Davisco Foods International

May 1, 1998 Roger Matz

It sounds like a fairy tale, but once upon a time creameries discarded whey and buttermilk, giving it to farmers who spread it on fields or fed it to calves.

Now an entire industry exists to capture the nutritious ingredients locked in these once-snubbed fluids. One of the leaders in that industry is Davisco Foods International, Inc., based in Le Sueur, where veteran employees still remember the days of whey-splattered fields and calves suckled on buttermilk.

Davisco’s cheese plants in Le Sueur and Jerome, Idaho, generate tons of whey, a yellowish-colored liquid rich with butterfat, lactose, minerals and proteins. Using a variety of separating technologies, the cheese factories isolate various ingredients and send them in fluid form to Davisco’s food ingredient companies in Lake Norden, SD, Nicollet and Le Sueur. There the liquids are spray-dried (dehydrated to powder) and sold as flavorings, additives or active ingredients in a variety of foods and pharmaceuticals. These three plants also process nondairy foods, such as soy sauce, barbecue sauce and corn starch for other food companies on a contract manufacturing basis.

The cheese plants are noted for stirred-curd cheddars, including no-fat and low-fat varieties, enzyme-modified cheeses and a myriad of custom-produced cheeses. Davisco is one of the major suppliers to Kraft Foods, a giant in the cheese industry. The ingredient plants are well-known suppliers of protein, lactose, whey and other ingredients, blended into everything from puddings to baked goods, from salad dressings to yogurt.

Davisco, which rhymes with “Nabisco,” grew from a single creamery at St. Peter to the two large cheese production plants and the three food ingredient plants. The corporate headquarters are in Le Sueur and there is a sales office in Eden Prairie. Research on product applications takes place in Eden Prairie while research on processes is done in Le Sueur.

“We’ve exploded in the last 10 years, using the Le Sueur cheese plant as our anchor,” said Marty Davis, who runs the food ingredient companies. There’s been a sevenfold increase in sales, employees and milk volume since 1988, according to Davis. “We’ve gone from 50 or 60 employees to 420 and we produce upwards of 500,000 pounds of cheese per day.”

Davis ascribes this growth to Davisco’s tradition of quality, service, attention to suppliers and customers, unique products and innovative processes. An energetic force driving much of the company’s expansion in the past two decades is the perpetual curiosity of his father, Mark Davis, Davisco’s president.

“I was always curious about what other people were doing,” Mark said. That led him to start dialogues and develop relationships in the 1970s with dairy and food processors in Europe and Southeast Asia. “I found people in other countries were more innovative than ours,” a creativity necessitated by higher fuel and utility costs overseas. He also witnessed foreign firms “doing a better job of marketing” than U.S. companies. “In the U.S., our selling efforts are diluted because we worry about the administrative aspects of our industry – federal milk marketing orders and government support programs. Our first order of business is ‘how does the federal milk market order affect our activity today?’ It’s not that way in other countries. It’s ‘how do we satisfy our customers or expand our sales today?'” He considers the federal controls to be archaic vestiges of the Depression, based on conditions existing in the dairy industry in 1937. “Refrigeration, transportation and urban centers are far different in this country today, but we still operate under 1937 rules and regulations,” he said. He hoped that Congress might erase those regulations in 1996 and shift to a free-market system, but it didn’t happen. “Instead it’s getting more complicated,” he said.

Through the years, Mark’s dialogues and sales calls generated a variety of partnerships, joint ventures, new products and continual innovation. He brought home new ideas, new processes, new possibilities for the by-products.

“Dad’s just curious,” Marty said. “When others see roadblocks, he sees the way around. He’s always looking for any glimmer of potential in an opportunity.” This inquisitive streak is well known within the company. In remarks prepared for a brochure commemorating Davisco’s 50th anniversary in 1993, longtime employee Bob Schwartz observed that “since Mark took over we’ve changed annually. The changes were things he picked up and possibly they weren’t proven. He has a passion to find out, to try things.” Schwartz is among those who remember the era when whey was junk and finding a profitable use for it became a key to surviving in the dairy processing business.

One of Mark’s more recent flirtations with promising technology resulted in a new ingredient for cosmetics. “The original process was found by my father in 1992 and we struggled four or five years trying to make it work,” said Marty. “It produced an interesting ingredient that we didn’t even expect. You have to take off the blinders and be innovative. We look at an ingredient’s functionality and ask where is it useful in a food system?” To test the process that had attracted Mark’s interest, Davisco worked with an equipment company “that felt they could do it. We installed the equipment and dug in with the process development, feeling that if nothing else, it would make a higher quality whey protein. Anything else would be a bonus,” Marty said. The bonus turned out to be a whey component now used in an Estee’ Lauder moisturizing skin cream.

