term business development goal (promoting new opportunities for 

vending single-serve milks.) 

Overall Sales and Consumption Impact 

Using the program's newest measurement resources, it is possible to assess the impact and value 

of the program at the retail level (RII) 1, for the industry's marketing investment. The Fluid Milk 

Board's marketing mix analysis showed that the share of total national milk volume attributable 

to the fluid milk program went up from 3.8 percent in 2004 to 4.5 percent in 2005. In actual 

volume, that 2005 contribution represents approximately 129 million gallons, or approximately 

$496.3 million in retail sales revenue nationwide. This represents a return of $7 at retail for 

every $1 spent in 2005 comparing favorably to similar calculations for other industries and 

companies (Figure 4-11). 

In terms of per capita consumption of milk by the groups that the fluid milk program targets, 

both the primary target of adult women/morns and the Hispanic ethnic target saw increases in 

2005, while teenagers' consumption declined slightly as program resources were shifted away 

from this group (Figure 4-12.) 

Figure 4-11. 

ss.oo 

sT.oo 

$6.00 

ssoo ~Retail Revenue Generated per Dollar Spent ~* 

$4.00 

$3.oo 

$2.00 

$100 

so.oo 

Fluid Milk Program Cookie DesseH Beverage OTC Drug 

Source Ma~el,ngManagemeotAnaI~,CS 

J The term "'RII" for Retail Impact of Investment compares the incremental retail value for its return and the direct 

spending on consumer activities as its investment. 

55 
Figure 4-12. 

2004-2005 Milk Per Capita Consumption by MilkPEP Target Group 

60 I~n~n .[3 ~o/,~ 

50 

40 

30 

20 

10 

Moms(W25~9) Hispanic Teens 

[] 2004 • 2005 

Source TI~S-NF'O eGIP cla:a 

Competitive Assessment of Milk Industry's Position 

Largely driven by its commodity status and its high degree of regulation, the fluid milk industry 

operates at a disadvantage to competitive beverages. 

In 2005 that competitive position worsened on several fronts. While milk is the number three 

beverage in its competitive set, it continues to lose ground to key competitors--primarily bottled 

water--while carbonated soft drinks remain the dominant beverage of choice for Americans 

(Figure 4-2). Fluid milk suffers in the market due to relative pricing (Figure 4-13), a lack of 

brand marketing infrastructure, poor "out-of-home"/immediate consumption availability 

(Figure 4-14), and lower spending (Figure 4-6). In this context, the need for the fluid milk 

program remains as strong or stronger than at its inception in 1995. 

Success of Weight-Related Benefit Promotion 

A wide range of studies, more than 50 over the last 6 years, suggest that consuming the 

recommended 3 servings of milk and dairy products as part of a balanced, reduced-calorie diet 

can be a healthy and effective way to lose weight. Promoting the weight-loss benefits of milk 

consumption represented over 65 percent of all program resources in 2005 and was the primary 

program objective. The Fluid Milk Program has successfully informed American women and 

they have responded with positive changes in their consumption of milk. Among the key 

indicators of how this marketing communication program is changing consumer behavior are: 

• Recall of the link between drinking milk and losing weight is at 80 percent 

(Figure 4-15). 

56 
Figure 4-13. 

Indexed Cost of Whole Milk, CSD, and Food at Home; 

1998-2005 (Base =1996) 

Pnce ID0ex 

150 

140 

130 

120 

134 

124 

110 

100 . ".~ , . . 

~Whole Milk 

90 • --,--Food at Home 

Carbonated Soft-dr~ks 

80 ................................................................................................ 

Source: Bureau of I..~x~ $~nllslK~ 

Figure 4-14. 

100% 

9O% 

80/0 

Im/m=diate Constmlption vs. Take Ho.~ DistrflJution 

2OO5 

10% 

O% 

]mmecUatm ConsempUon 

200412905 Growth 

Beverages 

+19.3% 

RTD Tea CSD BeveraQes Fruit Bottled Watr II 

i 

Milk i 

57 
Figure 4-15. 

A Closer Look at Awareness 100% 

Women? highly `- 80 tntetesteo in W/ 

80% 73 ~ 82 

67 68 . ~ - Horns highly '" intereste~ in WL 

~ 

40%, 

20%, 36 

Q204 03'04 04'04 Q1~5 02'05 

Source: DDW, 11/05 report. 

• Per capita consumption is up among the "mom" demographic of 25-49 year-old 

women from 20.4 to 22.2 ounces per week in 2005 (Figure 4-11). 

• "Trying to lose weight" is the number two reason women cited for "drinking more 

milk" (Figure 4-16). 

Additionally, based on the Fluid Milk Board's marketing mix analysis, the program's 

three main marketing activities--public relations, television advertising to moms and 

print advertising to moms--were focused almost exclusively on this message in 2005. 

These activities appear to have driven the highest levels of incremental volume at 

greatest efficiency. 

Growth of Vended Milk Business 

This business area report shows the Fluid Milk Program's positive results of more than 6 years of 

research and business development activity in milk vending. The Fluid Milk Board first 

identified milk vending as an underutilized channel and important growth opportunity in 1999. 

Though a relatively small portion of total sales volume (less than 3 percent), vending continues 

to represent solid potential for growth. This activity was designed to create new opportunities 

for sales and consumption where the industry's competitive position has been historically poor, 

but where milk needs to be more present in the marketplace (away-from-home consumption). 

Since that time the Fluid Milk Board has invested over $3 million to build this area of the 

business. Among the key measures of the impact of these activities are: 

In 2003 and 2004 (last years for which full sales figures are available), milk sales 

growth in vending outpaced all other vended foods and beverages, in a period in 

which the vending industry was flat or declining (Figure 4-17). 

58 
Figure 4-16. Impact on Claimed Consumption 

Total Morns 

Less More 

Q2 2005 9% l 

Q1 2005 8%1 ~21% 

Q4 2004 11~i 

Q3 2004 5%l ~ 2 5 % 

Q2 2004 11 i 

Q1 2004 13%/ 13% 

Q4 2003 

Main Reasons For Ddnkinfl 

More Milk* 

2004 2005 

Q1

% 

02 

% 

Q3

% 

Q4

% 

Q1

% 

Q2

% 

Just Like It 5 9 21 23 18 2 

Heaith~" For Me 23 15 22 17 18 35 

Trying To Lose Weight 23 12 11 17 37 29 

Pregnant/Nursing 9 7 13 6 6 

Need The Calcium 36 14 7 5 6 8 

Figure 4-17. 

Milk Vendiu~J Growlh 

2000- ~4 

50% 

- • - # of Milk Vend~r,s(s) I 

40% •-I--Milk Sales ($) I 

m 

30% 

I 20% 

10% 

"0 5.7a 

u 0% -6.3% # 0. 

-10% 

-10% 14.6% 

-20% 

2ooo101 2001102 2002103 2oo31o4 

rotM va~g .~s -4.~ 

C.o~ Onk~ WmWng -1.O~ +L3q~ 

rood Vem~ ~ -2.2% 

m Mdl~l~d~Nd ~g n~d~n~ (my ~ gU~r pmduc~ b~ talk ~ ~) 

59 
Vending operators, who in previous research indicated that they believed milk 

vending was a business area with little or no growth potential, have experienced a 

significant turn-around in their attitudes toward milk with more than half of all 

company executives surveyed agreeing that milk vending was likely to grow in the 

next year. 

Finally, a critical subset of the vending story is the growth of milk vending machines 

in the nation's schools, estimated at approximately 8,000 vending machines in over 

7,300 schools nationwide. This growth is primarily due to the efforts of the dairy 

industry over the past five years from both Dairy Management Inc. and the Fluid 

Milk Board, and contributes to national efforts in both the public and private sectors 

to persuade young people to make healthier food and beverage choices. 

Summary of Program Effectiveness 

Overall, in this highly competitive beverage marketplace where the milk industry is significantly 

disadvantaged against key competitors, the fluid milk program in 2005 was effective in driving 

incremental volume and mitigating the long-term loss of market share. The program advanced 

its effectiveness by focusing on new ideas such as science supporting the positive impact of milk 

consumption on maintaining a healthy weight and by promoting milk as a viable product for new 

channels of distribution such as vending. 

The program remains a good example of how Congress can promote and support national health 

and nutrition goals and the economic strength of a critical industry segment by enabling an 

industry to fund the programs it needs to sustain itself with no net cost to the taxpayer. 

Despite decreases in the spending levels of the program, increased spending by beverage 

competitors, and additional declines in the Fluid Milk Board's purchasing power due to higher 

media costs, the Fluid Milk Program generated a higher volume of incremental sales (up 15 

percent) and a higher retail impact of investment (RII) than the previous year ($7 for every $1 

spent vs. $5.50 for every $1 in 2004). The increase was primarily attributable to increases in 

program efficiency. 

As in the past, the program has demonstrated its ability to change consumer behavior. Per capita 

consumption among 25-49 year-old women improved in 2005, in response to the Fluid Milk 

Program shifting the majority of its resources to this target to promote the weight-loss benefits of 

milk consumption. This new benefit, tied to recent scientific and medical research, has proved 

an effective message for the Fluid Milk Program in persuading morns to reconsider and increase 

their consumption of milk. 

The Fluid Milk Program continues to promote the milk industry by supporting the Federal 

nutritional goals--as well as the nutrition goals outlined in the Dietary Guidelines for Americans 

and the Food Guide Pyramid. The Fluid Milk Program is a national marketing voice for milk in 

a marketing environment restricted by a high degree of Federal and State regulation that helps to 

maintain the strength and stability of the milk industry to the benefit of the nation's health. 

60 
Part III - National Dairy Promotion and Research Program: Highlights by 

Dairy Management Inc. 

This section, prepared by Dairy Management Inc. (DMI), the staff of the National Dairy Board, 

will examine the impacts of the National Dairy Promotion and Research Program (National 

Program) during the past year. The goal of the National Program is to leverage dairy producerfunded activities to drive increased sales of and demand for U.S. dairy products and ingredients, 

domestically and internationally. Since the program's inception in the early 1980s, the per capita 

consumption of dairy has climbed to 592 pounds in 2004 compared to 522 in 1983, according to 

the Department of Agriculture (USDA). For dairy farmers to produce - and Americans to have 

available - safe, plentiful and affordable dairy products and ingredients it is critical that markets 

for dairy continue to expand, sales increase, and producers continue to invest in the National 

Dairy Promotion and Research Program. 

This goal is accomplished through: (1) dedicated teams that are funded and directed by dairy 

producers who partner with dairy and food industry leaders and innovators on nutrition, research 

and marketing efforts to drive sales; (2) outreach programs to kids to reverse the long-term 

downward trend of fluid milk consumption with this age group including innovative solutions 

such as the adoption of single-serve plastic milk bottles in the nation's schools and national 

restaurant chains; and (3) discovering new uses for cheese, dairy proteins, and other components. 

Three Servings A Day of Dairy 

The National Dairy Promotion and Research Program developed the 3-A-Day of Dairy TM 

nutrition-based marketing and education program to communicate the health benefits of eating 

three servings of milk, cheese or yogurt daily. 

In January 2005, the U.S. Department of Health and Human Services and USDA announced the 

new Dietary Guidelines for Americans, that raised the recommended 2-3 servings to 3 servings 

of low-fat and fat-free dairy foods every day - the first time that dairy recommendations have 

changed in 20 years. The new Federal guidelines are the basis for many Federal feeding 

programs, as well as health professional recommendations. The 3-A-Day of Dairy" program is 

an easy actionable way to ensure Americans get several important nutrients. This initiative 

includes education efforts and partnerships with health professionals, manufacturers and 

retailers. 

To date, 3-A-Day of Dairy" has achieved unprecedented accomplishments demonstrated 

through growth in sales, support, and awareness with a variety of influential audiences. Below 

are a few highlights of this effort: 

Overall awareness of 3-A-Day of Dairy" increased from 19 percent to 66 percent in just 

2 years. (Source: GFK Media Tracker) 

61 
I 

Fiaure 4-18. 

3-A-Day's Impact on Awareness of USDA's 

Recommended 3 Servings of Dairy/Day 

More than doubled in 3 years! 

Dec Nov Nov Nov 

2002 2003 2004 2005 

3-A-Oay Awareness 19% 53% 66% 

Awareness of USDA's -------" 

Recommended 

Servings of Dairy/Day 

,-~19%f 33% 40% 44 %~ 

(% of people saying 3) 

St)urce: 3AD Tracker - GfK 

,0klI48 o,,, ..... """ "~' 1 (~ r,u~roto~..~ ooou~ 

Based on the National Dairy Promotion and Research Program's 3-A-Day of Dairy TM, 

industry partners invested more than $25 million in marketing, education and consumerdirected efforts. (Source: J. Brown & Associates) 

3-A-Day of Dairy TM awareness and logo recognition helped to increase consumer 

knowledge of USDA's recommendation for 3 servings of dairy a day. People responding 

to "3" as the correct number of servings increased from 19 percent to 44 percent in three 

years (Figure 4-18). (Source: GFK Media Tracker) 

Among health professionals, the 3-A-Day of Dairy TM program has reached more than 50 

percent awareness. Producer funded research shows that a majority of dietitians, family 

practitioners, and pediatricians recommend at least 3 servings of dairy a day for all ages 

and life stages. (Source: GFK Media Tracker) 

In a poll conducted by DMI, 76 percent of moms surveyed recalled 3-A-Day of Dairy's TM 

connection to weight loss. (Source: GFK Media Tracker) 

According to an independent marketing mix analysis, the 3-A-Day TM efforts delivered 1.4 

billion pounds of milk equivalent at retail; added 3 percent of cheese, 2 percent of fluid 

milk and 4 percent of yogurt retail sales volume. (Source: Marketing Mix Analytics) 

There are more than 2.5 billion qualified packages carrying the 3-A-Day of Dairy TM logo. 

(Source: DMI Industry Survey) 

3-A-Day of Dairy TM for Strong Bones and Weight Management 

Based on dairy producer-funded research, DMI works closely with major reputable health 

organizations such as the American Academy of Pediatrics, the American Dietetic Association, 

the American Academy of Family Physicians, and the National Medical Association to 

encourage their clients to enjoy 3 servings of dairy each day for stronger bones. The U.S. 

Surgeon General concurs with this recommendation based on the dairy producer-funded 

sound science. 

62 
In addition, a growing body of evidence supports the connection between weight management 

and 3 servings of dairy a day. Clinical studies (complete list of study citations is available at: 

www.nationaldairvcouncil.org/NationalDairvCouncil/Healthvweight/Science.htm) suggest that 

including 3 servings of dairy a day as part of a reduced-calorie diet may help people lose more 

weight and more fat than just cutting calories alone. 

Checkoff-funded research supporting dairy foods' role in weight management continues to grow. 

