Michael Dykes, D.V.M. 
President and CEO, 
The International Dairy Foods Association 

Recorded on January 24, 2022
Dairy Forum 2022

It's so good to see everyone here. Doesn't it feel good to be in person, finally, after two years?

We're social animals. We like to be together. We like to see people, talk to people, hug people. It's great. Thank you for being here. I also want to thank all of our wonderful sponsors and thank all of you. It's amazing. If we look at this audience, it only reinforces what we can do, what a difference we can make, when we all come together. Glad you're here.

The theme for this year is New, Now, and Next. I'll be tracking that during my presentation this morning, trying to talk a little bit about what's new, what's now, and then what's next. Regardless of your interest, there's something on this program for everyone.

How many of you enjoyed Mel Robbins last night? Five, four, three, two, one. How many of you thought about her this morning when you rolled over and picked up that iPhone, huh? I won't ask how many of you slept with it, because I bet we got some guilty parties in here.

We have some equally fascinating speakers. We've got Mel Robbins talking about the power of inclusion. We have Jim Donald, former CEO of Starbucks, chairman of the board of Albertsons, Safeway, on. We have McKinsey talking about what's next for dairy.

This year, we have a special treat. We have an international CEO panel that we've added. It'll be moderated by Patty Stroup with Nestle, and the vice chair of IDFA. We will close with McKinsey, What's Next For Dairy?, and a panel of domestic dairy CEOs. So stay tuned. Glad you're here. We have a lot of interesting things to do here, see, and great people to meet.

As we think about our dairy industry and where are we going, what are the opportunities for us out there, I'm very optimistic about our dairy industry. I think our dairy industry can become the world's dominant supplier of dairy products. I think to do that, we've got a few big questions we're going to need to answer. What will it take to position our industry to win for the future, to be globally competitive? What pricing model will make us competitive? What does leading with sustainability mean? What does it involve? How do we encourage more innovation? Most importantly, how do we attract and retain the very best people?

Our industry is evolving. We've been doing a lot of new things.I tell people, if you haven't been on a farm in the last... don't tell me you know what's happening on the farms today. The farms have changed... Started milking cows when I was five years old. As David said, I'm a veterinarian, and after doing 200 rectals a day, I decided maybe something different should be for Dykes. So it feels good to stand up straight for a while.

But our farms are changing, and our farmers are doing some amazing, incredible things with nutrition and with genetics. They're becoming incredibly efficient. Our farmers today are producing about twice as much milk today with half as many cows as we did 60 years ago. A glass of milk today has a carbon footprint that's two-thirds smaller than it was. The things they're doing with components, butter fat, protein, somatic cell counts, absolutely phenomenal.

The other part of our dairy industry is that our demand is up. The last two years have been the strongest on record. Per capita consumption is up three pounds per person. Now, we're consuming that in different ways. We're eating more of our dairy than we are drinking. Butter has been crazy. Cheese is driving the bus. Fluid milk is declining, but dairy demand is increasing.

The other interesting thing about our dairy industry is that of the milk that's produced on the farm, more of that milk production is going into dairy products that are exported than is going into what we drink. This is a relatively new thing in our dairy world, because probably 20 years ago or so, we weren't exporting that much dairy. Export markets are extremely important to our dairy industry.

We're seeing innovation not just on the dairy farm, but we're seeing innovation in a lot of different places. We're going to continue to see innovation, and we're going to continue to see change. We're also seeing new investments in our industry and growth in our industry. Growth is so important to the processing industry as well as to the producing industry. Our producers want to grow.

These are just a few of the new investments that's been announced. We have seen about $2 billion invested over the last couple years, and there's approximately another $2 billion slated for the next three years. If we add up just the jobs on this chart, which, again, is not all of them, we're nearly 2,000 jobs here. So people are important, and people are going to continue to be important to our dairy industry.

