Exploring Co-packing for Value-Added Dairy Foods Businesses

- I'd like to welcome you today to our Value-Added Dairy Foods webinar series.

Our title for today's presentation is Exploring Co-Packing for Value-Added Dairy Foods and Businesses.

And we welcome our guests, Jason Frye of The Creamery at Pleasant Lane Farms and Jon Weber with Penn Dairy, and I'm excited to hear their experiences and insights as co-packers in the dairy industry.

We have a few housekeeping pointers, tips to get through, and then we will get started with our webinar.

This presentation is being recorded.

It will be shared online.

This is our statement of accessibility of our Penn State materials.

Just some housekeeping tips.

As I mentioned already, this webinar is recorded.

The recording will be available to anyone that registered, and it also will be posted on our Value-Added Dairy Foods website.

Closed captioning is available.

You can click on the little icon down, I believe it's on the bottom of your screen, and turn that on.

You are welcome to use the chat.

We'll monitor that throughout the webinar.

Or if you prefer anonymity, there's a Q and A feature on the bottom of your toolbar, and feel free to type in your questions into Q and A.

And then as we close out this webinar and you close your browser, a very brief survey should pop up.

That gives us a little bit of feedback, so we can use that to apply to our future webinars.

I would like to introduce myself.

My name is Ginger Fenton.

I'm part of the Value-Added Dairy Foods working group at Penn State.

My specialties, as Dr. Kaylegian and I say, I work with milk until it gets to the bulk tank, she takes it from the bulk tank on.

And then we also work with Sarah Cornelisse, and Sarah's specialty and interest is with marketing and business development of value-added dairy.

And I would encourage you to check out our website if you're interested in more resources, and all of our past webinars are archived at that website.

And, last thing on my part, we have two more webinars coming this spring in our series.

On Tuesday, April 9th, so you'll notice a pattern, where the second Tuesdays of the month, we have Martin Bucknavage, who is an ext, senior extension associate in the Department of Food Science at Penn State, and he will be presenting about how to prepare for a third-party audit.

And then on Tuesday, May 14th, our own Sarah Cornelisse will present on pitfalls to avoid when growing your dairy foods business.

So look for those emails.

As past registrants of webinars, you will probably get a notice of those emails.

With that, I'm going to stop sharing and turn it over to Dr. Kaylegian to give us an introduction.

- Thank you, Ginger.

Let me get the screen up here.

So as I was just introduced, as Ginger said, I'm Dr. Kerry Kaylegian, and I provide technical support, usually from the bulk tank to the finished product.

And one of those questions I get sometimes are, how can I find somebody to help me with my milk?

I've got excess milk, I'm looking to start a business.

So I'm kind of a catchall resource.

I kinda see people looking for co-packers, as well as people that have some excess capacity that are looking to be co-packers.

So we're hoping that this website's gonna capture interest of both ends and make it a little bit easier for both parties.

So some of the reasons you would look at using a co-packer are starting a new business.

We've seen people that, maybe they've got a farm, or they're an entrepreneur and have an idea, maybe they're a small farm, they're looking to process their own milk in another facility.

As a farmer, you've got one business, and starting a processing business really is a separate business.

So being able to go to a co-packer, try things out with their procedures, their facilities, might offer you an opportunity to see if it's the right business for you, and how you can grow that business.

Sometimes you may be using your milk.

Sometimes you may have an idea and you just wanna send your milk out, let somebody else produce it for you, or you have an idea and you wanna use their milk and their product development team.

If you're using a co-packer, you may have your own ideas, you may be looking to their team, or it may something you wanna co-develop.

So kinda knowing what your specification, what your ideas are, so you can be really clear in your expectations as you're working with a co-packer, it's gonna be really important.

There's a lot of great ideas out there, and you wanna make sure that you've got your ideas, that are safe, as well as not tapping into something that is their co-packer specialty.

One of the other things you may use is their other raw ingredients and packaging sourcing.

You may have a great source of milk, but sometimes finding small amounts of cultures or packaging material may be difficult, and using a co-packer would be one way to go for that.