Branded companies are using the science to increase sales of their products. For example, in 

2005, according to a large consumer company's annual report, retail sales grew 24 percent for 1 

major yogurt manufacturer due to advertising efforts that focused on yogurt as a great choice for 

consumers managing their weight. The yogurt category as a whole continues to see strong 

growth as evidenced in Figure 4-19. 

Recapturing Milk as Kids' "Beverage of Choice" 

Efforts to build lifelong dairy consumers start at childhood. Offering kids a different milk 

experience at school can influence them throughout their lifetimes. The National Dairy 

Promotion and Research Program is making aggressive efforts to address the high percentage of 

children ages 9-19 who do not meet the recommended daily intake of 3 servings a day. For 

example, according to the March 2005 USDA Pyramid Servings Intake, Community Nutrition 

Research Group, 83 percent of teenage girls ages 12-19 are not consuming the recommended 3 

servings of dairy a day. Similarly, 68 percent of boys in the same age group are not consuming 3 

servings of dairy a day. Milk consumption among children continues to decline with significant 

volume lost at school. Producer-funded research shows that children will drink milk if it's 

offered in plastic bottles, in flavors, and at a colder temperature. 

-" 4-19. 

U.S.Yogurt Category Sales 

(fiscal year, dollars in billions] 

GO 2D 

01 23 

02 2.6 

03 2.9 

04 3.1 

OS 3.4 

f 

5;oun:e: ACNlelsen plus panel proJectlans 

for Wal- Mart 

......... o.,,. ..... - [ (~ r~,ro, v~ t:~a:rc ~xa, rz 

63 
r. 4-20. 

New Look of School Milk 

3,700 

aim 

2,200 

1,5001 

1,000 

37 

0 97 ~,,-I ~., 

'01 '02 '03 '04 '05 '01 '02 '03 '04 '05 '01 '02 '03 '04 '05 

Schools Students (000) Processom Source: Repo~ng lay schools 

~aA/RV MANJOmmENT INC 

To help identify and build opportunities in the school channel, the National Dairy Promotion and 

Research Program utilized a School Account Development Process that strategically targets the 

top school districts. Approximately 70 promotion program staff members are in place 

throughout the country and serve as a "consultant" to school districts and their school nutrition 

directors, educating them about the nutritional and financial benefits of school milk programs. 

For example, through the adoption of the New Look of School Milk (NLSM), more than 3,700 

schools across the country are providing nearly 2.5 million students with a nutritional product 

they also find appealing and tastes great (Figure 4-20). NLSM is based on the highly successful 

School Milk Pilot Test, funded through the National Program that was conducted in 2002 by the 

National Dairy Council ® and the School Nutrition Association. Results confirmed that more 

children drink milk when it's served in plastic bottles, served cold in a variety of flavors, and 

made widely available on the meal line, a la carte and in vending machines. To date, the NLSM 

program has resulted in approximately 30 million incremental pounds of milk being consumed 

according to individual school reports and the 2002 New Look of School Milk Pilot Test. 

The National Dairy Promotion and Research Program staff is working proactively with schools 

in the education of how dairy producer-funded efforts and nutrition research may play a role in 

School Wellness Policies. These wellness policies help to ensure that children learn practical, 

lifelong lessons about the balance of good nutrition and physical activity. Each school district is 

required by law to have a Wellness Policy by July 2006. Because low-fat and fat-free dairy 

foods are one of 3 food groups that Americans are encouraged to eat more of, the inclusion of 

milk, cheese and yogurt in the school environment and school wellness policies will help drive 

better nutrition for children. In a recent informal Web-based survey at www.3adav.org among 

4,000 moms, 92 percent said they were comfortable with their child drinking flavored milk at 

school. 

64 
In the foodservice sector, the National Program has forged strong, innovative ~artnerships with 

fast-food restaurant companies such as Burger King ®, McDonalds ®, Wendy's% and Sonic ® 

Drive-Ins to test and serve plastic single-serve milk as a viable beverage option for their 

customers. At Wendy's ® and McDonalds ®, according to their 2005 store level data, the efforts 

to help introduce white and chocolate milk in plastic, resealable bottles in nearly 20,000 

restaurants resulted in combined weekly sales of 5.2 million units per week compared to 690,000 

units of milk when it was offered in paper cartons. As more Americans eat away from home, the 

need to offer products they want, where and how they want them is at the heart of a continued 

strategy to fulfill unmet demand. Figure 4-21 shows the continued strong growth of milk in 

foodservice. 

The companies who are committed to growing the business see that, at a minimum, the plastic 

and flavor conversion could add 1 billion pounds of consumption at school and foodservice 

annually if offered universally across the United States (based on foodservice, retail, and school 

estimates from DMI.) Over time, this will impact long-term consumption as these generations 

remain milk drinkers as adults. 

Meeting Unmet Demand through Exports and Ingredients 

Another area with high growth potential is the use of dairy ingredients such as milk protein 

concentrate, nonfat dry milk and whey. The National Dairy Promotion and Research Program is 

working with exporters and manufacturers to provide solutions for increased consumption of 

dairy products through innovative applications of dairy ingredients. According to the National 

Panel Diary, ingredients alone allow dairy to be part of an additional 82.3 percent of total eating 

occasions (Figure 4-22). 

in Foodservice Continues to Grow 

-Now 1.7 Billion Servings 

Total Indu stry Mil k Se~in Os (000 's) 

amd % Chamoo ms Year Ago 1~80553 

1.473.,952 Q~ok-~ UPS'/, 

Sel~l I 

is 75% T 

d F$ i

n N ~ls,~ I i | i i 

21B3 2004 21105 

5% 14% 

Tb~ tJ~. r~MF~ CE~A T 

65 
Customizing whey proteins for unique applications and targeting market segments with growth 

such as beverages, yogurt and sports/nutrition products was a successful strategy in 2005. The 

introduction of a new protein bar using whey protein concentrate and whey protein isolate 

resulted in an additional 500,000-1 million pounds of whey protein ingredients in the first 12 

months of the product launch according to company data. 

The National Dairy Promotion and Research Program's work with manufacturers on dairy 

ingredients has created the same effect. A major yogurt product recently generated nearly 2.5 

million pounds of incremental milk volume using the basics of milk powder in their new 

drinkable yogurt line. Another line of yogurt was developed using milk protein concentrate and 

ultra filtered milk that generated between 3 and 4 million pounds of total incremental milk 

equivalent value according to company data. Overall, the promise of yogurt continues to be 

strong as manufacturers leverage the science that supports the nutritional and weight 

management benefits of this product. 

Exports continue to be a promising opportunity for U.S. production. In 2005, there were 

significant increases in the quantities of whey solids and other nonfat milk solids sold overseas. 

Export sales totaled 751 million pounds of milk solids in 2005. U.S. whey protein exports to 

China grew from 51.4 million pounds to 151.6 million pounds in the 5 years since 2000. 

Conclusion 

In 2005, The National Dairy Promotion and Research Program's many accomplishments paved 

the road to increased dairy consumption. Successful outreach programs such as the development 

of nutrition and science research, the New Look of School Milk, single-serve milk at foodservice, 

Fi are 4-22. 

The Promise of Ingredients 

fShare of Stomach 

// Core Dairy 

g.7% '7/in ingredient 

ommercial use 

9.0% 

Growiug Dairy lugr~limt 

usage to 10-15% of other 

food categories repre~mts 

nlel volume that rivals 

today's dairy category 

lales. 

~DAJRy mJRAGSmENT INC." 

66 
new uses of dairy as an ingredient, and the 3-A-Day of Dairy program all were possible because 

of the dairy producer-funded promotion program. 

The best way to understand the opportunities is to acknowledge that the growth of dairy in 

traditional forms - white milk in gallons, American-style and mozzarella cheese sold 

domestically - will increase but not at historic levels. Therefore, focusing on production-driven 

demand, as in the past, is not the way to drive growth. 

To increase dairy sales, there is a need to focus on the amount of unmet consumer-driven 

demand. Consumer-driven demand is characterized by products that are not currently offered 

that consumers want. The keys to continued growth will be milk in single-serve plaatie 

containers, innovation in cheese products and innovative uses for cheese, expanding exports and 

enhancing the value of dairy ingredients. 

67 
Appendix A 

National Dairy Promotion and Research Board 

Current Member Listing 

Region 1 (Oregon and Washington) 

Elizabeth L. (Liz) Anderson 

Onalaska, Washington 

Term expires 10/31/2006 

Region 2 (California) 

Mary E. Cameron 

Hanford, California 

Term expires 10/31/2006 

Deborah Dykstra 

Caruthas, California 

Term expires 10/31/2007 

Linda P. Macedo 

Merced, California 

Term expires 10/31/2007 

Ronald L. Koetsier 

Visalia, California 

Term expires 10/31/2008 

Marlin J. Rasmussen 

St. Paul, Oregon 

Term expires 10/31/2007 

Kimberly K. Clauss 

Hilmar, California 

Term expires 10/31/2006 

Margaret A. Gambonini 

Petaluma, California 

Term expires 10/31/2007 

Harvey S. Moranda 

Orland, California 

Term expires 10/31/2007 

Region 3 (Arizona, Colorado, Idaho, Montana, Nevada, Utah, and Wyoming) 

Lester E. Hardesty Grant B. Kohler 

Greeley, Colorado Midway, Utah 

Term expires 10/31/2008 Term expires 10/31/2007 

William C. Stouder 

Wendell, Idaho 

Term expires 10/31/2006 

68 
Appendix A, continued 

Region 4 (Arkansas, New Mexico, Oklahoma, and Texas) 

Charles W. Bryant Jose L. Gonzalez 

Austin, Arkansas Mesquite, New Mexico 

Term expires 10/31/2006 Term expires 10/31/2007 

William R. Anglin 

Bentonville, Arkansas 

Term expires 10/31/2008 

Region 5 (Minnesota, North Dakota, and South Dakota) 

Arlon E. Fritsche Donna L. Sharp 

New U|m, Minnesota Bath, South Dakota 

Term expires 10/31/2006 Term expires 10/31/2008 

Region 6 (Wisconsin) 

Carl F. VanDen Avond Rosalie M. Geiger 

Green Bay, Wisconsin Reedsville, Wisconsin 

Term expires 10/31/2008 Term expires 10/31/2007 

Bradford A. McCauley Ronald Johnsrud 

Viola, Wisconsin Gays Mills, Wisconsin 

Term expires 10/31/2008 Term expires 10/31/2006 

Connie M. Seefeldt 

Coleman, Wisconsin 

Term expires 10/31/2006 

Region 7 (Illinois, Iowa, Missouri, and Nebraska) 

Douglas D. Nuttelman James R. Bartelson 

Stromsburg, Nebraska Anita, Iowa 

Term expires 10/31/2008 Term expires 10/31/2006 

69 
Appendix A, continued 

Region 8 (Alabama, Kentucky, Louisiana, Mississippi, and Tennessee) 

Michael M. Ferguson 

Senatobia, Mississippi 

Term expires 10/31/2008 

Region 9 (Indiana, Michigan, Ohio, and West Virginia) 

Donald E. Gurtner Alice S. Moore 

Fremont, Indiana Frazeysburg, Ohio 

Term expires 10/31/2006 Term expires 10/31/2007 

Carl A. Schmitz 

Wadesville, Indiana 

Term expires 10/31/2008 

Region 10 (Florida, Georgia, North Carolina, South Carolina, and Virginia) 

John M. Larson 

Okeechobee, Florida 

Term expires 10/31/2007 

Region 11 (Delaware, Maryland, New Jersey, and Pennsylvania) 

Paula A. Meabon Lewis Gardner 

Wattsburg, Pennsylvania Galeton, Pennsylvania 

Term expires 10/31/2007 Term expires 10/31/2006 

Joyce A. Bupp 

Seven Valleys, Pennsylvania 

Term expires 10/31/2008 

Region 12 (New York) 

Ronald R. McCormick David E. Hardie 

Java Center, New York Lansing, New York 

Term expires 10/31/2008 Term expires 10/31/2007 

70 
Appendix A, continued 

Region 12 (New York) 

Edgar A. King 

Schuylerville, New York 

Term expires 10/31/2006 

Region 13 (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and 

Vermont) 

Debora A. Erb 

Landaff, New Hampshire 

Term expires 10/31/2008 

71 
Appendix B 

National Fluid Milk Processor Promotion Board 

Current Member Listing 

Region 1 (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) 

Michael F. Touhey 

Dean Foods Company 

Franklin, Massachusetts 

Term expires 06/30/2007 

Region 2 (New Jersey and New York) 

Joseph Cervantes 

Crowley Foods, L.L.C. 

Binghamton, New York 

Term expires 06/30/2008 

Region 3 (Delaware, District of Columbia, Maryland, Pennsylvania, and Virginia) 

Michael F. Nosewicz 

The Kroger Company 

Cincinnati, Ohio 

Term expires 06/30/2009 

Region 4 (Georgia, North Carolina, and South Carolina) 

Charles L. Gaither, Jr. 

Milkco, Inc. 

Asheville, North Carolina 

Term expires 06/30/2007 

Region 5 (Florida) 

James S. Jaskiewicz 

Publix Super Markets, Inc. 

Lakeland, Florida 

Term expires 06/30/2008 

72 
Appendix B, continued 

a~ 

Region 6 (Ohio and West Virginia) 

William R. McCabe 

Smith Dairy Products Company 

Orrville, Ohio 

Term expires 06/30/2009 

Region 7 (Michigan, Minnesota, North Dakota, South Dakota, and Wisconsin) 

Rachel A. Kyllo 

Marigold Foods, Inc. 

St. Paul, Minnesota 

Term expires 06/30/2007 

Region 8 (Illinois and Indiana) 

Brian Haugh 

National Dairy Holdings 

Dallas, Texas 

Term expires 06/30/2008 

Region 9 (Alabama, Kentucky, Louisiana, Mississippi, and Tennessee) 

Edward L. Mullins 

Prairie Farms Dairy, Inc. 

Carlinville, Illinois 

Term expires 06/30/2009 

Region 10 (Texas) 

Robert M. McCullough 

H. E. Butt Grocery Company 

San Antonio, Texas 

Term expires 06/30/2007 

73 
Appendix B, continued 

Region 11 (Arkansas, Iowa, Kansas, Missouri, Nebraska, and Oklahoma) 

Gary L. Aggus 

Hiland Dairy Foods Company, L.L.C. 

Springfield, Missouri 

Term expires 06/30/2008 

Region 12 (Arizona, Colorado, New Mexico, Nevada, and Utah) 

Patrick R. Beaman 

Dean Foods Company 

Dallas, Texas 

Term expires 06/30/2009 

Region 13 (Idaho~ Montana, Oregon, Washington. and Wyoming) 

James T. Wilcox, III 

Wilcox Farms, Inc. 

Roy, Washington 

Term expires 06/30/2007 

Region 14 (Northern California) 

Jerry N. Tidwell 

Safeway, Inc. 