But as we continue to evolve and we run into things like the COVID that we've just been in, hopefully we're on the way out of the COVID, but we realize planning for the future is important, because sometimes the future comes at us faster than we think, and sometimes the future can have profound impacts on us. But this industry has done a fantastic job of uniting, of rallying, and doing things you never, ever thought possible. You've done it in amazing grace, and we've kept the entire supply chain intact. We came together united as a dairy industry when we did this, so kudos to all of you for all the great work you're doing.

We worked with McKinsey & Company at a task force, many of them in the room here, for a little over two years on our vision for the future, and we did it based on uncertainties. A lot of times, people will say, "Well, what did you do, look at some of the trends and think about where things are going?" If you look at trends, trends tend to be on a trajectory that have a fairly predictable end point. Uncertainties are things that will move and influence our industry, drivers of our industry, for which it's uncertain as to which way they will go.

This task force identified a series of uncertainties. We put those together, if they went one way or if they went another way, what some of those outcomes could be, what some of those scenarios of the future could look like. We wrote seven of these. If you haven't looked at our IDFA website, I'd encourage you to go on the website and read these. It gives you signposts along the way as to which way we may be going. Also, since these are uncertain, they could be influenced. We identify some no-regret moves to make and some big, bold moves to make. We've incorporated all those as priorities into our IDFA Segment Board priorities.

I won't go through all these scenarios. Dairy consumption declines. This is where we fail to succeed on what we need to do on health and wellness. Local is the new global. This is where our export markets fail us. We've got some significant issues on the geopolitical scheme in terms of Russia and Ukraine, in terms of China and Taiwan, in terms of decoupling our economy with China. These could be major disruptors when it comes to global trade. Wellness-driven growth is the other side of that coin. We excel at the things we need to do to make sure dairy is seen as healthy and good for you, and consumers want more of it, just as an example.

As we did the vision for the future, it highlighted for us that there were about four things that we really needed to focus on as we think about our future that would have major influence on our future. Building a more resistant and flexible supply chain. A move to more sustainable dairy. I think our dairy industry has done a great job in leading on the sustainability area. We got more work to do. Harnessing technology and innovation. Innovation is the lifeblood of any industry, of any organization. And again, attracting and retaining the very best people.

In terms of supply chain, we've been working feverishly on the supply chain. We've created an IDFA task force. Many of you have... Many of you are on the task force, or you have representatives from your company on the task force. We've separated that into a ports group and a land transportation group. We've been meeting.

We've been in discussions with the ports. Gene Seroka, who is the executive director of the Port of LA, will be on the program today. We've had a number of meetings with Gene. We have met with three carriers, and we have five more carriers we're scheduling meetings for the week after Dairy Forum. We also have a meeting-

... a week after Dairy Forum. We also have a meeting scheduled next week with the Port of Oakland. We've been in discussions with the Commissioner of the Federal Maritime Commission. We've been in discussions with the White House. And I've had frequent calls with Secretary Vilsack to make sure that we are aligned on what we're trying to do to enhance the opportunity for agriculture exports.

If we think about sustainability, carbon neutrality, decarbonizing the dairy industry, the Checkoff programs D through DMI have done an amazing job. 75% of the milk produced in this country is in a commitment to be net zero by 2050. Phenomenal efforts. More is going to be needed, but we're well on the way. We have to also remember that in the case of sustainability, we're talking about the milk that's produced. We're also talking about the packaging that the product is in. And we can't forget that when it comes to sustainability in dairy, we do have animals involved. So we got to think about animal welfare, and what are we doing, and how are we caring for the animals, and caring for the workers.

Sustainability is moving from storytelling to accountability, with real science-based metrics that are measurable. And when we get things that are measurable, that means we can track them. And we can mark up on how well we are doing against our goals. And we'll be tracking Scope 1, 2, and 3 emissions. Scope 1 emissions being the direct emission from your facility. Scope 2 being those indirect emissions inside your facility, power, water, those things. And Scope 3, indirect emissions from the inputs. And in the case of dairy, the drop of milk that comes into your processing plant can be upwards of 90% of your carbon footprint. So Scope 3 becomes an extremely important thing for dairy.