Another area that we see a lot of co-packers is in business growth.

You may have excess milk and looking right now for a short-term or a long-term supply for that, or you have a new idea and you've got some different technology that some of our processors offer.

We also see people that are looking to move into a new geographical market.

They don't wanna put a plant in, but maybe there's somebody with excess capacity in that area that can help 'em out and see if it's a good opportunity for them.

So as you kinda look into working with co-packers, you wanna think very clearly of, what do you need for them?

What kinda processing specifications, equipment do you need?

Who's bringing in the raw materials and packaging?

Is there lab testing you need?

What type of product development?

Do you have all of your own marketing, or are you looking for them for marketing?

Are you also, what are you looking at for product storage and distribution?

What kinda things do they need from you?

If you're bringing raw materials into their facility, they're gonna be asking for certificates of analysis, 'cause not only do they have to bring stuff in and store it, but they've also gotta worry about food safety issues.

If you're coming into your facility, do they have the correct training?

You make sure that as a processor, you are not bringing in a danger to your own product line.

Again, working on specifications in raw milk and packaging materials, all of this needs to be really well set up.

And we've got two great speakers today that are gonna talk to that.

I do get a lot of questions of, where can we go for co-packers?

And we right now have a very old dairy plant directory on our website.

It was done in 2014, and we are working on a new one.

We are trying to identify more co-packers, so if you are interested in being identified as a co-packer, please contact me and we'll make sure that we've got you on there, not only as a resource for a pulp plant, but as well as a co-packer.

So today I'm gonna turn this over to both Jonathan Weber and Jason Frye, and we'll start with Jon.

Let me stop sharing, and ask Jon from Penn Dairy to talk about what they do as a co-packer.

- Thank you very much, Kerry and Ginger.

Thank you so much for the opportunity to be able to share with you guys today.

Give me one moment here, I'm just gonna share my screen.

Share.

Okay, do you guys see that okay?

- Looks good, Jon. - Okay?

Very good.

So, Penn Dairy started out as Penn Cheese back in 1979, and we made Swiss cheese exclusively for many years.

And what we found is that we had difficulty, there's multiple difficulties that we had with the Swiss cheese, related to what we do with the whey and some different things.

We had some troubles and difficulties, and so we expanded to be able to do cheddar, Monterey Jack, and Colby and mozzarella and some different products.

And then we expanded again to be able to do yogurt.

And really, we've done co-packing for a long time.

And in the last four to five years here, we've really transitioned significantly from cheese into yogurt, so much so that this coming May, we're going to be selling all of our cheese equipment.

We're not even going to have the ability to make cheese anymore, because cheese has gone down to about 1% of our business the last two to three years here.

And so we're staying very focused on doing co-packing, but the product that we're co-packing is kind of shifting and changing.

And so that's a real brief history of how we got to where we're at right now.

There's a lot of details I just kinda brushed over there, but it's sufficient to say that right now we do specialty-type yogurt products, we match specific customer parameters.

And so you might think that yogurt is just yogurt, but really that's not true.

There's so many different variabilities with the type of body you want in your product, the flavor profile, specific cultures you wanna have in there, preservatives, not preservatives, organic, non-GMO, A2/A2, specific cow type, solids level, fat level, so many, so many different things.

And so customers come to us and they ask us for specific parameters, and we just try to align if we can do it or not.

And that's just kind of an overview of what we do.

But there's a few things that I wanted to go over, like, practically speaking as well, like, some specific things.

And there we go, the slide just changed.

So to kinda begin with it, how would someone engage us as a partner?

So if somebody wants to be able to make some yogurt or make some cheese, how would they go about seeing if we can do that?

Generally speaking, we get people that call us or reach out through our website.

Really, most of the reach-outs that we get are through the website, but then there's also some calls here and there, but that's probably the minority of it.

And really we just have a conversation to understand what their needs, interests, and expectations are, and then we line that up with our capabilities, interests, and expectations.

And Kerry was going through some of the specifics with this, and this is really a very, like, the discussion at this level is very high-level discussion.