Pleasanton, California 

Term expires 06/30/2008 

Region 15 (Southern California) 

Paul W. Bikowitz 

Heartland Farms 

City of Industry, California 

Term expires 06/30/2009 

74 
Appendix B, continued 

Members-At-Large 

Lisa M. Hillenbrand Susan D. Meadows 

Public Member Dean Foods Company 

Geneva, Switzerland Dallas, Texas 

Term expires 06/30/2009 Term expires 06/30/2009 

Randy D. Mooney Michael A. Krueger 

Hiland Dairy Foods Company, L.L.C. Shamrock Foods Company 

Springfield, Missouri Phoenix, Arizona 

Term expires 06/30/2007 Term expires 06/30/2008 

Teresa E. Webb 

Farmland Dairies L.L.C. 

Wallington, New Jersey 

Term expires 06/30/2007 

75 
Appendix C-1 

Regions of the National Dairy Promotion and Research Board 

l Region 13 

[1] 

~~..~J Region 6 Region 5 ~P" 7 "~4 r,~l

[2] ~( L.~j 

Region 11 

[3] f 

-~,~-- ....... l 

: pi Region 7~~ Region 9 

[2] [3] / i l I 

~ll ll gIJ 

Note: The number in brackets b 

indicatesthe munber of members 
Appendix C-2 

Regions of the National Fluid 1Vfilk Processor Promotion Board 

[Region 14 j il 

I

J 

I 

)Region 11 I 

_~ I So,on9 ~ 

J Region5 
Appendix D-1 

National Dairy Promotion and Research Board 

Actual Income and Expenses 

FY 2004-2005 

(in $000's) 

Income 

Assessments 

Interest 

Total Income 

General Expenditures 

General and Administrative 

USDA Oversight 

Total General Expenditures 

Program Expenditures 

Communications and Member Relations 

Domestic Marketing 

Export Enhancement 

Hurricane Fund 

Planning and Research 

Total Program Expenditures 

Excess of Revenue (Under) Over Expenditures 

Fund Balance, Beginning of Year 

Fund Balance, End of Year 

2004 2005 

$85,716 $88,621 

29 201 

$85,745 $88,882 

$3,470 $3,627 

659 588 

$4,129 $4,215 

$11,595 $11,005 

60,491 55,901 

5,483 5,443 

0 5OO 

3 082 2,386 

$80,651 $75,235 

$965 $9,432 

$4,924 $5,889 

$5,889 $15,321 

Source: Independent Auditor's Report of the National Dairy Board and USDA records. 

78 
Appendix D-2 

USDA Oversight Costs for the 

National Dairy Promotion and Research Board 

FY 2004-2005 

2004 2005 

Salaries and Benefits $359,338 $319,403 

Travel 36,906 36,405 

Miscellaneous I 32,984 55,202 

Equipment 6,651 1,651 

Printing 3 261 4 744 

USDA Oversight Total $439,140 $417,405 

Independent Evaluation $154,543 $92,888 

Total 2 $593,683 $510,293 

1Includes overhead, transportation, rent, communications, utilities, postage, contracts, supplies, 

photocopying, and Office of the General Counsel costs. 

2The totals for USDA expenses differ slightly from those shown in Appendix D-1 because of 

end-of-year estimates which are adjusted in the following year. 

79 
Appendix D-3 

National Dairy Promotion and Research Board 

Approved Budgets 

FY 2005-2006 

(in $000's) 

2005 2006 

Revenues 

Assessments $86,315 $86,600 

Program Development Fund Draw 2,500 5,900 

Interest 50 100 

Total Income $88,865 $92,600 

Expenses 

General and Administrative $3,721 $3,853 

Hurricane Fund 500 

USDA Oversight 540 600 

Subtotal $4,761 $4,453 

Program Budget 

Communications and Member Relations $l 1,596 $13,472 

Domestic Marketing 62,508 41,779 

Air Emissions Research - 6,000 

Export Enhancement 5,460 4,890 

Research and Evaluation 2,869 3,256 

Business Plan Development Fund - 13,050 

Emerging Opportunities 1,671 5,700 

Subtotal $84,104 $88,147 

Total Budget $88,865 $92,600 

Source: Budgets from the National Dairy Board received and approved by USDA. 

80 
Appendix D-4 

National Fluid Milk Processor Promotion Board 

Actual Income and Expenses 

FY 2004-2005 

(in $000's) 

2004 2005 

Income 

Assessments $105,728 $107,061 

Late Payment Charges 54 99 

Interest 252 276 

Other 4 510 

Total Income $106,038 $107,946 

General Expenditures 

California Refund $10,175 10,199 

Administrative 2,152 2,001 

USDA Oversight 318 256 

USDA Assessment Verification 113 95 

Total General Expenditures $12,757 $12,551 

Program Expenditures 

Media $69,508 $59,949 

Public Relations 13,312 9,979 

Promotions 9,690 9,425 

Strategic Thinking 1,864 2,092 

Medical Advisory Panel 189 210 

American Heart Association 240 16 

Research, Local Markets, and Program Measurement 2,129 1,711 

Program Management 334 145 

Total Program Expenditures $80,651 $83,527 

Excess of Revenue (Under) Over Expenditures $3,887 $11,867 

Fund Balance, Beginning of Year $16,447 $12,560 

Fund Balance, End of Year $12,560 $24,427 

SOURCE: Independent Auditor's Report of the Fluid Milk Board and USDA Records 

81 
Appendix D-5 

USDA Oversight Costs for the 

National Fluid Milk Processor Promotion Board 

FY 2004-2005 

($0OO's) 

2004 2005 

Salaries and Benefits $262,626 $312~353 

Travel 18,385 19,648 

Miscellaneous ~ 28,161 48,705 

Equipment 2,910 1,651 

Printing 3,024 5,913 

USDA Oversight Total $315,106 $388,270 

Independent Evaluation $98,375 $30,963 

Total 2 $413,481 $419,233 

Includes overhead, transportation, rent, communications, utilities, postage, contracts, supplies, 

photocopying, and Office of the General Counsel costs. 

- The totals for USDA expenses differ slightly from those shown in Appendix D-4 because of 

end-of-year estimates which are adjusted in the following year. 

82 
Appendix D-6 

National Fluid Milk Processor Promotion Board 

Approved Budgets 

FY 2005-2006 

(in $000's) 

2005 2006 

Revenues 

Assessments $104,900 $106,600 

Interest 

Total Income $104,900 $106,600 

Reserve Fund 

Carryover from Previous Fiscal Year $5,175 $5,535 

Total Available Funds $110,075 $112,535 

Expenses 

General and Administrative $2,192 2,213 

USDA Oversight 380 380 

Independent Evaluation 1 1 

Processor Compliance 2 2 

California Refund 10,300 10,300 

Subtotal $12,872 $12,893 

Program Budget 

Advertising $60,695 $69,010 

Public Relations 10,285 11,810 

Promotions 10,535 11,570 

Strategic Thinking 2,155 2,305 

Medical Advisory Panel 225 330 

Research 2,020 2,095 

Medical Research 201 205 

Program Management 150 

Program Measurement 164 215 

Subtotal $86,430 $97,540 

Unallocated 10,773 1,702 

Total Budget $110,775 $112,135 

lIndependent Evaluation costs are included in Program Measurement Expenses. 

2processor Compliance is included in General and Administrative Expenses. 

Source: Budgets from the National Fluid Milk Board received and approved by USDA. 

83 
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE 

National Dairy Promotion and Research Board 

Years Ended December 31, 2005 and 2004 

84 

0603-0718016 
National Dairy Promotion and Research Board 

Financial Statements and Supplemental Schedule 

Years Ended December 31, 2005 and 2004 

Contents 

Report of Independent Auditors ......................................................................................................1 .

Financial Statements 

Supplemental Schedule 

Balance Sheets ...............................................................................................................................2 ..

Statements of Activities .................................................................................................................3 ..

Statements of Cash Flows ................................................................................................................4 

Notes to Financial Statements ..........................................................................................................5 

Schedule of Reconciliation of Operations Budget .........................................................................10 

85 

0603-0718016 
ErNst YouNc, • Ernst & Young ttP • Phone: (312) 879-2000 

Sears Tower www.ey.com 

233 South Wacker Drive 

Chicago, Illinois 60606-6301 

Report of Independent Auditors 

The Board of Directors 

National Dairy Promotion and Research Board 

We have audited the accompanying statement of financial position of National Dairy Promotion 

and Research Board (NDB) as of December 31, 2005, and the related statements of activities and 

cash flows for the year then ended. These financial statements are the responsibility of NDB's 

management. Our responsibility is to express an opinion on these financial statements based on 

our audit. The financial statements of NDB for the year ended December 31, 2004, were audited 

by other auditors, whose report dated April 8, 2005, expressed an unqualified opinion on those 

statements. 

We conducted our audit in accordance with auditing standards generally accepted in the United 

States of America. Those standards require that we plan and perform the audit to obtain 

reasonable assurance about whether the financial statements are free of material misstatement. 

We were not engaged to perform an audit of NDB's internal control over financial reporting. Our 

audit included consideration of internal control over financial reporting as a basis for designing 

audit procedures that are appropriate in the circumstances, but not for the purpose of expressing 

an opinion on the effectiveness of NDB's internal control over financial reporting. Accordingly, 

we express no such opinion. An audit also includes examining, on a test basis, evidence 

supporting the amounts and disclosures in the financial statements, assessing the accounting 

principles used and significant estimates made by management, and evaluating the overall 

financial statement presentation. We believe that our audit provides a reasonable basis for our 

opinion. 

In our opinion, the 2005 financial statements referred to above present fairly, in all material 

respects, the financial position of National Dairy Promotion and Research Board as of 

December 31, 2005, and the changes in its net assets and its cash flows for the year then ended, in 

conformity with accounting principles generally accepted in the United States of America. 

Our audit was conducted for the purpose of forming an opinion on the 2005 financial statements 

taken as a whole. The schedule of reconciliation of operations budget is presented for purposes 

of additional analysis and is not a required part of the financial statements. Such information has 

been subjected to the auditing procedures applied in the audit of the 2005 financial statements 

and, in our opinion, is fairly stated in all material respects in relation to the 2005 financial 

statements taken as a whole. 

April 7, 2006 

86 

0603-0718016 

A member firm of Ernst & Young Global t.imited 
National Dairy Promotion and Research Board 

Balance Sheets 

Assets 

Cash and cash equivalents 

Assessments receivable, net 

Accrued interest receivable 

Fixed assets (net of accumulated depreciation of 

$139,026 and $126,730 in 2005 and 2004, respectively) 

Total assets 

Liabilities and net assets 

Liabilities: 

Due to related party - DMI 

Accounts payable 

Accrued expenses and other liabilities 

Total liabilities 

Net assets - unrestricted 

Total liabilities and net assets 

See accompanying notes. 

December 31 

2005 2004 

$ 11,596,487 $ 4,544,245 

8,813,977 7,588,476 

984 184 

46~740 11,186 

$ 20~458~188 $ 12,144,091 

$ 4,776,017 $ 5,883,443 

162,787 236,859 

260~096 134,337 

5,198,900 6,254,639 

15~259~288 5,889,452 

$ 20~458~188 $ 12,144,091 

87 

0603-0718016 
National Dairy Promotion and Research Board 

Statements of Activities 

Years Ended December 31 

2005 2004 

Revenues 

Assessments $ 88,621,371 $ 85,716,090 

Interest income 200~678 28,759 

Total revenues 88,822,049 85,744,849 

Expenses 

Program: 

Domestic marketing group 55,901,430 60,491,075 

Research and evaluation group 2,385,345 3,081,654 

Communications/member relations group 11,005,496 11,595,023 

Export group 5,443,200 5,482,500 

Hurricane Fund 500,000 

United States Department of Agriculture 58818.52 659,305 

Total program 75,824,323 81,309,557 

General and administrative: 

DMI general and administrative 3,136,334 2,972,207 

General and administrative 4911556 497,605 

Total general and administrative 376271890 3,469,812 

Total expenses 7914521213 84,779,369 

Increase in net assets 9,369,836 965,480 

Net assets at beginning of year 5~889~452 4,923,972 

Net assets at end of year $ 15~259,288 $ 5,889,452 

See accompanying notes. 

88 

0603-0718016 
National Dairy Promotion and Research Board 

Statements of Cash Flows 

Operating activities 

Increase in net assets 

Adjustments to reconcile increase in net assets to 

net cash provided by (used in) operating activities: 

Depreciation 

Changes in assets and liabilities: 

Assessments receivable 

Accrued interest receivable 

Accounts payable 

Accrued expenses and other liabilities 

Net cash provided by (used in) operating activities 

Investing activities 

Purchases of fixed assets 

Net increase (decrease) in cash and cash equivalents 

Cash and cash equivalents at beginning of year 

Cash and cash equivalents at end of year 

See accompanying notes. 

Years Ended December 31 

2005 2004 

$ 9,369,836 $ 965,480 

12,296 8,921 

(1,225,501) 80,403 

(800) (93) 

(1,181,498) (2,005,267) 

125~759 (196,862) 

7,100,092 (1,147,418) 

(47~850) 

7~052~242 (1,147,418) 

4~544~245 5,691,663 

$ 1L596,487 $ 4,544,245 

m 

89 

0603-0718016 
National Dairy Promotion and Research Board 

Notes to Financial Statements 

December 31, 2005 and 2004 

1. Organization 

The National Dairy Promotion and Research Board (NDB) was established on May 1, 1984, 

pursuant to The Dairy and Tobacco Adjustment Act of 1983 (Public Law 98-180), as part of a 

comprehensive strategy to reduce milk surplus supplies in the United States (U.S.) and increase 

human consumption of U.S.-produced fluid milk and other dairy products. The purpose of NDB 

is to establish a coordinated program of promotion and research designed to strengthen the U.S. 

dairy industry's position in the marketplace and to maintain and expand domestic and 

international markets' usage of U.S.-produced fluid milk and other dairy products. 

The United States Department of Agriculture (USDA) approved a joint venture between NDB 

and the United Dairy Industry Association (I~IA) to form Dairy Management Inc. (DMI) 

effective January 1, 1995. The purpose of DMI, a related organization, is to promote greater 

coordination, efficiency, and effectiveness and avoid incompatibility and duplication in the 

marketing programs and projects undertaken by NDB and UDIA. NDB and UDIA will jointly 

plan, develop, and implement their various marketing programs and activities through DMI, 

subject to the approval of the USDA. 

NDB funds DMI on a cost reimbursement basis. Core costs, which include staff salaries and 

benefits, travel, Board of Directors, and office operating expenses, are primarily funded by NDB, 

with UDIA funding one-half of Board of Directors and executive office costs. Marketing 

program costs, which include expenses associated with implementing the marketing programs of 

NDB and UDIA, are funded by NDB and UDIA based on the annual Unified Marketing Plan 

budget. NDB has funded DMI core costs of $15,612,201 and $15,481,616 and program costs of 

$62,259,604 and $68,140,843, for activity related to the years ended December 31, 2005 and 

2004, respectively. 