And as we have these metrics, investors, stakeholders will be monitoring. What did we say we were going to do? And how well are we doing against those kinds of things? And these, in my view, will function much like a financial P&L does today. It will drive decisions, and it will be things that we'll have to deliver on, and we'll have to think about what's going to be the cost to do these things. And will we even see this as a reporting mechanism through the SEC for publicly traded organizations, much like a 10K.

Boston Consulting Group estimates that they'll take about a hundred trillion dollars to address the needed changes in the global supply chains to meet the sustainability metrics. So there's a lot of work to be done on the sustainability front. Feeds we feed to cows, waste management, water, water quality, water quantity, all those kinds of things.

The other part of this is on packaging, extended producer responsibility. So when we put a product out in the public, we're responsible for what happens to it. We have extended responsibilities. We have an IDFA position on this that we worked on with a sustainability committee. We have been working with various state dairy associations. We've seen laws passed in Washington, Oregon, California, Maine. We've been working in New Jersey state legislature. We believe there needs to be a federal solution to this, or otherwise we're going to have a patchwork of 50 conflicting positions. And as I said, we have a sustainability committee that will work on this. Work on the Scope 1, 2, 3, the science-based targets. We're working with firms to do some training and education on environmental P&L, those kinds of things.

So if we think about harnessing technology and innovation, we've seen technology explode during COVID. Absolutely explode. Think about what we've done with Zooms when we really didn't know anything about Teams, and that God-awful bloop-de-bloop-bloop noise that comes on. Think about how Zoom is just now an ordinary term. It's almost like googling something. It's almost a verb. I'll just Zoom you. We have harnessed technology and we will continue to see it both in operations, but also in products.

Our dairy industry is embracing digital transformation. We've talked in the past about digital transformation. Our industry, all of you, you're doing that. You're driving new applications across the entire supply chain. It's allowing you to be more accountable, more responsive to customers. More consumer insights, more data, more information, more automation. And with that comes a greater vulnerability to cyber threats. And we've seen the first cyber threats in food and agriculture that came to the forefront with JBS and the meat-packing industry. We've also seen cyber threats inside our dairy industry.

We've done training on this. We've worked with the Minnesota Food Protection and Defense Institute. We worked with McKenzie on this. We've had webinars on it. We've created a sharing group of chief information officers and chief technology officers. Created a community of experts for sharing. We will see new technology in the food space. Cellular agriculture, these will be positioning themselves as animal-free, and they will be positioning themself in the marketplace on sustainability metrics as well.

Goldman Sachs estimates that there's about $4.2 trillion of capital on the sidelines looking for investment opportunities. These products will have to prove themselves safe. They'll have to be transparent with the consumers. Consumers have excess spending. The markets in 2021 made unbelievable returns. Global markets returned about 18%, the US S&P about 29%. It's estimated that consumers have about $1.2 trillion in excess money to spend, and they are spending it. And we've seen during COVID, they're willing to try new things.

Another part of technology, another part we're going to have to learn to compete with. We're going to do a conference in May, in conjunction with the May Springboard meeting in Austin, Texas on dairy and tech, where we'll talk about these aspects of technology and innovation. We're doing this in conjunction with dairy.com. Will be an exciting program, we will be announcing that soon.

Attracting and retaining the best people. We're going to need people. We're going to need people for everything we do. We've been working on people at IDFA for the past three years. We have five components of the IDFA people strategy. The next-gen leadership class. Women in Dairy, dairy diversity, equity, and inclusion. HR leaders in dairy, and the power of people conference. Women in Dairy. We have about a little over 600 women that are engaged in Women in Dairy. And we are so fortunate that senior female leaders in our industry are conducting mentoring circles for our Women in Dairy. Phenomenal program. Open to all IDFA members. If you aren't a part of that, please join.

Next generation leadership classes. We are in the middle of cohort three. This will make 75 participants with one, two, and three. Applications will open in the spring of 2022 for cohort four. We often, especially those of us who have been in this industry for a long time, we always wonder who's going to take over. Who's going to lead this place when we are all gone? Ladies and gentlemen, I can tell you, you can breathe a sigh relief. This industry's in fantastic hands with the next generation leadership class. So I'd like to ask all of them to stand. I think they're all here this morning. So please stand.

