Following a year of unprecedented change for the cooperative and the world around it, Organic Valley on May 15 announced its fourth consecutive year of total sales exceeding $1.1 billion and a significant improvement in net earnings from ongoing operations as compared to 2018 results. After consideration of non-cash and non-routine expenses, Organic Valley, the nation’s largest organic, farmer-owned cooperative and one of the world’s leading organic consumer brands, recorded a net loss of $4.5 million in 2019, an improvement of $2.5 million from 2018.
“2019 was a year unlike any we have experienced at CROPP in our 32-year history,” said Arnie Trussoni, president of Organic Valley’s board of directors. “We weathered a changing organic food industry landscape, introduced innovative products to delight our consumers, and experienced transitions in leadership and restructuring. Through it all, we are proud that our cooperative upheld its mission of promoting economic stability for its farmer-members by maintaining a stable pay price with a $12 premium over conventional prices–a notable achievement during a challenging year.”
Although 2019 was a year of change, one year isn’t enough time for those changes to be reflected in the cooperative’s bottom line. However, in the first three months of 2020, the cooperative reported a return to profitability that exceed both planned goals and the net loss it reported for the comparable period of 2019.
According to CEO Bob Kirchoff, the cooperative is continuing its 2019 focus on maximizing the value of its members’ products, optimizing the supply chain, and realigning structures and processes to support this success.
“We operate in a market that has always been challenging,” Kirchoff said. “As the organic industry has matured, competition has grown fierce, vertical integration has driven down prices, and more industrial methods of farming have made their way into organic. The shelf space we compete for is crowded by alternatives such as plant-based, pasture-raised, non-GMO, and cage- free. We know that in order to protect the foundation on which this cooperative is built, we must adapt to the changing marketplace while upholding our values.”
Successful changes implemented by the cooperative in 2019 included:
- Developing new ways of looking at its supply chain on a regional basis, deepening understanding of milk movement, and discovering opportunities to reduce operational costs.
- Recruiting top-level talent from across the country and further developing the skills and leadership capacities of employees throughout the business. Significant leadership additions include Ty Brannen, executive vice president of Supply Chain, and Staci Kring, chief revenue officer.
- Achieving extensive insights through data analytics and other tools which helped drive more sales.
- Selling significantly less milk at conventional prices than in 2018.
- Holding the dairy farmer pay price steady, thus supporting the cooperative’s mission of ensuring its members’ economic stability through a higher and stable pay price. In 2019, Organic Valley dairy farmers’ national average pay price was more than $12 higher than conventional.
- Realigning structures throughout the organization to support strategic priorities.
Organic Valley’s audited financial statements show a net loss of $30 million after tax and a net loss of $14 million before tax for 2019. This net loss after tax included $25.5 million of non-cash and non-routine expenses incurred throughout the year. Those non-recurring expenses included the following:
- Butterfat and skim inventory revaluation expense of $5 million. The revaluation increased the butterfat component and decreased the skim component.
- Incurring an expense to record a deferred tax asset reserve. In 2018, the co-op’s balance sheet included a $15 million deferred tax asset that was largely generated due to net operating losses. Although the deferred tax asset is fully reserved for financial statement purposes, there is no loss of the net operating losses for tax purposes.
- Restructuring expenses of $5.5 million. In 2019, restructuring resulted in the elimination of 62 staff positions and the departure of 54 employees, along with the departure of 14 farmer-members. In appreciation for their service and membership, the co-op provided generous severance packages and early membership termination agreements, the cost of which is reflected in 2019 financial results.
“Both the inventory revaluation and the deferred tax asset reserve are non-cash expenses; in other words, no cash paid to make these adjustments. From an accounting perspective, we show them as costs on our profit and loss statement in order to remove them from our balance sheet,” explained Jennifer Lilla, senior director of financial reporting at Organic Valley. “The restructuring expense helps realign the people and processes of the cooperative to support future growth.”
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