The U.S. Dairy Export Council (USDEC) is a related organization that was founded by the 

boards of both NDB and UDIA and began operations effective January 1, 1996. The purpose of 

USDEC is to improve the marketing conditions for the U.S. dairy industry with respect to the 

export of U.S. dairy products by promoting the acceptability, consumption, and purchase of U.S. 

dairy products in international markets. For the years ended December 31, 2005 and 2004, NDB 

reimbursed DMI $5,443,200 and $5,482,500, respectively, for USDEC's operations. 

90 

0603-0718016 
National Dairy Promotion and Research Board 

Notes to Financial Statements (continued) 

2. Summary of Significant Accounting Policies 

Basis of Presentation 

The financial statements are prepared on the accrual basis of accounting in conformity with 

accounting principles generally accepted in the United States of America (GAAP). These 

principles require management to make estimates and judgments that affect the reported amounts 

of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported 

amounts of revenues and expenses in the reporting period. Actual results could differ from those 

estimates. Net assets, revenues, and investment income or loss are classified based on the 

existence or absence of donor-imposed restrictions in accordance with the Financial Accounting 

Standards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, Financial 

Statements of Not-for-Profit Organizations as follows: 

Permanently Restricted Net Assets are assets subject to donor-imposed restrictions 

requiring the asset be retained permanently and invested. Restrictions permit the use of 

some or all of the income earned on the invested assets for specific purposes. 

Temporarily Restricted Net Assets are assets with donor restrictions that expire with the 

passage of time, the occurrence of an event, or the fulfillment of certain conditions. 

Earnings related to temporarily restricted net assets are recorded as temporarily restricted 

net assets until amounts are expensed in accordance with donor's specified purposes. 

When donor restrictions are met, temporarily restricted net assets are reclassified as 

unrestricted net assets and reported in the statements of activities as "net assets released 

from restrictions." 

Unrestricted Net Assets are not subject to donor-imposed stipulations. Board-Designated 

Net Assets are Unrestricted Net Assets designated by the Board to be used for several 

specific purposes. The Board retains control over these net assets and may, at its 

discretion, subsequently use the net assets for other purposes. 

All net assets of the NDB at December 31, 2005 and 2004 are unrestricted. 

91 

0603-0718016 
National Dairy Promotion and Research Board 

Notes to Financial Statements (continued) 

2. Summary of Significant Accounting Policies (continued) 

Cash Equivalents 

Cash equivalents include all liquid investments with a maturity of three months or less at the date 

of acquisition. 

Assessments 

Assessment revenue is generated by a mandatory assessment of $.15 per hundredweight on all 

milk produced and marketed in the contiguous United States. Milk producers can direct up to 

$.10 per hundredweight to USDA qualified state and regional generic dairy promotion 

organizations. For the years ended December 31, 2005 and 2004, the net NDB assessment was 

approximately $.0506 and $.0507 per hundredweight of milk marketed, respectively. Assessment 

revenue is recognized in the month in which milk is marketed. 

During 2005, the Dairy Promotion and Research Order was amended to allow organic dairy 

producers, as defined, to be exempt from paying assessments. The amount of. exempted 

assessments in 2005 was approximately $127,000. 

Fixed Assets 

Fixed assets consist of computer software and are recorded at cost. Depreciation and 

amortization are provided in amounts sufficient to charge the costs of depreciable assets to 

operations over estimated service lives of five years using the straight-line method. 

Contract and Grant Expense 

Expenses related to contracts are recognized as incurred. Grants for research projects typically 

require periodic reporting of project status and payments. Such payments are expensed as 

progress is achieved. 

Income Taxes 

NDB has received a determination letter from the Internal Revenue Service indicating that it is 

exempt from federal and state income taxes on related income under Section 501(c)(3) of the 

Internal Revenue Code. There was no unrelated business taxable income for the years ended 

December 31, 2005 and 2004; therefore, no provision for income taxes has been reflected in the 

accompanying financial statements related to activities of NDB. 

92 

0603-0718016 
National Dairy Promotion and Research Board 

Notes to Financial Statements (continued) 

2. Summary of Significant Accounting Policies (continued) 

Employee Costs 

NDB's operations are staffed by DMI employees, who receive vacation, retirement, health, and 

other benefits provided by DMI. 

3. Cash and Cash Equivalents 

Cash and cash equivalents consist of the following as of December 31: 

2005 2004 

Operating cash in banks and on hand 

Federal agency discounted securities 

$ 261,302 

11,335,185 

$11,596,487 

$ 305,034 

4,239,211 

$ 4,544,245 

4. Assessments Receivable 

Assessments receivable are recorded at the estimated net amounts to be received based on the 

amount of milk marketed and the average payment per hundredweight. In accordance with 

Public Law 98-180, NDB forwards unpaid assessments to the USDA for collection and other 

legal proceedings. As of December 31, 2005 and 2004, approximately $101,000 and $101,000, 

respectively, of cumulative unpaid assessments were at USDA pending further action. Such 

amounts are not included in assessments receivable as of December 31, 2005 and 2004, and will 

not be recorded as revenue until such amounts are ultimately received. Civil penalties exist for 

any persons who do not pay the assessment and/or file required milk marketed assessment 

reports with NDB. 

93 

0603-0718016 
National Dairy Promotion and Research Board 

Notes to Financial Statements (continued) 

5. Net Assets 

During 2005 and 2004, NDB's Board designated a portion of net assets for cash reserves. Total 

designations of net assets are as follows: 

2005 2004 

Designated assets - cash reserves $ 1,800,000 $ 1,800,000 

Undesignated net assets 13,459,288 4,089,452 

Total net assets $15,259,288 $ 5,889,452 

6. Transactions With the United States Department of Agriculture 

NDB reimburses the USDA for the cost of administrative oversight and compliance audit 

activities. These reimbursements amounted to $588,852 and $659,305 for the years ended 

December 31, 2005 and 2004, respectively. 

7. Litigation 

NDB and the USDA were defendants in a lawsuit that claims the Dairy Promotion Program 

established by the Dairy Promotion Stabilization Act of 1983 (the Dairy Act) violates the First 

Amendment right to free speech and free association. The lawsuit sought injunctive relief from 

the mandatory assessment fees paid to NDB on milk produced and marketed in the contiguous 

United States. These mandatory assessment fees are the primary revenue source for NDB. 

During fiscal year 2005, this case was settled in NDB and the USDA's favor. 

94 

0603-0718016 
Supplemental Schedule 

95 

0603-0718016 
National Dairy Promotion and Research Board 

Schedule of Reconciliation of Operations Budget 

Year Ended December 31, 2005 

2005 2005 

Commitments Operations 

2005 Total Expensed Budget 

Expenses in 2004 Statement 

Organizational group expenses 

Domestic marketing group $ 55,901,430 $ 164,147 $ 56,065,577 

Research and evaluation group 2,385,345 - 2,385,345 

Communications/member relations group 11,005,496 - 11,005,496 

Export group 5,443,200 - 5,443,200 

Hurricane Fund 500,000 - 500,000 

United States Department of Agriculture 588,852 - 588,852 

DMI general and administrative 3,136,334 - 3,136,334 

General and administrative 491,556 - 491,556 

Total organizational group expenses $ 79~452~213 $ 164~147 $ 79~616~360 

This schedule reconciles the total expenses from the statement of activities presented in 

accordance with accounting principles generally accepted in the United States of America 

to those reflected in the Operations Budget Statement which is used for management's 

internal purposes. 

The 2005 commitments expensed in 2004 represent programs that management committed 

as part of the 2005 marketing plan. 

See accompanying independent auditors' report. 

96 

0603-0718016 
=-__JIErNsT & YOUNG t3 Ernst & Young LLP t2 Phone: (312)879-2000 

Sears Tower www.ey.com 

233 South Wacker Drive 

Chicago, Illinois 60606-6301 

Report of Independent Accountants on 

Applying Agreed-upon Procedures 

The Board of Directors and Management 

National Dairy Promotion and Research Board: 

We have performed the procedures enumerated below, which were agreed to by the U.S. 

Department of Agriculture (USDA) and National Dairy Promotion and Research Board (NDB), 

solely to assist you with respect to evaluating NDB's compliance with the Dairy and Tobacco 

Adjustment Act of 1983 (the Act), the Dairy Promotion and Research,Order (Order), and the 

Agricultural Marketing Services Directive (Directive) entitled Investments of Public Funds as of 

and for the year ended December 31, 2005. NDB is responsible for its compliance with the Act, 

Order, and Directive. This agreed-upon procedures engagement was conducted in accordance 

with attestation standards established by the American Institute of Certified Public Accountants. 

The sufficiency of these procedures is solely the responsibility of the parties specified in this 

report. Consequently, we make no representation regarding the sufficiency of the procedures 

described below either for the purpose for which this report has been requested or for any other 

purpose. 

The procedures and the associated findings are as follows: 

a. We obtained NDB's budget for the year ended December 31, 2005, and sighted the 

signature of the Secretary of the USDA. 

b. We selected four investment purchase transactions from calendar year 2005, compared 

and agreed them against their respective brokers' advices, and noted the following: 

• The investments were in either U.S. Government Securities or Federal Agency 

Securities. 

• The investments had maturity periods of one year or less. 

• The U.S. Government Securities and Federal Agency Securities were held in the 

name of NDB at the designated financial institution. 

c. We obtained the 1999 investment files and sighted various broker's advices noting that 

the investment records have been maintained for six years. 

We found no exceptions as a result of the procedures. 

97 

0605-07,12939 A member firm of Ernst & Young Global Limited 
ERNST& YOUNG • Ernst & Young LLP 

We were not engaged to and did not conduct an audit, the objective of which would be the 

expression of an opinion on the above compliance. Accordingly, we do not express such an 

opinion. Had we performed additional procedures, other matters might have come to our 

attention that would have been reported to you. 

This report is intended solely for the information and use of the board of directors and 

management of NDB and USDA, and is not intended to be and should not be used by anyone 

other than these specified parties. 

April 15, 2006 

98 

0605-0742939 
ERNST & YOUNG t3 Ernst & Young LLP Phone: (312) 879-2000 

Sears Tower www.ey.com 

233 South Wacker Drive 

Chicago, Itlinois 60606-630t 

April 7, 2006 

The Board of Directors 

National Dairy Promotion and Research Board 

Rosemont, Illinois 

In planning and performing our audit of the financial statements of the National Dairy Promotion 

and Research Board for the year ended December 31, 2005, we considered its internal control to 

determine our auditing procedures for the purpose of expressing our opinion on the consolidated 

financial statements and not to provide assurance on internal control. Our consideration of 

internal control would not necessarily disclose all matters in internal control that might be 

material weaknesses under standards established by the American Institute of Certified Public 

Accountants. A material weakness is a reportable condition in which the design or operation of 

one or more of the internal control components does not reduce to a relatively low level the risk 

that misstatements caused by errors or fraud in amounts that would be material in relation to the 

financial statements being audited may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. However, we noted no 

matters involving internal control and its operation that we consider to be material weaknesses as 

defined above. 

This report is intended solely for the information and use of the United States Department of 

Agriculture, the Board of Directors, and management and is not intended to be and should not be 

used by anyone other than these specified parties. 

We would be pleased to discuss the above matters or to respond to any questions, at your 

convenience. 

April 7, 2006 

99 

A Member Practice of Ernst & Young Global 
National Fluid Milk Processor 

Promotion Board 

Financial Statements 

and 

Independent Auditor's Report 

Year Ended December 31,2005 

1250 H Street, N.W., Suite 950 

Washington, D.C. 20005 

lO0 
Part I 

Financial Statements and Independent Auditor's Report for 

the Year Ended December 31, 2005 

Part II 

Report on Internal Control Over Financial Reporting and on 

Compliance and Other Matters Based on an Audit of 

Financial Statements Performed in Accordance with 

Government Auditing Standards 

Part III 

Independent Auditor's Comments on Compliance with 

Government Auditing Standards 

101 
PAJ~T I 

102 
1-2 

Table of Contents 

Independent Auditor's Report ...................................... 

Financial Statements: 

Balance Sheet .................................................. 3 

Statement of Revenues, Expenses and Changes in Net Assets ............ 4 

Statement of Cash Flows ......................................... 5 

Notes to Financial Statements ...................................... 6-10 

Supplementary Information: 

independent Auditor's Report on Supplementary Information .............. 12 

Schedules of Actual Compared to Budget: ..~ 

Program Expenses (Budget Basis) .............................. 14 I ~ 

Revenues and Expenses (Budget Basis) ......................... 13 

~__ 

L_____ 

Administrative Expenses (Budget Basis) ......................... 15 

Schedule of Cash Receipts and Disbursements ...................... 16 

103 
SNYDER'COHN'COLLYER'HAMILTON & ASSOCIATES P.C. 

Independ.ent Auditor's Report 

To the Board of Directors m 

National Fluid Milk Processor 

Promotion Board 

Washington, D.C. 

We have audited the accompanying balance sheet of the National Fluid Milk Processor 

Promotion Board as of December 31, 2005, and the related statements of revenues, expenses 

and changes in net assets and cash flows for the year then ended. These financial statements 

are the responsibility of the National Fluid Milk Processor Promotion Board's management. Our 

responsibility is to express an opinion on these financial statements based on our audit. 

We conducted our audit in accordance with auditing standards generally accepted in the United 

States of America and the standards applicable to financial audits contained in Government 

Auditing Standards, issued by the Comptroller General of the United States. Those standards 

require that we plan and perform the audit to obtain reasonable assurance about whether the 

financial statements are free of material misstatement. An audit includes examining, on a test 

basis, evidence supporting the amounts and disclosures in the financial statements. An audit 

also includes assessing the accounting principles used and significant estimates made by 

management, as well as evaluating the overall financial statement presentation. We believe that 

our audit provides a reasonable basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in all material respects, 

the financial position of the National Fluid Milk Processor Promotion Board as of December 31, 

2005, and the results of its operations, changes in its net assets and its cash flows for the year 

then ended in conformity with accounting principles generally accepted in the United States of 

America. 

In accordance with Government Auditing Standards, we have also issued reports dated March 

6, 2006 on our consideration of the National Fluid Milk Processor Promotion Board's internal 

control over financial reporting and on our tests of its compliance with certain provisions of laws, 

regulations, contracts, grants agreements and other matters. The purpose of those reports is 

to describe the scope of our testing of internal control over financial reporting and compliance 

and the results of that testing and not to provide an opinion on the internal control over financial 

reporting or on compliance. Those reports are an integral part of an audit performed in 

accordance with Government Auditing Standards and should be considered in assessing the 

results of our audit. 