Thank you. As I said, we're in great hands. Phenomenal. If you haven't met some of these individuals, make sure you do what Mel Robbins asked you to do last night, go meet them. Meet somebody you don't know, go meet these folks. You're going to see them. You're going to hear about them. You're going to read about them. They're going to be leading this industry.

Another group is the CHRO group, Chief Human Resource Officers. We have over 50 professional HR leaders in this group, member companies. I've been in and out of this industry my entire career. I got to tell you, this group is the most sharing, helpful, caring group of individuals in the dairy industry. And the things that they've been managing during COVID. Do we mask, do we not mask? What if you're vaccinated? Do you still mask or don't mask? What are we going to do with the OSHA ETS? What are we going to do about paid time off? What are we going to do about childcare? How are we going to handle all these questions? Unbelievable. How do we hire more people? What do we do about ghosting? Impressive group, phenomenal work.

Impressive group, phenomenal work. Dairy Diversity Coalition, we need a dairy industry that looks differently than me. And if you notice in our NextGen class, you already see that. We need to do more of it. McKenzie says that companies that have 25% of the companies have the most diversity on their leadership teams are the most profitable. Different perspectives, more attuned to what the consumer's doing and thinking. We have 28 companies involved in this doing some amazing things. Stay tuned, we'll do more. We are working closely with Egon Zehnder on the Dairy Diversity Coalition. And thank you to all the companies that are participating. Power of People Conference, this is where we'll have a conference in Amelia Island, Florida in conjunction with the fall board meetings. We'll bring together the CEOs, CHROs, and others to think about how do we design the workspace? How do we handle hybrid work? How do we manage our people programs so that we can attract and retain the best folks?

We're talking to these groups. We're going to be working on some videos and some things to put a different face on the dairy industry. And one of the requests we've had from the CHRO group was don't do it with red barn and cows. We need to attract engineers. We need to attract computer programmers. We need to attract people that come from outside dairy because not everyone can relate to a red barn and a hosting cow.

So I've talked a little bit about new, keeping on the theme of new now and next. So I want to turn now to the things that are happening now. And to me, this one's easy. It's one word. The challenges we are facing today are workforce. There isn't a member company that I talk to that doesn't tell me how they're going crazy trying to have a workforce. And what am I going to do if more people test positive? What am I going to do if this vaccine mandate goes through? What am I going to do when I have to tell people I can't sell them product?

And it's also affecting you and the things that you're buying as part of your supply chain, because the people that are supplying you with inputs, they can't have workers either. We're in a situation where I tell people today that a CDL is probably more valuable than a PhD. Truck drivers, truck drivers, truck drivers. McKenzie will be here to present the great attrition or the great attraction, the author of that report. If you haven't read it, I encourage you to read. It's interesting. The challenges persist. So this great attrition, we've had 38 million people quit their jobs in 2021, 4.2 million quit in October 4.5 million quit in November. You heard Mel Robbin's say last night, why are people quitting? They've had it. They burn out. They're frustrated.

This has been a long two years. It's been a long haul. Childcare, caring for loved ones. We're in another ironic situation on the great attraction. We have more job openings than we have unemployed people, 10.6 million job openings, somewhere around 7 million unemployed people. So where does that leave you as a leader in the dairy industry? You feel like you're walking a tight rope. You're dealing with all of these workforce issues. You're also dealing with historic nearly 40 year high inflation rates. You're dealing with all of the uncertainties in the vagaries of the markets. It's a tough time. It's a stressful time. The great attrition is also not just on the workforce and the manufacturing facilities, it's up and throughout the chain. More CEOs are leaving in 2021 than we normally see on an annual basis.