What do you hope to see in your product?

So if somebody comes to us, I'm asking them, what do you hope to see?

Can you tell me more about your product?

I wanna understand, what do you see as success in volume of product, in what the product looks like, smells like, tastes like?

How does it perform with viscosity?

And different things like that.

And then, what are you expecting it to be in, like, six months or a year or even further down the road?

How do you see this kinda going?

And then we need to line that up with our capabilities.

Is this something that we are physically capable to do?

Is this something that we want to do?

Which are two different things.

Just because you can do something doesn't mean you necessarily want to do something.

And then you need to make sure that your expectations line up with their expectations to avoid any kinda frustration.

So that's kinda like the first stage that we do.

So this is kind of outlining very broadly what we can do and what we can't do.

So like, for us, as an example, we can't do single-serve yogurt.

So if you're looking for something that's, like, a 4 ounce or a 5.3 ounce, we can't do it.

We don't have the equipment to be able to do that.

We can't do a two-shot fill.

So if you want fruit on the bottom and yogurt on top, that's not something our equipment can do.

And then also as far as, like, Greek yogurt with doing separation, like the traditional format of Greek, we can't do that type of separation.

And so those are three things right away that, if we talk to somebody and they wanna do one of those things, we're like, "I'm sorry, we can't do that." And what I typically try to do is, if I know somebody else who can do that, and I think that they might be a good fit, is I try to give some contact information to be able to get it around here and there.

And I always tell them that if they're able to get anything worked out, they gotta send me the sample from their first production.

So that's kinda how we manage that.

But what we can do is we can do multi-serve containers.

So we can do a 32-ounce cup, we can do 3- to 5-pound cups, we can do 5-gallon buckets, and we can do 275-gallon totes.

So we can do, like, the multi-serve or industrial-size packaging.

We can also do a 7- or 32-ounce bottle.

So we can, you know, explain to our customers whether or not they'd like one of those two sizes.

And then we can also do some very specialized formulations.

So let's say somebody wants, I'll just kinda pick an example, let's say somebody wants something to be very high protein, but they want it to be a special type of protein, like, whether it is, like a whey protein or a casein protein, and they wanted it added in a special way, or they wanted some sort of superfood mixed into it, we would look at what our capabilities are, when we can add it, when we can't add it, and just see if it's a good fit or not.

And so those are just kinda some examples of what we can do, what we can't do as we're talking with some different people.

There's some other things too that we can do to modify our equipment.

And the question is whether or not we wanna modify the equipment.

So like, for example, we can do a 7-ounce or a 32-ounce bottle.

It's physically possible to do other size bottles, but I need to communicate to our customer, or a potential customer, that if we wanna go down that route, it's gonna cost at least $30,000 to be able to buy the equipment to modify our filler so that it can receive the different size bottle.

So it's possible, but it's gonna come at this cost.

And we just kinda talk through that, work through that to see if it would be a good fit, and if they're willing to commit to something like that, and kinda working through that.

So a couple of key points to consider when working with customers looking for co-packing service.

Kinda talked about this already, but we wanna define clear boundaries at the very beginning.

If you're not clear, you're not gonna be kind.

And it could be wasteful for your time, wasteful for their time.

It's just not gonna be helpful.

You don't have to say yes to everything.

If you say yes to everything you're saying no to other things that may be more important to you or to your current customer base.

So it's important to have clear and respectful yeses and clear and respectful nos, because you need to know your limits.

You can't, like I said, you can't do everything.

I'm of the type that I like to say, "Let's find a way to make it happen." But there's times when it's just not worth it, and you need to know what you can't do.

And another thing you wanna I think really put a lot of focus on is playing to your strengths.

So you can think about that as a company with equipment, but also with the team that you have.

There's a thing that we did as a company, this doesn't have to do necessarily with co-packing, but I see it as valuable in playing to your strengths.

It's called StrengthsFinder 2.0, and it's produced by the Gallup organization, the same people that do the polling.

And you do a personality test, personal test, to know what your strengths are, and then you match them up.