Certified Public Accountants and Business Advisors 104 4520 EaSl West Htghway, Slide q20, Bethesda, MD 2081,<1 3338 

Phone 301-652-6700 Fax 30"~ 986 1028 BKR 

Web cpahelp u:,m F Mail advl~,(~cpahr,][; (<rot 
To the Board of Directors 

National Fluid Milk Processor 

Promotion Board 

Page two 

Our audit was conducted for the purpose of forming an opinion on the basic financial statements 

taken as a whole. The supporting information included in the report for 2005 (Pages 11 through 

16) is presented for purposes of additional analysis and is not a required part of the basic 

financial statements of the National Fluid Milk Processor Promotion Board. Such information 

has been subjected to the auditing procedures applied in our audit of the basic financial 

statements and, in our opinion, is fairly stated in all material respects, in relation to the basic 

financial statements taken as a whole. 

March 6, 2006 

Bethesda, Maryland 

105 
National Fluid Milk Processor Promotion Board 

Balance Sheet 

December 31r 2005 

Assets 

Current assets: 

Cash and cash equivalents 

Assessments receivable, net of allowance for 

uncollectible accounts of $144,915 

Interest receivable 

Future year costs 

Other receivables 

$ 14,822,201 

11,563,165 

21,557 

5,550,801 

159,867 

Total assets 

Liabilities and net assets 

Current liabilities: 

Accounts payable ~. 7,689,802 

Net assets: 

Designated for contingencies 

Undesignated 

2,500,000 

21,927,789 

Total net assets 24,427,789 

Total liabilities and net assets 32,117~591 

106 

See Accompanying Notes 
National Fluid Milk Processor Promotion Board 

Statement of Revenues, Expenses and Changes in Net Assets 

For the year ended December 31r 2005 

Revenues: 

Assessments 

Late payment charges 

Interest income 

Other 

Totalrevenues 

Expenses: 

Program expenses: 

Media 

Promotions 

Public relations 

Strategic thinking 

Research 

Medical advisory panel 

Medical research 

Program measurement 

Total program expenses 

Other expenses: 

California grant 

Administrative 

USDA oversight 

USDA compliance audit 

Total other expenses 

Total expenses 

Excess of revenues over expenses 

Net assets - beginning 

Net assets - ending 

$ 107,060,754 

99,131 

276,135 

509,591 

107,945,611 

59,949,054 

9,424,612 

9,978,572 

2,091,931 

1,711,525 

210,194 

16,098 

144,716 

83,526,702 

10,199,294 

2,000,686 

256,000 

95,443 

12,551,423 

96,078,!25 

11,867,486 

12,560,303 

107 

See Accompanying Notes 
National Fluid Milk Processor Promotion Board 

Statement of Cash Flows 

For the year ended December 31r 2005 

Cash flows from operating activities: 

Excess of revenues over expenses 

Changes in assets and liabilities: 

Increase in assessments receivable 

Increase in interest receivable 

Decrease in future year costs 

Decrease in other receivables 

Decrease in accounts payable 

Net cash provided by operating activities and 

net increase in cash and cash equivalents 

Cash and cash equivalents - beginning 

Cash and cash equivalents - ending 

11,867,486 

(349,439) 

(15,910) 

9,239,105 

54,572 

(11,633,790) 

9,162,024 

5,660,177 

108 

See Accompanying Notes 
National Fluid Milk Processor Promotion Board 

Notes to Financial Statements 

December 31, 2005 

Note 1: Summary of significant accounting policies: 

The National Fluid Milk Processor Promotion Board (the Board) was established 

pursuant to the authority of the Fluid Milk Promotion Act (the Act) of 1990, Subtitle H 

of the Title XIX of the Food, Agriculture, Conservation and Trade Act of 1990. The 

purpose of the Board is to administer the provisions of the Fluid Milk Promotion Order 

(the Order) established pursuant to the Act which establishes an orderly procedure for 

the development, and the financing through an assessment, of a coordinated program 

of advertising, promotion, and education for fluid milk products. 

The Act requires that a referendum be conducted among processors to determine if a 

majority favored implementing the fluid milk program. In the October 1993 initial 

referendum, the majority of processors voted to approve the implementation of the fluid 

milk program. A continuation referendum was held in February-March 1996. Of the 

processors voting in that referendum, the majority favored continuation of the fluid milk 

program. In November 1998, another continuation referendum was held at the request 

of the Board and processors voted to continue the fluid milk program as established by 

the Order. The Act and Order state that the United States Department of Agriculture 

(USDA) will hold future referenda upon the request of the Board, processors 

representing 10 percent or more of the volume of fluid milk products marketed by those 

processors voting in the last referendum, or when called by the U.S. Secretary of 

Agriculture. On March 30, 2004, a Notice of Review and Request was published in the 

Federal Register. The purpose of the Review was to determine whether the Order 

should continue without change. No comments were received and the Order will 

continue without change. 

Forfinancial reporting purposes, the Board is considered a quasi-governmental agency 

of the U.S. government. As such, it is exempt from income taxes under the Internal 

Revenue Code. The USDA and its affiliated agencies operate in an oversight capacity 

of the Board. 

The financial statements of the Board are prepared in conformity with accounting 

principles generally accepted in the United States of America. To facilitate the 

understanding of data included in the financial statements, summarized below are the 

more significant accounting policies. 

Assessments - Effective August 1, 2002, assessments are generated from those 

processors marketing more than 3,000,000 pounds of fluid milk per month by a 20-cent 

per hundred weight assessment on fluid milk products processed and marketed 

commercially in consumer-type packages in the 48 contiguous United States and the 

District of Columbia. Prior to August 1,2002, the minimum monthly assessments were 

generated from processors marketing more than 500,000 pounds of fluid milk per 

month. Assessment revenue is recognized in the month in which the fluid milk product 

is processed. 

109 
National Fluid Milk Processor Promotion Board 

Notes to Financial Statements 

December 31~ 2005 

Note 1: Summary of significant accounting policies: (continued) 

Late payment charges are assessed, as provided under the Act, to processors who do 

not remit monthly assessments within 30 days following the month of assessment. The 

late payment charge is equal to 1.5% of unpaid assessments and accrues monthly. At 

no time does the Board stop accruing interest on these assessments. For 2005, 

allowance for doubtful accounts has not been recorded for late fee charges because 

the Board's management considers all late fees to be fully collectible. 

California (]rant - In accordance with the Act, the Board is required to provide a grant 

to a third party equal to 80% of the assessments collected from Regions 14 and 15 to 

implement a fluid milk promotion campaign. Disbursements under these provisions are 

recorded as "California Grant" in the accompanying financial statements. 

Cash equivalents - For purposes of the statement of cash flows, the Board considers 

investments with an original maturity of three months or less to be cash equivalents. 

Future year costs - Future year costs represent costs incurred for 2006 budget year 

projects. 

Assessments receivable - An allowance for uncollectible accounts has been established 

for those assessments which management has determined as uncollectible. 

Use of estimates - The Board has made certain estimates and assumptions that affect 

the reported amounts of assets and liabilities and the disclosure of contingent assets 

and liabilities at the date of the financial statements, and the reported amounts of 

revenue and expenses during the period. Actual results could differ from those 

estimates. 

Advertising - In accordance with its mission, the Board has approved the development 

of direct and nondirect response advertising and promotional activities. All costs related 

to these activities are charged to expense as incurred. 

Note 2: Cash and cash equivalents: 

At December 31, 2005, the bank balance of the Board's cash deposits was entirely 

covered by federal depository insurance or was covered by collateral held by the 

Board's agent in the Board's name. 

Carrying 

Value 

Cash deposits 

Repurchase agreements 

Investments 

$11,295,987 

924,132 

2,602,082 

110 $14,822,201 
National Fluid Milk Processor Promotion Board 

Notes to Financial Statements 

December 31, 2005 

Note 2: Cash and cash equivalents: (continued) 

At December 31,2005, the repurchase agreements were secured as to principal plus 

accrued interest by U.S. government securities held in the respective banks' 

safekeeping account, in the Board's name, with the Federal Reserve Bank. 

The Board is required to follow the Agricultural Marketing Service (AMS) investment 

policy. Accordingly, the Board is authorized to invest in securities consisting of 

obligations issued or fully insured or guaranteed by the U.S. or any U.S. government 

agency, including obligations of government-sponsored corporations, and must mature 

within one year or less from the date of purchase. At December 31,2005, investments 

consist entirely of U.S. government agency obligations. Investments are carried at cost, 

which approximates fair value. The Board's investments are held by the counterparty's 

trust department or agent in the Board's name. 

At December 31,2005, investments consisted of the following: 

Issue Maturity Interest Carrying 

Date Date Rate Amount 

U.S. Securities: 

FNMA discount note 10/18/05 02/08/06 3.96% $2,602,082 

At December 31, 2005, the Board was owed accrued interest of $21,557. 

Included in cash and cash equivalents is $2,500,000 of Board designated cash 

reserves. 

Note 3: Compliance matters: 

In accordance with the Act and the Order, effective one year after the date of the 

establishment of the Board, the Board shall not spend in excess of 5% of the 

assessments collected for the administration of the Board. For the year ended 

December 31, 2005, the Board did not exceed this limitation. 

111 
National Fluid Milk Processor Promotion Board 

Notes to Financial Statements 

December 31, 2005 

Note 4: Program administration: 

The Board entered into an agreement with the International Dairy Foods Association 

(IDFA) to administer the fluid milk program. Under this agreement, IDFA engages 

outside organizations to develop programs for advertising, promotion, consumer 

education, and certain minority initiatives. The organizations are: 

• Draft 

• Lowe & Partners Worldwide 

• Weber Shandwick Worldwide 

• Siboney USA 

Under this and related agreements, IDFA also directly provides program management, 

administrative support and employee benefits management services and leases office 

space to the Board. During the year ended December 31, 2005, the Board incurred 

approximately $1,120,255 for directly provided services. At December 31, 2005, the 

Board owed IDFA $545,030 for costs billed under these agreements. 

Note 5: Commitments: 

The Board entered into an agreement during fiscal year 2000 with Walt Disney World 

Hospitality & Recreation Corporation (WDWHRC), whereby the Board will pay 

WDWHRC $1,800,000 each year for the next six years through 2006 in exchange for 

the sponsorship and certain promotional rights at the Sports Complex in order to 

cooperatively develop programs to promote fluid milk products at Walt Disney World 

Resort. In December 2003, both parties agreed to extend the term of the agreement 

for another three years through 2009 at the previously agreed rate of $1,800,000 to be 

increased annually by the change in the Consumer Price Index. 

In 2002, the Board entered into a five-year agreement with the American Heart 

Association. Under the agreement, the Board pays the American Heart Association 

$120,000 annually from 2002 to 2007 for use of the logo on the processors' milk 

containers. 

During 2004, IDFA and Flair Communications Agency, Inc. (Flair) agreed to submit to 

binding arbitration for Flair's claim of additional amounts due of $504,788 with respect 

to services it performed under marketing agreements entered into by IDFA as a 

contractor to the Board. As a result of this claim, the Board accrued $504,788 in 2004 

as a potential obligation pending resolution of the binding arbitration process. In June 

2005, a decision was reached in which the arbitrator ruled that the Board has no further 

obligations to Flair. Accordingly, in 2005 this accrual was reversed and is included in 

miscellaneous income on the statement of revenues, expenses and changes in net 

assets. 

112 
National Fluid Milk Processor Promotion Board 

Notes to Financial Statements 

December 31, 2005 

Note 6: Operating lease: 

The Board incurred $129,000 of rental expense during 2005, under a sublease with an 

automatic renewal option. For 2006, the annual lease payment under the contract will 

be $129,000. 

Note 7: Transactions with the United States Department of Agriculture: 

Under the provisions of the Act and the Order, the Board is required to pay the United 

States Department of Agriculture certain fees for oversight and evaluation costs. These 

costs were $351,443 during 2005. 

Note 8: Related party activity: 

Accounting services for the Board are performed by Rubin, Kasnett & Associates, P.C. 

(RK&A); the cost of these services was $310,000 during 2005. A principal of RK&A 

serves as the Chief Financial Officer of the Board and receives compensation for 

services performed. 

The Board has entered into an employment agreement with its Chief Executive Officer 

(CEO). The agreement runs from January 1, 2004 to December 31,2006 and provides 

for annual compensation, benefits, and increases based upon the CEO's annual 

performance evaluation. The agreement also includes provisions that would require 

severance payments upon early termination of the agreement. 

Included with other receivables is $143,392 due from IDFA which represents excess 

retirement plan fundings associated with the CEO's employment contract. This amount 

will be adjusted on an annual basis, and will be refunded to the Board upon the earlier 

of the CEO's termination or retirement. 

113 
SUPPLEMENTARY 

INFORMATION 

114 
q 

\, 

,~ttesh)o 

h,Vl I ,l 

p. t- I 

SNYDER-COHN-COLLYER'HAMILTON & ASSOCIATES P.C. 

u 

Independent Auditor's. Report on Supplementary Inf.o.rmation 

To the Board of Directors 

National Fluid Milk Processor 

Promotion Board 

Washington, D.C. 

Our report on our audit of the basic financial statements of the National Fluid Milk 

Processor Promotion Board for 2005 appears on page 1. We conducted our audit 

for the purpose of forming an opinion on the basic financial statements taken as a 

whole. The supplemental information presented on pages 13 to 16 for the year 

ended December 31, 2005 is presented for purposes of additional analysis and is 

not a required part of the basic financial statements. Such information has been 

subjected to the auditing procedures applied in the audit of the basic financial 

statements and, in our opinion, is fairly stated in all material respects in relation to 

the basic financial statements taken as a whole. 

:Z 

p.o. 