That wasn’t Davisco’s first ingredient for cosmetics, however. For 10 years, the company has supplied a mineral derivative of milk for a moisturizing cream produced in Japan. However, additives for cosmetics are just a minuscule fraction in the product line of Davisco, which has become one of the largest family-owned food processors in the Midwest.

Davisco’s patriarch is Stan Davis, 79 year-old chairman of the board, a buttermaker who laid the company’s foundation by buying the St. Peter Creamery in 1943. Mark, the only one of Stan’s four sons who stayed in the business, loaded boxcars, wrapped butter, drove milk trucks, became a buttermaker and ran the Le Sueur cheese plant en route to Davisco’s presidency. Besides Marty, Mark has three other sons active in the company. Mitch manages the Le Sueur cheese plant, Jon runs the cheese plant in Idaho, and Matt is in Davisco’s quality department. A son-in-law, Tom Rydeen, is a production supervisor in the food ingredient companies.

Stan is a native of St. Peter and had been a buttermaker in Mesa, Texas, and in three Minnesota creameries (Norseland, Frost and Arlington.) When the St. Peter Creamery came up for sale, he bought it. “I think it was a chance for him to get close to home,” said Mark.

In Davisco’s 50th anniversary brochure, Stan recalled those first years in the St. Peter Creamery. “In the early days farmers brought cream in,” he said. “We didn’t get milk. The farmers did the separating. We also had a couple of pickup and panel trucks that went out and picked up cream.” In 1944, a year after Stan bought the creamery, the government wanted skim milk to ship overseas and began rationing butter. “There was a steady demand for what we had and prices stayed high.” The St. Peter Creamery began picking up milk rather than cream, selling both butter and milk to the government.

In the 1950s, “it was either get out of the business or get bigger,” Stan said. The steady prices of the war years were past. The need to diversify was clear, but the way to do it wasn’t.

“We diversified to find ways to use the skim milk we already had,” said Mark. “People didn’t buy skim milk. Groups of creameries had gone together and built a spray dryer, and they’d come around and buy the liquid skim milk from us.”

Stan grappled with the notion of buying his own spray dryer to produce powdered milk, but said “it looked like too tough an obstacle to overcome. It was considered stupid for me to put in a dryer when all the other organizations were doing it together. I had several people tell me I’d never make it. That made me work harder.” The dryer arrived in 1956, and Stan kept it running day and night. “Creameries that didn’t put in dryers dried up and blew away,” he said.

Mark and his brothers, Tom, Jim and Gus, worked many nights and weekends at the creamery as youngsters. Mark officially joined the company in 1959 as an 18-year-old driver on the new bulk milk pickup route. He also attended Mankato State University, and although his studies “bored the heck out of me,” he graduated in 1963 with a degree in business administration and economics.

Meanwhile, the St. Peter Creamery’s dryer allowed it to handle increasingly larger milk routes. As other creameries folded, the Davises began picking up milk from Bernadotte, Blue Earth, Cleveland, Mankato, Nicollet, Pemberton and St. Clair. By this time, Mark had quit driving trucks and was a buttermaker in an enterprise poised for expansion.

It began to happen in 1969, when Stan Davis and Allen Cords, owner of the Le Sueur creamery, decided to pool their milk supplies. “Cords was farsighted enough to see that cheese was going to be the rising star of dairy products,” Mark said. Stan, Mark and Cords each became one-third owners of the Le Sueur Cheese Co., selling the cheese in 500-pound blocks to Kraft Foods. In 1970, Stan, Mark and a third partner, Glen Anderson, bought the Nicollet Creamery and began contract processing of dairy products. Also in 1970, Le Sueur Cheese made a major investment in new cheese and whey production facilities, expanding them again in 1978. The St. Peter Creamery dried Le Sueur’s whey into powder and also began drying nondairy products, including soy milk, for other food processors.

After digesting the Le Sueur and Nicollet expansions, Stan purchased a Land ‘O Lakes plant in Lake Norden, SD, in 1983, imported a spray dryer from a European company, and began to collect whey from surrounding cheese plants.

In 1986, Cords retired and the Davis companies were merged to form Davisco Foods International, Inc. “We went through the normal dynamics of merging companies in a family business, and also brought in the Lake Norden plant,” Mark said. “About this time three of my sons were graduating from various universities and we started down a new path with the St. Peter Creamery, taking it back to dairy processing. That was our field of expertise. And we expanded the contract processing of the Lake Norden plant.”