And you can really play to your strengths, what you do, do to your best and do it well.

You're gonna love your work, and the people that you make product for are gonna love their product the most, because you are just enjoying it and doing it well.

You're gonna wanna serve their needs.

They're trying to grow your business and they're trying to grow their business, and you just need to really come in with the mindset of, how can we help them to have the best product possible on time?

Is there anything that we can be doing to support them?

Because there's a lot of things that may be obvious to you but not obvious to them, because they're not in the business making product.

And then one thing that's been extremely helpful to us is to diversify.

So we've got some customers that do 32-ounce cups, they'll do organic, they'll do grass fed, they'll do conventional.

We've got some customers that do bottling.

We've got customers that do buckets for, so they use our yogurt as an ingredient, so it's not even going to retail.

And we've got some customers that will use our yogurt in restaurants, and so they'll get, like, large bulks of it and they'll just kinda use it, especially in Indian restaurants, they like to use a lot of yogurt in their recipes.

And then we've got other customers that will even have different applications.

It's hard to explain all the different applications.

But to have a diverse customer base is difficult, because you wanna have specialties that you do, but it's also important that you don't have all your eggs in one basket.

You wanna have a nice diverse group of people, that when one is going strong, the other one is maybe struggling a little bit, and then they kinda compliment each other.

It almost always is somebody either kinda growing and doing well while another person is kinda trying to figure out life a little bit.

And so having that diversity really helps your company to kind of not always be, like, at the top of the wave, but you can kinda manage it better that way.

So that's just some things that I found working here at Penn Dairy that have been helpful to me and helpful to the company.

And just, I guess that's what I had for a presentation.

Happy to continue on or expand on anything else, but I don't wanna monopolize the time, so, guess I hit it back over to Kerry and Ginger.

Or maybe Jason, I'm not sure.

- [Kerry] Why don't we just hand it right over to Jason?

Thank you, Jon. - Okay.

You're welcome.

- Great.

So, let me start.

So, great. Coming through full screen, Ginger?

- [Jon] Looks good.

- Perfect. - Yeah.

- So my name is Jason Frye.

I'm partner and head cheesemaker here at The Creamery at Pleasant Lane Farms.

We are slightly different from maybe the normal co-packer that you might find out in the market.

We are a dairy farm and a on-farm creamery.

And so we're a small dairy farm and we are a small creamery.

We started the creamery business in 2020, and part of our business plan when we started our operations was to offer our excess capacity to other small family farms who may be looking for a channel for them to produce, or to send their milk to be, you know, processed into cheese.

And so we've been doing this now since April of '20, which was an interesting time to start, but now we've got our feet under us, and we're actually doing co-packing and processing for six other farms right now.

And so we, again, we're a small plant, which gives us the ability to be pretty agile and offer some interesting capabilities that may not exist at the larger co-packing level, but also for folks who may be looking to get into the co-packing business, or for looking for a co-packer, it also limits some of the things that we can do.

And I wanna talk a little bit about that here in a second.

So we're a bespoke, small-batch co-processor, which means that we're able to offer the ability to process under 10,000 pounds of milk, whereas, you know, most of your co-packers are gonna be looking for a lot more milk.

In fact, our minimum that we can run is about 2,000 pounds of milk in a cheese vat.

And that gives us the ability to make a wide variety of cheese types.

Now we don't do blue and we don't do Swiss.

There's technical reasons for that.

But we are able to make most other cheese types for our customers at that small batch size.

We have some award-winning artisan cheesemakers that are on staff.

So we have a lot of technical expertise that we've built up over the last four years, and we have access to and can provide access to some world-renowned technical consultants for custom product development.

And what we find at the small, bespoke level is that we really wanna look at developing a cheese that's a fit for the herd.

So for example, we work with a A2/A2 Guernsey herd today, where we're manufacturing a Butterkase cheese for them.

We're working with another, you know, mixed herd of heritage breeds that we're making an Alpine-style cheese for them.

And so it's really important from a small, bespoke perspective to really understand the types of products that can be made with the type of milk that you may have from your herd or your flock.