March 6, 2006 

Bethesda. Maryland 

Certified Public Accountants and Business Advisors 

4520 East West Highway, Suile 520, Belhesda, MD 20814-3338 115 

Phone: 301-652-6700 Fax: 301-986-1028 BKR 

Web: cpahelp.corn F-Mail: advice@cp,]holp cc~m I ~,r~. I. P,,~, ,r.,O ~ r,,,., w,,,la~.k 
National Fluid Milk Processor Promotion Board 

Schedule of Revenues and Expenses 

Actual Compared to Budget 

(Budget Basis) 

For the year ended December 3tp 2005 

Unexpended/ Actual 

Amended Current Year Over(Under) 

Budget Actual Budget 

Reve nues: 

Assessments $ 104,900,000 $ 107,060,754 $ 2,160,754 

Late payment charges 99,131 99,131 

Interest income 276,135 276,135 

Other 509,591 509,591 

Carryover - prior years ...... 5,175,000 (5,175,000) 

Totalrevenues 110,075,000 107,945,611 (2,129,38,~,), 

Expenses: 

Program expenses: 

Program - current year 86,429,700 82,412,286 (4,017,414) 

Program - prior years 6,873,470 1,114,416 (5,759,054) 

Total program expenses 93,303,170 83,526,702 (9,776,468) 

Other expenses: 

California grant 10,300,000 10,199,294 (100,706) 

Administrative 2,192,000 2,000,686 (191,314) 

USDA oversight 380,000 351,443 (28,557) 

Total other expenses 12,872,000 12,551,423 (320,577) 

Less encumbrances- prior years (6,873,470) 6,873,470 

Totalexpenses 99,301,700 96,078,125 (3,223,575) 

Unalfocated budget 10,773,300 (10,773,300) 

Excess of revenues over expenses $ 111867,486 

116 
National Fluid Milk Processor Promotion Board 

Schedule of Program Expenses 

Actual Compared to Budget 

(Budget Basis) 

For the year ended December 31p 2005 

Current Year Expended Actual Prior Year Expended Actual Total 

Amended Current Year Over (Under) Unexpended Prior Year Over (Under) Program 

Budget Actual Bud.qet Bud.qet Actual Budget Activity 

Expenses-2005 budget 

Media $ 60,695,000 $ 59,816,286 $ (878,714) $ 601,151 $ 132,768 $ (468,383) $ 59,949,054 

Promotions 10,535,000 9,111,140 (1,423,860) 3,856,853 313,472 (3,543,381) 9,424,612 

Public relations 10,285,000 9,851,429 (433,571) 433,474 127,143 (306,331) 9,978,572 

...j Strategic thinking 2,155,000 1,874,183 (280,817) 537,223 217,748 (319,475) 2,091,931 

Research 2,020,000 1,418,392 (601,608) 926,243 293,133 (633,110) 1,711,525 

Medical advisory board 225,000 205,696 (19,304) 215,244 4,498 (210,746) 210,194 

American Heart Association 120,000 - (120,000) 

Medical research 201,000 16,098 (184,902) 139,560 - (139,560) 16,098 

Program measurement 163,700 119,062 (44,638) 43,722 25,654 (18,068) 144,716 

Program management 150,000 (150,000) -

Total program expenses .~. 86,429,700 ~ 82,412.286. $ (4,017,414) $ 6,873,470 $ 1,114,416 $ (5,759,054) .$ 83,52.,6,702 

3 XI(l 3ddV 
National Fluid Milk Processor Promotion Board 

Schedule of Administrative Expenses 

Actual Compared to Budget 

(Budget Basis) 

For the year ended December 31~ 2005 

Current Year Actual 

Amended Current Year Over(Under) 

Budget ._ Actual Budget 

Management contract $ 320,000 $ 318.040 $ (1,960) 

Board meeting expenses 350,000 230,177 (119,823) 

Staff salaries and benefits: 

Staff salaries and compensation 423,286 417,658 (5,628) 

Staff retirement benefit 42,329 22,565 (19,764) 

Payroll taxes 14,763 14,983 220 

Health insurance 8,446 3,034 (5,412) 

Life insurance 1,442 1,608 166 

Disability insurance 1,545 777 (768) 

Workers compensation 721 1,048 327 

Other employee benefits 2,266 __ 2,300 34 

Total staff salaries and benefits 494,798 463,973 __ (30,825) 

Finance and administration: 

Contract staff 140,000 139,955 (45) 

Financial services 310,000 310,000 

Total finance and administration 450,000 449,9555 (45) 

Other operating expenses: 

Legal 200,000 171,453 (28,547) 

Audits 80,000 87,834 7,834 

Office facilities 111,000 111,000 

Support and maintenance 18,000 18,000 

Staff travel 105,000 89,899 (15,101 ) 

Telephone 3,000 1,979 (1,021) 

Insurance 35,000 35,940 940 

Postage and delivery 15,000 16,856 1,856 

Unallocated administrative expense 10,202 5,5800 (4,622) 

Total other operating expenses 577,202 538,541 __ (38,661) 

Total administrative expenses $ 2,192,000 ~; 2,000,686 $ (191,314) 

118 
National Fluid Milk Processor Promotion Board 

Schedule of Cash Receipts and Disbursements 

For the year ended December 31, 2005 

Cash receipts from operations: 

Assessments 

Late payment charges 

Interest income 

Other 

Total revenues 

$ 106,765,887 

99,131 

260,225 

4,803 

107,130,046 

Cash disbursements for operations (97,968,022) 

Excess of operating receipts over disbursements 9,162,024 

Cash and cash equivalents-beginning 5,660,177 

Cash and cash equivalents - ending $ 14,822,201 

119 
PART II 

120 
°~~~ ~ Q ,'~'4 0 

SNYDER'COHN'COLLYER'HAMILTON & ASSOCIATES P.C. " 2 ~ o ,¢ 

Report on Internal Control Over Financial Reporting and on 

Compliance and Other Matters Based on an Audit of Financial 

Statements Performed in Accordance with 

Government Auditing Standards m 

To the Board of Directors 

National Fluid Milk Processor 

Promotion Board 

Washington, D.C. 

We have audited the financial statements of the National Fluid Milk Processor Promotion Board 

as of and for the year ended December 31, 2005, and have issued our report thereon dated 

March 6, 2006. We conducted our audit in accordance with auditing standards generally 

accepted in the United States of America and the standards applicable to financial audits 

contained in Government Auditing Standards issued by the Comptroller General of the United 

States. 

]n.ternal Cont .r.o.l Over Financial Reportinq 

in planning and performing our audit, we considered the National Fluid Milk Processor 

Promotion Board's internal control over financial reporting in order to determine our auditing 

procedures for the purpose of expressing our opinion on the financial statements and not to 

provide an opinion on the internal control over financial reporting. However, we noted certain 

matters involving the internal control over financial reporting and its operation that we consider 

to be reportable conditions. Reportable conditions involve matters coming to our attention 

relating to significant deficiencies in the design or operation of the interna/controt over financial 

reporting that, in our judgment, could adversely affect the National Fluid Milk Processor 

Promotion Board's ability to record, process, summarize, and report financial data consistent 

with the assertions of management in the financial statements. We noted during the course of 

our audit one instance where a subcontractor was reimbursed for first class airfare totaling 

$548. Upon discovery, the subcontractor was contacted and a refund of $121, the difference 

between the price of a first class ticket and a coach class ticket, was obtained. 

A material weakness is a reportable condition in which the design or operation of one or more 

of the internal control components does not reduce to a relatively low level the risk that 

misstatements caused by error or fraud in amounts that would be material in relation to the 

financial statements being audited may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. Our consideration of 

the internal control over financial reporting would not necessarily disclose all matters in the 

internal control that might be reportable conditions and, accordingly, would not necessarily 

disclose all reportable conditions that are also considered to be material weaknesses. However, 

we believe that none of the reportable conditions described above is a material weakness. 

Certified Public Accountants and Business Advisors 

121 

4520 East West Htghway, Suite 520, Belhesda, MD 2081'4-3338 

Phone: 301 652-6700 Fax: 301-986-1028 BKR 

Web cpaholp (r~rn {:-Mail aclvrco@rpahelp fr, m r.,,,, i., r:,r,.,r J ~'.,,. w,,,r,~ ,d~ 

i 
To the Board of Directors 

National Fluid Milk Processor 

Promotion Board 

Page two 

Compliance and Oth,.er Matters 

As part of obtaining reasonable assurance about whether the National Fluid Milk Processor 

Promotion Board's financial statements are free of material misstatement, we performed tests 

of its compliance with certain provisions of laws, regulations, contracts and grant agreements, 

noncompliance with which could have a direct and materia) effect on the determination of 

financial statement amounts. However, providing an opinion on compliance with those 

provisions was not an objective of our audit and, accordingly, we do not express such an 

opinion. 

This report is intended solely for the information and use of the National Fluid Milk Processor 

Promotion Board, management of the National Fluid Milk Processor Promotion Board, and the 

Dairy Programs, Promotion and Research Branch of the Agricultural Marketing Service Agency 

of the United States Department of Agriculture and is not intended to be and should not be used 

by anyone other than these specified parties. 

March 6, 2006 

Bethesda, Maryland 

122 
PART III 

123 
m 

SNYDER.COHN-COLLYER'HAMILTON & ASSOCIATES P.C, 

,w 

To the Board of Directors m National Fluid Milk Processor 

Promotion Board 

Washington, D.C. 

We have audited, in accordance with auditing standards generally accepted in the United States 

of America and the standards applicable to financial statement audits contained in Government 

Auditing Standards issued by the Comptroller General of the United States, the balance sheet 

of the National Fluid Milk Processor Promotion Board as of December 31,2005, and the related 

statements of revenues, expenses, and changes in net assets and cash flows for the year then 

ended, and have issued our report thereon dated March 6, 2006. The financial statements were 

prepared in conformity with accounting principles generally accepted in the United States of 

America. 

In connection with our audit, nothing came to our attention, insofar as it relates to accounting 

matters, that causes us to believe that the NationaP Fluid Milk Processor Promotion Board: 

• Failed to comply with laws and regulations applicable to the National Fluid Milk 

Processor Promotion Board; 

Failed to comply with Section 1160.212 of the Fluid Milk Promotion Order, relating to 

the use of assessment funds for the purpose of influencing governmental policy or 

action; 

• Expended assessment funds for purposes other than those authorized by the Fluid Milk 

Promotion Act and the Fluid Milk Promotion Order; 

Expended or obligated assessment funds on any projects prior to the fiscal year in 

which those funds were authorized to be expended by the National Fluid Milk Processor 

Promotion Board's approved Budget and Marketing Plan; 

• Did not adhere to the original or amended Budget and Marketing Plan for the year 

ended December 31, 2005; 

Did not obtain a written contract or agreement with any person or entity providing goods 

or services to the National Fluid Milk Processor Promotion Board, except as described 

below; 

Certified Public Accountants and Business Advisors 124 

4520 East West Highway, SLJlle 520, Bethe~fJa, MD 20814-3338 

Phone 301-652 6700 Fax 301-986-1028 BKR

Web cpahelp tom [ lv1,,ll ,~.J',,l~.c@~-I),~!;(']i; cor~'l 
To the Board of Directors 

National Fluid Milk Processor 

Promotion Board 

Page two 

Failed to comply with Section 1999H, paragraph (g) of the Fluid Milk Promotion Order, 

relating to the limitations on the types of investments which may be purchased by the 

National Fluid Milk Processor Promotion Board and the insurance or collateral that must 

be obtained for all National Fluid Milk Processor Promotion Board deposits and 

investments; 

• Failed to comply with internal controls, except as described below; 

• Failed to comply with disclosure requirements for lease commitments; 

Failed to comply with standards established requiring signed contracts, USDA approval 

letters (if necessary), contract term documentation within the file, and CFO's signature 

on the Board approval letter; or 

Failed to comply with the by-laws of the National Fluid Milk Processor Promotion Board 

or any other policy of the National Fluid Milk Processor Promotion Board, specifically 

as they relate to all financial matters, including time and attendance, and travel. 

However, our audit was not directed primarily toward obtaining knowledge of such 

noncompliance. 

During the course of our audit, we noted one instance where a subcontractor was paid for 

services rendered prior to having a written contract or agreement with the Board. This situation 

was discovered by the Board's management during the calendar year and subsequently 

corrected by obtaining a refund from the subcontractor. Once a contract was executed, the 

payment was reissued. We also noted one instance where a subcontractor was reimbursed by 

the Board for first class airfare. Upon discovery, the subcontractor was contacted and a refund 

was obtained for the difference between the price of a first class ticket and a coach class ticket. 

This report is intended solely for the information and use of the National Fluid Milk Processor 

Promotion Board, management of the National Fluid Milk Processor Promotion Board, and the 

Dairy Programs, Promotion and Research Branch of the Agricultural Marketing Service Agency 

of the United States Department of Agriculture and is not intended to be and should not be used 

by anyone other than these specified parties. 

March 6, 2006 

Bethesda, Maryland 

125 
Appendix F-1 

National Dairy Promotion and Research Board 

and Dairy Management Inc. 

Contracts Reviewed by USDA, 2005 

Advertising and Marketin~ Services 

Affina Corporation-Real SeaP Certification Program 

American School Food Service Association-School Foodservice Publications; School Milk 

Pilot Consulting Services 

Broadcast Traffic and Residuals, Inc.-Fluid Milk and Cheese Broadcast Materials and Talent 

Activities 

Campbell Mithun (Lowe Worldwide)-Foodservice Promotion Activities 

DDB Worldwide Communications Group-Media Planning Services; 3-A-Day of Dairy 

Creative Advertising 

Dairy Farmers, Inc.-Professional Services 

Flair Communications Agency-Marketing and Program Constitution and Management 

General Mills Marketing-41 st Pillsbury Bake-off Contest; Print Media Buying 

Initiative Media Worldwide-Advertising Commission Review 

J. Brown and Associates-DMI Cheese Co-Marketing Program 

Kellogg's USA, Inc.-NASCAR Sponsorship: Joint Milk and Cereal Promotion Activities 

McDonald's Corporation-Happy Meal Promotion 

Media Management Services-School Marketing Program Support 

Media Vest Worldwide-3-A-Day Advertising Services 

Midwest Dairy Association-National Retail Account Services; Chicago School Marketing 

NFL Properties, LLC-Promotional Activities; Logo Usage Rights 

National School Board Association-Marketing Partnership 

Olson Communications-School Foodservice Merchandising Materials; Mealtime Sampler 

Activities; Milk Vending Promotion Kits; School Cafeteria Promotion Activities; Foodservice 

Program Activities; School Promotion Activities; ADA Trade Booth 

School Foodservice and Nutrition-Nutrition Magazine Inserts 

Slack Barshinger and Partners-Integrated Marketing Communications 

Team Services, LLC-NFL and Sports Marketing Services 

WebMD-3-A-Day Weight Loss Activities (Web-based) 

Wendy's International-Plastic Milk Container Tests; Kids Meal Promotion 

Wisconsin Milk Marketing Board-National Butter Program 

126 
Appendix F-I, continued 

Public Relations and Nutrition Education 

7 th Wave Communications-Brag Book Video Project 

American Dietetics Association-3-A-Day Avertorial 

Association Partners Plus-Communications and Cooperative Education Projects 

Association of School Business Officials International-School Milk Marketing 

Cardan Company-Grade 2 Nutrition Education Programs 

Child Nutrition Foundation-School Foodservice Program Activities 

Cleveland Dovington Partners, Inc.-Information Technology Services and Consulting; Web 

site development (Intranet) www.TeamDairT.com 

Dairy Farmers, Ine.-Communication Activities 

Destination Imagination, Inc.-Destination Imagination Sponsorship; 3-A-Day of Dairy Improv 

Challenge 

Edelman Public Relations Worldwide-Web site www.butterisbest.com Maintenance; DMI 

Health Professional Public Relations Program; Dairy Spokesperson Network, Nutrition 

Communications Program; Dairy Image Media Relations; 3-A-Day Public RelationsRetail/Foodservice; DMI Dairy Image Program; Centers of Influence; Healthy Weight with 

