Reference no: EM131714117

The McCloskeys Plan to Implement Sustainable Dairy Farming While Providing Healthier Products

Apply the knowledge of Management presented in this chapter to the following case. Applying this knowledge should enable you to have a better understanding of what the McCloskeys are trying to do at Fair Oaks Farms.

Read the case below and answer the questions on the right.

Dr. Mike McCloskey and his wife, Sue, grew a successful veterinarian office in San Diego during the 1980s. However, they had bigger dreams. Mike wanted to implement some of the ideas he learned in school to improve farming practices in the U.S. So the couple and a partner started a farm with 250 cows. This led to a move in 1990 to New Mexico to pursue full-time dairy farming.

Dissatisfied with the co-op that was selling their milk, the McCloskeys’ entrepreneurial spirit drove them to start their own co-op, Select Milk Products. Mike was the CEO. Select is composed of 92 dairies, now the sixth-largest dairy co-op in the U.S., and produces “6 billion pounds of raw milk a year and reaping nearly $2 billion in annual revenue.”

The initial success of Select Milk resulted in the McCloskeys’ move to Indiana and the birth of Fair Oaks Farms.

Fair Oaks consists of 12 family-run dairies and 36,000 cows. This is a very large dairy farm—only 1% of U.S. dairy farms have more than 2,500 cows. Big farms like this can foster negative stereotypes due to their impact on the environment. According to a Fortune reporter, “Agriculture is a major contributor to climate change, accounting for about 9% of U.S. greenhouse gas emissions, and the farming sector hasn’t succeeded in reducing its output as much as the transportation and energy industries have. . . . In the production and consumption of a gallon of milk, the equivalent of 17.6 pounds of carbon dioxide is emitted.”120 The McCloskeys wanted to operate a farm that improved on these results.

Fair Oaks started with Mike’s mission. He articulated it like this: “We are committed to educating the public about modern farming efforts, but also to protecting the environment, caring for our animals and ensuring the highest quality products possible.”121 Of course he wanted to do this while making a profit.

In terms of protecting the environment, Mike has a vision “to have a zero-carbon-footprint dairy,” and he believes that Fair Oaks can get there. Others think it’s impossible. Undeterred, Mike, Sue, and his partners created a detailed plan to enact this vision.

The plan began with a consideration of how the farm could convert 430,000 gallons of daily manure into a sustainable asset. It first had to be collected, which required special accommodations for the animals. The bedding areas were designed so that cows would “defecate and urinate only in alleyways on either side of their bedding. The setup keeps the cows’ beds (and their udders) clean and makes it easier for workers to gather the manure three times a day while the cows are milked. The manure is separated from sand and dirt and deposited into the farms’ anaerobic digesters.” A 21-day process then is used to break down the manure into “compost-like material while releasing biogas, which is captured in pipes.” Fifty percent of this gas, which is 60% methane, is used to generate the electricity used to run the farm.122

The next part of the plan focused on what to do with the remaining gas generated from the process of manure decomposition. Fair Oaks could not sell it to the power grid because it was too expensive. The company then decided to turn the gas into 99% methane and sell it as fuel. This worked until the price of natural-gas began to fall in 2008.

After considering other alternatives, the company to decide to use the gas in their own operations. The McCloskeys then set out to find milk trucks that would run on compressed natural gas (CNG). The initial set of trucks did not work very well because they only had 9-liter engines. Fortunately, Cummins developed a 12-liter engine that could handle the load. Today, the company possesses a fleet of 42 trucks that operate 24/7 on its CNG fuel. The trucks average about 270,000 miles a year.

This process was not easy or cheap. Fair Oaks spent over $30 million over a period of 10 years to arrive at its current level of performance. Today, there are about 200 dairy farms using the technology developed by the McCloskeys. Still, Mike wants to find a way to offer a scaled down version of the technology that will be affordable to smaller farms.

Another aspect of Mike’s mission involved improving the image of big farming to the public. To accomplish this, Fair Oaks opened its operations to the public. The company allows facility tours to the public, which gives people a chance to reconnect with nature and to learn how milk originates. Because Mike wants total transparency, the tour shows “visitors everything from the cow pens designed to encourage the cows to relax, to the innovative rotating milking parlor that also promotes cow socialability, and the Fair Oaks–developed processes that turn manure into fuel for their milk-hauling trucks.”

The McCloskeys have other goals in mind for the future. Mike wants to “add a hotel, convention center, inflatable sports dome, fruit picking, beehives, eggs, goats and sheep to the 35,000-acre cow and pig farm. In addition, shoppers seeking farm-fresh milk and a variety of cheeses soon may be able to purchase them at Fair Oaks Farms retail locations throughout Northwest Indiana.”123

A final aspect of Fair Oaks's mission involved the production of high-quality products. While the company has been doing this since its inception, the McCloskeys decided to form a new company to expand this focus. As such, Select Milk recently partnered with Coca-Cola to form Fairlife LLC. The company developed “a lactose-free mild drink with less sugar, more protein and more calcium." The product is called fairlife ultra-filtered milk. "The milk is created through a method called ultra-filtration—a process invented by Indiana’s own Mike and Sue McCloskey, owners of Fair Oaks.”124 The product will be distributed via Coca-Cola’s Minute Maid division.

The McCloskeys developed an ultra-filtration process for a new milk drink. Based on the case and VRIO framework, which of the following is surely true?

Multiple Choice

A. The McCloskeys have a sustained competitive advantage.

B. The McCloskeys are about equally competitive with competitors.

C. The McCloskeys have at least a temporary competitive advantage.

D. The new product does not build on the McCloskeys’s mission statement.

E. Fair Life LLC is organized to exploit their new capability.

E. is definetly not the right answer