We do specialize in cow's milk cheese.

Not to say we'd never do goat or sheep or something else, but we specialize in cow's milk cheese.

We are GMP and food safety systems third-party audited.

And we'll talk a little bit more about that when we think about some considerations for somebody that may be looking for a co-processor.

And if you are running a small cheese plant today and you're thinking about offering co-processing services or co-packing services, I think you really need to consider being third-party audited as part of that process.

We are unfortunately near capacity.

We're working on some projects here to expand our capacity, but with the milk that we run from our own herd plus the six farms that we're processing for today, we find that sometimes we're fighting for space in the vats.

Some of the things that I think everyone needs to consider when they're looking at small-batch in particular, small-batch co-packing and co-processing, it's not inexpensive.

And so you really need to choose what you're doing very closely, because you will have a higher make cost, you'll have a higher aging cost, you'll have a higher conversion cost than you might find from some larger scale co-packers.

And that's just sort of the nature of the business from a scale perspective.

We also wanna work with the farms that are bringing milk to us to understand what their unique differentiators are gonna be.

And I think Jonathan really touched on this when he was talking about, you know, know what your goals are, know what you want to have made.

And so if somebody comes to us and they say, for example, that they wanna make, you know, a basic cheddar cheese, it's within our capability skillset, but we're not sure, and we're always very clear that we're not sure that might be the best thing for them to do with their milk to achieve the maximum value from a value-added perspective.

We also find at the small co-processing or co-packing level, that it works very well for farms who are already doing some other form of value add, and that they have access to a retail outlet.

And so for example, the six farms that we work with do everything from, you know, bottling milk to making a little bit of yogurt, some ice cream, or have on-farm stores.

And so they already have an outlet for their products that have been predefined.

And what this gives them the ability to do is to bundle things on the farm.

So they get milk and cheese, and they're able to bundle that together with their customers, either under a subscription program or just, you know, a walk-up purchase type of program on the farm.

And so there's sort of a lot of things that we need to consider here when you're looking at a small co-packer like us, or if you have excess capacity and you wanna become a small co-processor.

And so the question that we always get asked is, is it worth it?

You know, because when you're at the smaller level, there's some question of whether or not you can get to a dollar value for your product that makes it worth doing that value-added process.

And what we always tell folks is that you really need to look at the math around what we think a product can sell for at a retail level versus a wholesale level, and we'll talk about that in just a second.

We know that regardless of size, that there's positive margin generation for a dairy farmer on a per hundredweight basis up-processing their milk into cheese.

The real question becomes at the co-pack level, so once we've charged a customer to make a product, what's left over for them from a potential profit perspective at a retail level.

And then to understand, you know, some of the difficulties that they might face if they try to move into a wholesale market.

And these numbers here match pretty closely to one of our co-processors that, one of the farms that we co-process some milk for.

We're producing a product for them that, on the low end they're retailing for $16 a pound.

They have to pay themselves for milk.

And one of the other conversations that we always have, and I think it's important in a co-processing/co-packing perspective, is to understand what the true value of your milk is.

So it might not be the Class III price or the mailbox price, because that might not be your true cost of production.

And so when we look at value add we need to understand, what are you paying yourself for that 100 pounds of milk?

What does it cost for us to convert that milk into cheese?

And sort of on average we look at $3.90 a pound.

And I know Jonathan's sitting there going, "Wow, that's a lot." But from a small co-processor perspective, when we think about, to cheesemakers in overhead, that's really what our costs add up to be.

There's conversion costs, aging fees, and then you're gonna have miscellaneous expenses coming into it.

Transportation costs to get your milk, you know, to our plant, transportation costs to get the finished product from the plant.

Your marketing costs, if you're gonna do a special label, special packaging that there may be an upcharge for, all these things go into it.

But at the end of the day, if you're really looking at it from a retail perspective, and our small farm partners find that they can make a really nice profit on that milk that they bring to us when they're selling that at a retail setting.

When we move to wholesale, it actually becomes a little bit more difficult.