Dairy Activities 

Fleishman Hillard-Reputation Management Program 

Food, Research, and Action Center-Food Breakfast Expansion 

The Fratelli Group-Dairy Image Protection 

Health and Nutrition Network-Media Training & Consulting Services 

Healthy Schools, Inc.-Action For Healthy Kids Sponsorship 

I-Site Web Design-School Marketing Web Program 

Image Base Corporation-Video News Release Production; International School Milk 

Conference Services 

Integer Group-Dairy Producer Communications Program 

J.M. Smucker-Return to School Promotion Activities 

Jack Morton Worldwide-Web site Design; Web Activities 

Jerry Dryer Group-Dairy Issues Management 

Media Management Services-Pyramid Caf6/Pyramid Explorations Newsletter 

National Dairy Shrine-Dairy Scholarship Program 

Nutrition Impact LLC-Consulting 

Osborn and Barr-Communications; Industry Relations Consulting Project 

Results Direet-DMI Website Activities 

Weber Shandwick, Inc.-Issues Monitoring and Response; Crisis Communications Program 

Export 

3 A Business Consulting-Europe's Sport Nutrition Market Review 

ABC Translation Services-Technical and Safety Evaluation Assessments 

127 
Appendix F-l, continued 

Export, continued 

American-Mexican Marketing Mexican Market Representation and Program Activities; 

Mexican Trade Show and Cheese Promotion Activities 

Another Color, Inc.-USDEC Publications Development and Design 

Arab Marketing Finance, lnc-Middle East Market Representation and Program Activities 

Brooke Scientific Consulting-USDEC Export Guide 

Contacts International Consulting, Ltd.-South American Market Representation and Program 

Activities 

Dairymark.com-Whey Permeate Product Supplier Study; Global Strategic Plan for Dairy 

Research; Global Dairy Industry Patent Review 

Foodtrends-Production of Training Manual and Video for Caribbean Deli Program 

Functional Ingredients Research, Inc.-Korean Whey Nutrient-Marketing Conference and 

Trade Mission 

GVI Productions-Development and Production of Promotional Video 

The Garrison Group-Consulting, Editorial, and Promotional Services 

Global Foods & Nutrition-Education Seminar and Trade Mission, Central Asia; Europe 

Newsletter 

Global Trade Information Services-Purchase of World Trade Atlas 

Grassland Media-Production of Deli Training Video 

International Dairy Foods Association-Export Manual Updates 

International Trade Services-International Manuals Updates 

lntNet-Korean Market Representation and Program Activities; Trade 

Islamic Food & Nutrition-Halal Certification Services 

Jerry Dryer Group-USDEC Domestic Communications Plan 

Landell Mills-Update of Global Dairy Blends Study; Brazilian Market Research; Milk Minerals 

Research; Indian Dairy Market Study; Soy and Whey Competitive Study 

Levitt Communication-International Consulting Services 

Market Makers-Japanese Market Representative & Program Activities 

Mistral Group, Ltd.-European Market Representation and Program Activities 

National Milk Producers Federation-Global and Domestic Research Activities; Farm to 

Consumer Program Activities 

PR Consultants-Chinese Market Representation and Program Activities 

Pacrim Associates-Southeast Asian Market Representation and Program Activities 

Patricia R. Fuchs & Associates-USDEC Print Project Management 

Promar International-Study Dairy Products in Russia 

Results Direct-USDEC Web site Activities www.usdec.org Activities 

Stanton, Emms, and Sia-Study of Markets for Dairy Products in Vietnam 

TCE Consulting Group-Food and Nutrition Conference Activities, Tunis 

Uniflex Marketing-Japanese Market Representation and Program Activities; Japanese Dry 

Ingredients Program 

128 
Appendix F-I, continued 

Export, continued 

World Perspectives-Market Research for Cheese in the Foodservice Sector in the Caribbean 

U.S. Whey Research Consortium-The effect of Whey Protein on Body Weight, Body Fat, and 

Health 

Market and Economic Research 

Academic Network-Food Guide Pyramid Strategic Counseling 

ARS Group-Print Advertising Evaluation 

BBDO-Pizza Qualitative Research 

Beverage Marketing Corporation of New York-Evaluation of the Effectiveness of Generic 

Milk Programs; Vending Tracking Study 

Burelle's Newsclip Analysis Service-Media Monitoring and Analysis 

CFE Solutions, Inc.- Consulting Services 

C & R Research-Educational Materials Research Evaluation 

CY Research, Inc.-Milk and Cheese Creative Testing; Dairy Weight Loss Research Awareness 

Container Recycling Service-School Recycling Project 

Custom Research, Inc.-Cheese and 3-A-Day Advertising Campaign Impact Assessment; 

Health Professional Dairy Nutrition Tracking Study 

Datacore Marketing-Database Management and Consulting 

Doyle Research Associates-Web Site Usability Qualitative Research; Business to Business 

Qualitative Research; Chocolate/White Milk Qualitative Research 

Environ-Flavored Milk Research Project 

Focus Management Services-U S Milk Industry School Audit 

Fresh Look Marketing Group-Top-line Random Weight Cheese Data 

GFK Custom Research-3-Day Tracking Study; Health Professional Tracking Study; 

Green House Communications-Pizza Recipe Development 

Information Resources, Inc.-Milk and Cheese Category Volume Reports 

K.A. Enterprise-African American Usage, Attitudes, and Associations with Dairy Products 

KRC Research-3-A-Day Tracking Survey 

Knowledge Networks-NASCAR Promotion Awareness Research; Fluid Milk Advertising 

Tracking Research/Mom's Tracking Study 

MSW-3-A-Day Weight Loss Advertising Test; Test; Advertising Focus Group Analysis 

MangoLogic-Online Consumer Surveys 

Marketecture-Attitudes and Usage Trends Study Analysis; Tracking Activities of Public 

Opinion Toward Dairy Products and the Dairy Industry (Issues Tracker); Whey Protein Study 

Marketing Concepts-Product Innovation and Research Program 

Marketing Management-Marketing Mix Analysis 

Maskowitz-Jacobs-Consumer Interviews on Milk and Soy Preferences 

Mintel International Group-New Products Database and Market Intelligence Reports 

National Medical Association-Role of Dairy in the African American Diet 

L_2 

129 
Appendix F-l, continued 

Market and Economic Research~ continued 

National Milk Producers Federation-Domestic Research Program Activities/Animal Health 

and Welfare Issues Activities 

NFO Research-INFOfast Subscription; Dairy Restrictors Research: Purchase and Analysis of 

Marketing Data 

NPD Group-Whey Protein Survey; Organic Milk Survey: Milk Allergen Labeling Study; 

Cheese Consumption Tracking Activity; CREST Foodservice Data; Eating Patterns Data Report; 

Food Safety and Dieting Monitor Report; Eating Trends and Beverage Study; Breakfast in 

America Report; Food World Subscription 

Peryam and KrolI-School Milk Container Test; Frozen Pizza Qualitative Study 

PHD Technologies-Whey Protein Concentrate-Processed Meat Applications 

Prime Consulting Group-Retail Innovation Study Results Workshop 

Promar International-School Milk Analysis and Consultation 

Promata-Leemiss Services-Online Advertising Activity Data 

Pursuant, Inc.-Milk-Producing Livestock Cloning/Dairy Consumption Research; Obesity and 

Healthcare Research; Dairy Production Practices Attitude Research 

RSC-The Quality Measurement Co.-3-A-Day Testing Activities 

Results Direct-Database Development 

Roper ASW-Plate Waste Study; Student Surveys 

Sachs Marketing and Research-Dairy Weight Loss Claims Study 

Spectra Marketing Systems-Marketing Research Activities 

Summit Research, Inc.-Milk Pilot Satisfaction Survey 

Talent Partners-Broadcast Traffic Services 

TDI Management-Planning Services 

Technomic-Understanding Obesity and its Foodservice Impact 

Teri Gacek Associates-Qualitative Market Research Assignments; Focus Group Testing; 

Organic Milk Focus Groups 

The Travis Company-NDC Promotional Kit Evaluation Research 

Trion Group LP-School Milk Training Project 

Turover Straus Group-Strategic Blueprint Development; Concept Development: Dairy-Based 

Salad Dressing and Spreads 

Upshot Corporation-Sales Force Outreach and Data Delivery System 

Video Monitoring Services-Broadcast Monitoring 

Western Wars-School Vending Awareness and Usage Survey 

Widener-Burrows and Associates-Qualitative Research for Chocolate Milk Program Analysis 

Wirthlin Worldwide-Producer Communications Survey; Pyramid Education Program Research 

130 
Appendix F-2 

National Fluid Milk Processor Promotion Board 

and International Dairy Foods Association 

Contracts Reviewed by USDA, 2005 

Contractor and Initiatives 

Susan Barr, Ph.D.-Medical Advisory Board Member Services 

Robert P. Heaney, n.D.-Creighton University-Medical Advisory Board Member Services 

James O. Hill, Ph.D.-Medical Advisory Board Member Services 

Rachel Johnson, Ph.D., R.D.-Medical Advisory Board Member Services 

Jeanette M. Newton-Keith, M.D.-Medical Advisory Board Member Services 

Ronald n. Krauss, M.D.-Medical Advisory Board Member Services 

American Heart Association-Certification Mark Licensing Agreement; Product Nomenclature 

Beverage Marketing Corporation of New York-Consulting/Competitive Strategy 

Development 

Blueprint Communications-Media Buy Performance Analysis 

California Milk Processor Board-Licensing Agreement 

CMGRP, Inc., d.b.a. Weber Shandwick-Public Relations Services 

Data Development Corporation-Market Research 

Draft, Inc.-Promotional Marketing Services 

Energy Infuser, Inc.-Focus Groups 

Environ International Corporation-Consulting Services and Research 

Fixation Marketing-Graphics Design 

Information Resources, Inc.-Market Analysis 

Inland Printing-Customer Service Activities 

Insight Express-Market Research 

Lowe Worldwide-Advertising Services 

Menendez International-Hispanic Market Research 

Outloud-Marketing Communications 

Potomac Digitek-www.Milkplan.org Web site Services 

P.O.V. Marketing-Consulting Services 

Prime Consulting Group-Consulting Services, Survey Analysis; Promotion Assessments 

Publicidad Siboney-Hispanic Marketing Program 

School Nutrition Association-Educational Seminars 

Snyder, Cohn, Collyer, Hamilton & Associates, P.C.-Audit Services 

Taylor Nelson Sofres-Hispanic Consumer Market Research 

Technomic, Inc.-Marketing Study and Analysis 

The Innovation Resources-Consulting Services 

Willard Bishop-Consulting Services 

131 
Appendix G-1 

Nutrition and Health Research Institute 

and Dairy Foods Research Centers, 2005 

Nutrition and Health Research Institute 

Genetics and Nutrition Institute 

Children's Hospital, Oakland Research Institute: Relationship of Genetics, Dietary Fat 

(Especially Dairy Fat), and Heart Disease 

Dairy Foods Research Centers 

California Dairy Research Foundation 

(University of California-Davis and California Polytechnic State University-San Luis Obispo) 

Specializes in product technology development, ingredient technology, product health 

enhancement properties, food safety, and quality assurance. 

Minnesota/South Dakota Dairy Food Research Center 

(University of Minnesota-St. Paul and South Dakota State University-Brookings) 

Concentrates on natural and processed cheese functionality and flavor, fluid milk flavor and shelf 

life, genomics of probiotic bacteria, and utilization of acid and salt whey. 

Northeast Dairy Foods Research Center 

(Cornell University-Ithaca and University of Vermont-Burlington) 

Focuses attention on developing and improving processing technologies to enhance dairy 

product quality, safety, and functionality, improving the safety of foods and processing systems, 

and modifying dairy product composition to ensure that dairy foods and ingredients remain a part 

of a healthy diet. 

Southeast Dairy Foods Research Center 

(North Carolina State University-Raleigh and Mississippi State University-Starkville) 

Specializes in milk and whey ingredient functionality, thermal and biological processing, sensory 

properties of cheese and dairy ingredients, dairy food safety, and microbial technologies for 

starter cultures and probiotics. 

Western Dairy Center 

(Utah State University-Logan, Oregon State University-Corvalis, Washington State UniversityPullman, and University of Idaho-Moscow) 

Specializes in cheese flavor and functionality, fluid milk processing, whey and milk utilization, 

and microbial genetics and physiology. 

132 
Appendix G-I, continued 

Wisconsin Center for Dairy Research 

(University of Wisconsin-Madison) 

Explores functional flavor and physical properties of cheese and cheese products, whey and 

whey components, and milk components used as ingredients and as finished products, cheese 

making and whey processing and separation procedures, use of milkfat, and food safety and 

quality technology. 

133 
Appendix G-2 

Dairy Foods Competitive Research Activities, 2005 

Principal lnvestigator~ Institution, and Project Title 

Valente B. Alvarez, Ph.D. (Ohio State University Research Foundation): Stability, Flavor 

Changes, and Shelf Life of PET Bottled Ultrapasteurized Milk [continued in 2005] 

Joseph E. Marcy, Ph.D. (Virginia Polytechnic Institute): Ensuring Stability of Natamycin on 

Shredded Cheese to Prevent Mold Growth [continued in 2005] 

Charles Morr (Independent): Developing a Membrane Fractionation Process Removing 

Lactose from Skim Milk [completed in 2005] 

K. Schmidt, Ph.D. (Kansas State University): Ingredient Technology and Interactions for 

Stable, Nutritionally Designed Milk-Based Beverages [completed in 2005] 

134 
Appendix G-3 

Nutrition Competitive Research Activities, 2005 

Principal Investigator, lnstitution~ and Project Title 

Leann L. Birch, Ph.D. (Pennsylvania State University): Parental Influence on Girls' Calcium 

Intake and Bone Mineral Content and Weight Status-Phase II [continued in 2005] 

Michael D. Brot, Ph.D. (MDS Pharma Services): The Effectiveness of Dairy-Based High 

Calcium Diets in Accelerating Weight and Fat Loss Secondary to Energy Restriction in a 

Transgenic Mouse Model of Obesity [began in 2005] 

Joseph Donnelly, Ph.D. (University of Kansas Center for Research, Inc.): The Effects of Dairy 

Intake on Weight Maintenance and Metabolic Profile [continued in 2005]; Substrate Oxidation in 

Children in Response to Exercise with High and Low Intake [began in 2005] 

Penny Kris-Eatherton, Ph.D. (Pennsylvania State University): Effects of a Dairy-Rich Diet on 

Blood Pressure and Vascular Reactivity [completed in 2005] 

Christine Economos, Ph.D. (Tufts University): What Predicts Dairy Intake, Bone Mass, and 

Body Composition in Early Children [completed in 2005] 

Stan Heshka, Ph.D. (St. Luke's-Roosevelt Hospital): The Effect of a Mixed Nutrient Versus a 

Single Nutrient Beverage on Energy Metabolism, Substrate Oxidation, and Indices of Satiety and 

Food Intake in Children [completed in 2005] 

Michael Hnncharek, Ph.D. (Meta-Analysis Research Group and Marshfield Clinic): Effects of 

Dairy Products on Total Dietary Calcium Intake on Bone Health in Children and Young Adults: 