So I've talked about what's new, talked about what's now, going to move to what's next. So what's new and what's now? You can Google, get some data. You can find the answers to those kind of things. You can build a chart. If you're me, you have to have a chart, graph or two. I love them. You can do that. When you get to what's next, it's hard to get any data on what's next. Moves you into predictions. At the Dairy Forum in 2020, January of 2020, I made a prediction that we'd see more change in the next five years than we've seen in the last 15. How many of you think that prediction's going to be true?

Little did I know, we'd see COVID in January of 2020. So I had a little help from COVID to help make that true. I had no idea that was going to be the case, but I wanted to make the point. Change is always coming and change is going to come at us only faster and we need to be nimble and we need to be prepared for it. So in the section on next, I'm going to make four predictions. We're getting a little bolder. I'm listening to Mel Robbins. I'm a little bolder than I was. Health and wellness. The connection between food and health will dominate the debate. I'm a one note person on health and wellness. It is huge in our future.

Sustainability. Metrics will become a condition of sale. Winning in the marketplace. Our industry will align on a pricing model. And on people, people will determine our success. Some of you probably look at these and say, well, actually pulled up a little short on your fourth prediction. Anybody could have predicted that way. Hang on. I may have another little surprise for you in the middle of this one. So a connection between health and wellness and health dominating the debate, 2,500 years ago, Hippocrates predicted that food would be medicine. We're hearing more and more of the connection between food and health. Opportunities around health and wellness is estimated to be about a $1.5 trillion opportunity. We all want to live longer. We all want to live a healthier lifestyle.

We want nutritious, sustainably produced products. We're going to move into the true cost of food. Rockefeller Foundation just put out a report on the true cost of food the other day. We spend about $1.1 trillion on the food we purchase. But the true cost of food says it's not just what you spend to buy the food, it's what has to be spent on the environmental impacts of that food production and on treating the diseases, type two diabetes, cardiovascular disease, renal failure. The diseases associated with what you eat receipts for food, plus the environmental, plus the medical about 3.2 trillion. So we're going to hear more around the true cost of food.

We're going to see more signs connecting health and wellness to different products. And we're going to need to have more people speaking about the benefits of dairy. We're already seeing in certain places around the world warning labels warning consumers, health authorities warning consumers about what's good for you and what's not good for you. These are samples from the UK, from Mexico, from Chile, from Israel. Will we see these in the US? The FDA has already announced they plan to define healthy. Now we could be blessed in the case of the FDA. If it takes them as long to define healthy as it did to set a yogurt standard, it's only 40 years. So some of us won't be here by the time they do it. But on healthy, I believe they'll move faster. So these are some of the things we'll see.

So how do we win? We've had discussions with Barbara Bryan and her group at DMI, both own sustainability and on health and wellness. And in my view, this is going to take a massive, sustained total industry effort to keep dairy healthy. We need unexpected people saying unexpectedly positive things about dairy in unexpected places. That's going to take all of us. We can't forget it isn't just the product. We've also got the animal that's used to produce it. So making sure that we are seen as taking care of our animals and that the animal being a part of that is still okay and being healthy. Our next test and our next major milestone on this will be the dietary guidelines, which comes up in about three years. And can we maintain.

Which comes up in about three years and can we maintain dairy's central position.

Own sustainability. No metrics, no sale, sustainability becoming a condition to sale. Many members are telling me they're already encountering that. You're encountering that from your customers, all kinds of questions, and as I talked about, we can set targets, but one of the things we're going to have to think about is you set targets are the producers, the farmers going to be able to do the things they need to do to meet your targets? So you're going to need to have a milk supply and where's the money going to come from that makes all those things happen? Is it going to be reflected in the cost of milk? How does this get monetized? How much of this do we pass along to the consumers? And again, it's going to be tracked and you'll be held accountable and it will influence investments.

Again, don't forget the animal. This is a prediction, this was a headline I saw the other day coming out of the Netherlands. Will we see something like this in the US and other places one of these days? Again, we got to make sure we're doing all the things about the animal.