The old St. Peter Creamery, which had escaped the fate of hundreds of other creameries in Minnesota, finally was closed in 1993 and its processing equipment moved to Le Sueur. “That was tough to do,” Mark said. “I’m a native of St. Peter and so is my father. We’re very attached to St. Peter, but the electric rates were too high there.” The company held lengthy discussions on whether to expand at St. Peter or move the business to Le Sueur. “Electric rates were the determining factor because to consolidate in St. Peter would have cost $250,000 more a year for electricity,” he said.

Ever since the 1970s, Mark has been selling and traveling, making contacts with other processors and food companies, observing different methods and running across new ideas. (“In the food business, you call on a company for two or three years before you get an order,” he said. “People are reluctant to change.”)

While trying to sell to a pharmaceutical company in the early 1980s, he was told his particular product was “old-fashioned” and that a company in England was marketing a far more advanced version. Mark contacted that company, located in Wales, and worked out a partnership to be the sole U.S. producer of their product, a pure protein trade-named “BiPRO.” (Davisco acquired this company in 1991.) BiPRO significantly expanded the product line and potential of Le Sueur Cheese. “It’s an extremely nutritious protein used in foods and nutriceuticals,” Mark said. He found a ready market with two of Davisco’s Japanese customers, Mitsubishi Corp. and the Meiji Milk Co. “They use it as an ingredient in food and pharmaceutical products,” he said. Japan is such an important market for Davisco that Mark, Mitch and Marty often travel there as often as eight times a year. Some of the lower-level Mitsubishi executives that Mark called on in the U.S. 15 to 18 years ago have ascended to top positions in the giant Japanese firm, best-known in the U.S. for its vehicles. One of these men is second in command.

Another Japanese company, Yakult Pharmaceuticals “does some very unique things with our lactose,” Marty said. Yakult makes a fermented health drink on a daily basis and delivers it door-to-door. “It’s a ‘leading edge’ medical product used for preventive health purposes,” Marty said. “It controls the balance of bacteria in your small intestine and aids in digestion.” It’s economical to deliver in residential areas because of the dense population concentrations in Japan. “The Japanese are very conscientious consumers. They believe strongly in medical foods. It’s happening in Europe and it’s starting to come to the U.S., so it’s a growth area for us,” he said.

At one time, Davisco supplied about 10 percent of Yakult’s lactose. “Now we’re their sole supplier. This is simply a result of our attention to top quality and service. The Japanese don’t do business on price. Initially they look at quality, service, the attention you pay to detail and your overall commitment. Eventually they hold you accountable on price, but that’s not their first consideration. In this country, we tend to be the other way.”

On the domestic front, Davisco sells ingredients to such well-known behemoths as General Mills, Kraft Foods and Pillsbury, and to major producers of yogurt and cosmetics. Davisco invests heavily in applications research to find new uses for products and as a way of responding to changes in the market. “General Foods used to have 2,200 researchers. Now they have 200,” Marty said. The remaining researchers don’t have the time to experiment with new ingredients. Instead of just “dropping off a sample,” as was done in the past, getting a sale means actually putting a Davisco ingredient in a finished product and submitting it instead of the ingredient alone. “If you’re going to take a product to a yogurt company, you blend your ingredient in the yogurt and present the finished product to the customer,” Marty said. “That represents a major change in approach and we’re one of the few dairy companies operating that way. That’s why we’ve had some luck and found a little success,” he said.

Meanwhile, Mark’s inquisitive streak continues to pay off. In 1991, investigating reports that dairy farmers were expanding so fast in Idaho that a surplus of milk existed, he became convinced that a cheese plant would be a good investment. The Jerome Cheese Co. was formed in 1992. Davisco recently added 62,000 square feet to the plant, making it a total of 200,000 square feet. By comparison, the Le Sueur Cheese Co. encompasses 90,000 square feet.

The president’s office in Le Sueur, located down the street from the cheese factory, has the telltale signs of a curious executive, a man with more interests than he may have time to thoroughly pursue. Binders, notebooks, piles of papers and books are sorted and stacked on his desk and nearby chairs, even on the floor. Although packed and ready to leave for a vacation, he still takes time to speak fervently about changes in the dairy industry, the need for more, and advantages for Minnesota farmers willing to expand their dairy herds.

Mark uses three yardsticks to chart the changes he’s witnessed during the past several decades, measures as diverse as his golf handicap, free time and volumes of production. “In 1968, if we processed 300,000 pounds of milk into butter and nonfat milk, that was a big day. I had about a seven or eight handicap in golf, and in the low milk production season, I worked five days a week,” he said. “Now we work seven days a week, I have a 22 handicap and we process 5.6 million pounds of milk a day.”