A Meta-Analytic Evaluation of Existing Scientific Data [began in 2005] 

Elsa M. Janle, Ph.D. (Purdue University): Potential of Dietary Whey Protein to Ameliorate the 

Development of Diabetes in the Zucker Diabetic Rat [began in 2005] 

Joan M. Lappe, Ph.D. (Creighton University): Pilot Project Preparatory to a Definitive Study 

of the Efficacy of Milk Minerals in Human Bone Health [began in 2005] 

Richard Mattes, Ph.D. (Purdue University): Effect of Dairy Product Consumption on Food 

Intake and Hunger in Adult Humans [completed in 2005] 

Edward Melanson, Ph.D. (University of Colorado): Effects of High and Low Calcium Diets on 

Fat Metabolism During and After Exercise [continued in 2005] 

135 
Appendix G-3, continued 

Lynn L. Moore, Ph.D. (Boston University School of Medicine): The Effect of Dietary Calcium 

on Body Fat Levels in Children and Adults- Phase II [continued in 2005]; Dairy Intake: Its 

Determinants and Relation to a Healthy Diet [continued in 2005]; and Dietary Intake Patterns 

and Metabolic Syndrome Among Children and Adolescents [continued in 2005] 

Ratna Mukherjea, Ph.D. (Children's Hospital Oakland Research Institute): Effect of Moderate 

Dairy Intake on Insulin Resistance, Glucose Tolerance, and Body Fat in Overweight Young 

Adolescent Girls [continued in 2005] 

Mary Murphy, M.S., R.D. (ENVIRON): Flavored Milk Study [began in 2005] 

Stuart Phillips, Ph.D. (McMaster University): The Effectiveness of Milk Consumption in the 

Promotion of Resistance Training-induced Lean Mass Gains in Novice Weightlifters [completed 

in 2005]; Impact of Whey, Casein, and Soy Supplementation on Human Muscle Protein 

Turnover after Resistance Training [began in 2005]; Whey Protein Beverage Study [began in 

2005] 

Victor Shen, Ph.D. (MDS Pharma Services): The Effect of Calcium, Milk Mineral, and Nonfat 

Dry Milk on Bone Quality and Strength in Estrogen Deficient Rats [began in 2005] 

Debra Sullivan, Ph.D. (University of Kansas Medical Center): Synergistic Effect of Dairy 

Foods on Metabolism-A Mechanistic Study [continued in 2005] 

Dorothy Teegarden, Ph.D. (Purdue University): Effect of Calcium Education Intervention on 

Body Fat Mass in Adolescents [continued in 2005] 

Martha VanLoan, Ph.D. (USDA-Agricultural Research Service-Western Human Nutrition 

Research Center): The Role of Dairy Foods in Enhancing Central Fat Loss and Weight Loss 

with Moderate Energy Restriction in Overweight and Obese Adults [began in 2005] 

Connie Weaver, Ph.D. (Purdue University): Dairy versus Calcium Carbonate in Promoting and 

Retaining Peak Bone Mass [continued in 2005]; Calcium, Dairy, and Body Fat in Adolescents 

[continued in 2005] 

Robert Wolfe, Ph.D. (University of Texas Medical Branch): Dose Dependent Effects of Whey 

Protein on Muscle Protein Synthesis [continued in 2005] 

Michael B. Zemel, Ph.D. (University of Tennessee Research Foundation): Role of Dairy 

Components in Weight Control and Fat Loss [continued in 2005]; Role of Dairy Products in 

Weight Maintenance: Prevention of Weight Regain Following Weight Loss [continued in 2005] 

136 
Appendix H 

Qualified State or Regional Dairy Product Promotion, 

Research, or Nutrition Education Programs, 2005 

Allied Milk Producers' Cooperative, Inc. 

495 Blough Road 

Hooversville, PA 15936-8207 

American Dairy Association and 

Dairy Council Mid East 

5950 Sharon Woods Boulevard 

Columbus, OH 43229 

American Dairy Association and Dairy 

Council, Inc 

219 South West Street, Suite 100 

Syracuse, NY 13202 

American Dairy Association of Alabama 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

American Dairy Association of Georgia 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

American Dairy Association of Kentucky 

9201 Bunsen Parkway, Suite 100 

Louisville, KY 40220 

American Dairy Association of Michigan, Inc. 

2163 Jolly Road 

Okemos, MI 48864 

American Dairy Association of Mississippi 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

American Dairy Association of Nebraska, Inc. 

8205 F Street 

Omaha, NE 68127-1779 

American Dairy Association of 

North Carolina 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

American Dairy Association of 

South Carolina 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

American Dairy Association of South Dakota 

2015 Rice Street 

St Paul, MN 55113 

American Dairy Association of Virginia 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

California Manufacturing Milk Producers 

Advisory Board 

3800 Cornucopia Way, Suite D 

Modesto, CA 95358-9492 

California Milk Producers Advisory Board 

3800 Cornucopia Way, Suite D 

Modesto, CA 95358-9492 

Dairy Council of California 

1101 National Drive, Suite B 

Sacramento, CA 95834-1945 

Dairy Council of Michigan, Inc. 

2163 Jolly Road 

Okemos, MI 48864 

Dairy Council of Nebraska, Inc 

8205 F Street 

Omaha, NE 68127-1779 

137 
Appendix H, continued 

Dairy Farmers, Inc. 

166 Lookout Place, Suite 100 

Maitland, FL 32751-4496 

Dairy MAX, Inc. 

2415 Avenue J, Suite 111 

Arlington, TX 76006-6119 

Dairy Promotion, Inc. 

Dairy Farmers of America 

P.O. Box 909700 

Kansas City, MO 64190-9700 

Georgia Agricultural Commodity 

Commission for Milk 

19 Martin Luther King Jr. Dr., S.W., Room 328 

Atlanta, GA 30334 

Granite State Dairy Promotion 

c/o New Hampshire Department of Agriculture 

25 Capitol Street, Box 2042 

Concord, NH 03302-2042 

Idaho Dairy Products Commission 

10221 West Emerald, Suite 180 

Boise, ID 83704 

Illinois Milk Promotion Board 

1701 N. Towanda Avenue 

P.O. Box 2901 

Bloomington, IL 61702-2901 

Indiana Dairy Industry Development Board 

200 W. Washington Street 

242 State House 

Indianapolis, IN 46204 

Kansas Dairy Commission 

4210 Wam-Teau Drive 

Wamego, KS 66547 

Louisiana Dairy Industry Promotion Board 

c/o Louisiana Department of Agriculture and 

Forestry 

P.O. Box 3334 

Baton Rouge, LA 70821-3334 

Maine Dairy and Nutrition Council 

333 Cony Road 

Augusta, ME 04330 

Maine Dairy Promotion Board 

333 Cony Road 

Augusta, ME 04330 

Michigan Dairy Market Program 

P.O. Box 8002 

Novi, MI 48376-8002 

Mid-Atlantic Dairy Association 

325 Chestnut Street, Suite 600 

Philadelphia, PA 19106 

Midwest Dairy Association 

2015 Rice Street 

St. Paul, MN 55113 

Midwest Dairy Council 

2015 Rice Street 

St. Paul, MN 55113 

Milk for Health on the Niagara Frontier, Inc. 

4185 Seneca Street 

West Seneca, NY 14224 

Milk Promotion Services of Indiana, Inc. 

9360 Castlegate Drive 

Indianapolis, IN 46256 

Minnesota Dairy Research and 

Promotion Council 

2015 Rice Street 

St. Paul, MN 55113 

138 
Appendix H, continued 

Nebraska Dairy Industry Development Board 

8205 F Street 

Omaha, NE 68127-1779 

Nevada Farm Bureau Dairy 

Producers' Committee 

2165 Green Vista Drive, Suite 205 

Sparks, NV 89431 

New England Dairy and Food Council 

1034 Commonwealth Avenue 

Boston, MA 02215 

New England Dairy Promotion Board, Inc. 

1034 Commonwealth Avenue 

Boston, MA 02215 

New Jersey Dairy Industry Advisory Council 

c/o New Jersey Department of Agriculture 

P.O. Box 330 

Trenton, NJ 08625-0330 

New York State Department of 

Agriculture and Markets 

Division of Milk Control and Dairy Services 

10 B Airline Drive 

Albany, NY 12235 

North Dakota Dairy Promotion Commission 

2015 Rice Street 

St. Paul, MN 55113 

Oregon Dairy Products Commission 

10505 Southwest Barbur Boulevard 

Portland, OR 97219 

Pennsylvania Dairy Promotion Program 

c/o Pennsylvania Department of Agriculture 

2301 North Cameron Street 

Harrisburg, PA 17110-9408 

Promotion Services, Inc. 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

Rochester Health Foundation, Inc. 

c/o American Dairy Association and 

Dairy Council, Inc. 

219 South West Street, Suite 100 

Syracuse, NY 13202 

St. Louis District Dairy Council 

1254 Hanley Industrial Court 

St. Louis, MO 63144-1912 

Southeast United Dairy Industry 

Association, Inc. 

5340 West Fayetteville Road 

Atlanta, GA 30349-5416 

Southwest Dairy Museum, Inc. 

P.O. Box 936 

Sulphur Springs, TX 75483 

Tennessee Dairy Promotion Committee 

9201 Bunsen Parkway, Suite 100 

Louisville, KY 40220 

United Dairymen of Arizona 

2008 South Hardy Drive 

Tempe, AZ 85282 

Utah Dairy Commission-Dairy 

Council of Utah/Nevada 

1213 East 2100 South 

Salt Lake City, UT 84106 

139 
Appendix H, continued 

Vermont Dairy Promotion Council 

116 State Street, Drawer 20 

Montpelier, VT 05620-2901 

Washington State Dairy Council 

4201 198th Street, S.W., Suite 101 

Lynnwood, WA 98036-6757 

Washington State Dairy 

Products Commission 

4201 198th Street, S.W. Suite 101 

Lynnwood, WA 98036 

Western Dairy Farmers' Promotion Association 

12000 North Washington Street, Suite 200 

Thornton, CO 80241 

Wisconsin Milk Marketing Board, Inc. 

8418 Excelsior Drive 

Madison, WI 53717 

140 
Appendix I 

2005 Fluid Milk Print Advertisements 

Active and Weight Loss Messages 

Target Audience: Moms/Women 

Source: MilkPEP/Lowe Worldwide 

Meredith Vieira Serena Williams Bebe Neuwirth 

milk ,

uourdiel.l .0 e*O 'gD. ,

2~ 

It. 

Red Curtain Advertorial 

Skinny Glass Advertorial 

Stockard Channing Diane Heavin 

141 
Appendix I, continued 

Active, Bone Growth, and Bone Fractures Messages 

Target Audience: Teen Girls and Teen Boys 

Source: MilkPEP/Lowe Worldwide 

Michelle Kwan Carmelo Anthony 

Donovan McNabb / 

Teddy Bruschi 

Batman Joss Stone Teddy Bruschi 

1 

Donovan McNabb Lindsay Lohan Manning Family 

142 
Appendix I, continued 

Active, Bone Growth, and Bone Fractures Messages 

Target Audience: Teen Girls and Teen Boys 

Source: MiikPEP/Lowe Worldwide 

....... ,.,~l~" 

\q ,I i ~ . 

1 i 

Tracy McGrady Mia Hamm Jason Kidd 

2005 School Milk Posters 

Source: MilkPEP/Lowe Worldwide 

CrowdMilk has 9 ~.$sential nutrients whymllk~om 

active boclles need 

Tracy McGrady Kelly Clarkson 

Michelle Kwan Donovan McNabb 

143 
Appendix I, continued 

2005 Got Milk?~/NBA ® Rookies of the Month/Rookie of the Year 

Source: MilkPEP/Lowe Worldwide 

-. --_ ."~ ,--2. ............. 

January 

Ben Gordon/JR. Smith 

,,,_~ .......... ... 

milk. ~ 7 

April 

Emeka Okafor/ 

Shaun Livingston 

zD, 

t 

qot milk? 

Rookie of the Year 

Emeka Okafor 

~ t~,~, .~, 

"~7.7.' ;2 .2 Z,g;,".;~/,r. '~, ,~, 

_ _~,!L!! _ 

February 

Ben Gordon/JR. Smith 

qotmilk7 

November 

Devin Harris/Emeka Okafor 

March 

Ben Gordon/JR. Smith 

b w ....... 

December 

Beno Udrih/Emeka Okafor 

144 
Appendix I, continued 

Contest/Sweepstakes/Trade Advertisements 

Source: MilkPEP/Lowe Worldwide 

2005 SAMMY Winners 

Healthy Schools Karen Johnson Trade Ad 

Challenge 

_..,.~ ::7/, 5 fJ o ~vz bid 

win 

_.._ 

~t 

~UJ JJlit',~'( .) 

2006 SAMMY Kickoff 

Rolling S/one win her, 

Nathan Fernandez got milk? 

Win With Milk Contest 

145 
Appendix I, continued 

Hispanic Advertisements 

Source: MUkPEP/Siboney, U.S.A. 

Dr. Aliza Giselle Blondett Shape 

[sabias? ~ 

7:?.?.--!: --:.,.-___: 

27. ='_.- -2 --.---_.-'2£L-2. --~1~ ....... : ": : Y222: r q 

I O~iqOOmammo" •.'.2 :'-7",-%==. 

~-a__: £ 2 ~__~ 5=. 5.£ i 

People En Espanol Nuestra Gente People En Espanol 

24/24 Leche POS 

146 
Appendix I, continued 

2005 Promotions and Public Relations Materials 

Source: MilkPEP/DRAFT and Weber Shandwick 

.... . ~e gmlmmlJ 

Flavored Milk Brochure 

New View of You POS 

Get the Curves You Want POS 

Get the Cuves You Want 

POS Reference Sheet 

LLEHGEII Milk Mustache Mobile Tour 

Healthy Schools Challenge 

Get the Curves You 

Want Website 

FU 

01¥ 

Fe'o, -

Fuel Up With Milk 

Online Auction 

Great American 

Weight Loss Challenge 

147 
Appendix I, continued 

2005 Television Advertisements 

Source: MilkPEP/Lowe Worldwide 

"Skinny Glass Slide" (:30 TV spot) 

"Skinny Glass Cartwheel" :30 TV spot) 

"Skinny Glass ('alendar"(:30 TV spot) 

148 

.:~ '.: ~_i~.~,, ~ 

:~i,,~!i,~ 'i:~:~,~!!-~ ~- :,:~! 

::.:.~:~.:~.~.~.~:~.~:~ ~.~,;~,,~:~.~,.~.:.~.-~.: ..., ......... ~-<.~,,. '~' .;:!~, !.r,~, ,..~:..,~!.,-;:.~:,: :.:;;.:.:~:.~::~,~::,~,~- :!~:~;~:,:,:~-'~-~.~ • . ~:-:~':~.~:~,:,r,~::. ~:.::;:.~