Winning in the marketplace. Our industry will align our pricing model, I firmly believe that. I think this industry is coming together. We need a system that works for both farmers and processors, otherwise we don't have a supply chain. We'll have a session here at Dairy Form, Professor Bozic from University of Minnesota and Phil Plourd from Blimling and Associates will be presenting on a study that we just commissioned with them. It's the path forward, reform not remove. We've presented this to the economic policy committee, they asked for the study, we commissioned it, they've reviewed it, they've given input so it'll be available here tomorrow on the website at IDFA. It's over 100 pages, so if you are not following Mel Robbins and you aren't sleeping and you're tossing and turning, this may be something for you to think about reading. 100 pages of the federal milk marketing orders. Some will enjoy it. Some will not. We will take whatever we can get consensus on at the economic policy committee, we'll take that forward, and this will be used as the upcoming farm bill debate to develop our position. So the question is, who's going to lead on this? Will the leadership come together on this?

I think in this area, we've been afforded an opportunity that we've never had in dairy. This secretary Tom Vilsack. Is a quote from him in December in Hoard's Dairyman, and I highlighted some of this and I talked to him about this the other day. He is saying, "Industry, get your heads together, think through the process, and come to me collectively with what you think is in the best interest of the dairy industry and I'll move it forward. If you guys can't decide what's good for your industry, don't expect me to decide what's good for your industry." So I think we have a tremendous opportunity ahead for us. If we can align on this, I think the US can become, will become, the world's dominant dairy supplier.

So fourth prediction, people will determine our success. I think people are going to become more important to us if they aren't already than customers. Because if we don't have the people to make the products, we won't have customers and we can't keep customers. Where are we going to get people from? The US has the lowest population growth rate in history, not just one year but for the last 10 years. More people dying and we have fewer people being born in the developing world. We have a people's issue. Sustainability, health and wellness with research, many of these other things we can fix with money, we can't create more people.

What do we do? I think we'll see immigration reform passed within the next five years. Now, a lot of people think Dykes has really lost it this time, but I've always thought he's crazy, but he's lost it this time. It'll never happen. I don't know. Where we sit today, it seems a remote distant, far distant possibility, but these workforce issues are driving change. We're going to have to have people that are working, which means we're going to need a system of legal immigration. I don't think it'll be Mitch McConnell that'll do this. I don't think it'll be Joe Manchin that'll do this, I think this will be someone that we probably don't know yet today that's going to be bold enough to step forward and lead us through this.

But the question is who's going to lead this? And if we think about leadership and we think about leadership into policy circles, the old guard is leaving us. This too will make a difference in dairy. Pat Roberts seen the completion of farm bills both as chairing the committees in the house and the Senate probably hasn't been a more re staunch supporter of dairy then Pat Leahy coming out of Vermont. For those of you, who've been in this industry for a while, you can remember the dairy combat and all the different things, and even Collin Peterson who lost his election in Minnesota at the last election cycle would always say, "Well, Dykes, this is where we are, but I don't know what Pat Leahy's going to come in with and whatever Pat Leahy comes in with, we're going to have to deal with.

There probably hasn't been a bigger Maverick than John McCain. Sometimes it takes mavericks to lead change and it's not just in the policy front, our farmers are changing. Many of the farmers are saying, "Hey, it's time for me to turn this over to another generation." The question always comes back to us then, so who's going to lead these things?

To me, I think the answer to that is easy. You guys are going to lead this. You're going to step up. You're going to be bold, and you're going to do the things that you know are in the best interests of this industry. Yes, you'll get some arrows shot at you. They'll be a lot of people that think you're crazy, they won't like what you're doing. Got to stay the course. You're the leader, the future of this industry is resting in your hands. I think if we stand together and United as a dairy industry, as we have proven during COVID, we can do great things and we can do great things together. Together, all of you, you're making a difference for this dairy industry and you're making a positive difference for this dairy industry. You're changing lives, you're creating a place for people to come to work where their dreams can come true. We're investing in our industry, our industry's growing, thank you for all the support you've given me in my five years here, it's been a thrill, I enjoy it, I enjoy every single day of it. Thank you for being here. Enjoy the rest of Dairy Forum.