And that's where we have to have the really detailed conversation about the type of cheese that you're making and the value of that cheese in the marketplace.

Because there are some cheeses that are just worth more.

There are some higher input costs on our side, but generally the numbers work out pretty well.

So I think this is one of the things if you're on the side of, you're looking for a co-packer, that you need to understand what your costs are gonna be to actually get your milk to the co-packer, the cost for production, and then what your marketing costs might be to put something into a retail channel.

If you have excess capacity, I think then you need to really understand what your overhead costs are to make a pound of cheese in your plant, and how you're gonna charge for that in your environment.

So these are some of the things that we really spend a lot of time with up front with some of the farms that we work with on understanding the type of cheese that they wanna make, what we think we can sell that for, and then how we're gonna, you know, work through regulatory things.

And so some of the other things that we look at, you know, when we talk to folks that have called us to talk about, you know, can we take their milk on to be a co-packer for them, you know.

And we say, look, we wanna make sure that we're aligning you with the right type of partner.

So we know who we are.

We're a bespoke, artisan, small-batch cheesemaker.

So, are you looking for that?

Are you looking for more of a commodity mainstream co-packer?

And if you are, we're not the right fit.

If you're looking to, you know, convert a lot of product into, you know, commodity cheddar, we're probably not the right fit for you.

But if you're looking to make a brine-style cheese or, you know, small-batch cheese, we probably are the right fit for you, if we can get milk here in a reasonable fashion.

We always tell folks that we partner with that, be prepared for it to be not right the first time.

When we move away from commodity-style cheese products to more artisan-style products, there's more experimentation that has to go on early in the process.

And so that means that we might need to roll through two or three or four batches of product before we hit the defined spec for that cheese from a flavor profile, from a consistency, whatever it happens to be that we're looking for.

And that doesn't mean that we're not gonna try to produce a product that you can sell day one, but, you know, just from a small farm perspective, sometimes there's expectations that they're gonna have, you know, magic happen the very first time.

And so we try to set expectations around what the development process looks like.

On the farms looking for value-added co-processing, co-packing capability when it comes to cheese, you need to understand the cheese timeline.

And this is something that we talk with our partners about quite a bit.

Sometimes we remind them.

Sometimes we say, hey, you know, it's February, or it's January, we should be thinking about making that cheese that you wanna have for spring farmers markets, or the cheese that you wanna make for the next holiday season.

So we may have cheeses that are aging for, you know, 100, 200, 300 days that we want to understand what the timeline is for when milk needs to be on site to the time that you have a product that you can actually take to retail.

'Cause I think the worst thing that could happen is we make a whole bunch of cheese, and then it comes to market at the wrong time, you know, and typically in the cheese world the wrong time is, like, mid-February, that we don't wanna have a ton of cheese coming to market.

Be clear on who's responsible at each step in the process.

And Jonathan, I think this was, you know, something that you talked about here and something that we think is very important, both as a co-packer and anybody who may be interested in becoming a co-packer, that you need to be clear on who's responsible at each step in the process.

So, who's responsible for getting milk to the plant in a legal fashion?

Who's responsible for getting the cheese from the plant in a legal fashion?

Those are the two sort of bookends, but in the middle there may be responsibilities around things like, when should a cheese be converted?

So are you going to defer that to us to make those decisions on when we think a cheese is ripe or ready for market, that we'll go ahead and do that conversion on that schedule?

Or do you want to dictate when that conversion would happen?

Understand that there are responsibilities that we have from a food safety perspective, which means that we may convert cheese and put a hold on that cheese until it's past microbiological testing.

And so there has to be, you know, clear understanding of who is responsible each step in that process.

And I think sometimes we've learned early on with some of our partners here that we've maybe not been 100% clear.

And that's caused, you know, issues, where we have cheese that's like, you know, 400 days old.

Which is perfectly fine for the cheddar that it happens to be, but they maybe forgot that they had it, or whatever it happens to be.

So we just need to make sure there's clarity on both sides.

If you are a small family farm or a small dairy farm, and you're looking to have products converted from a value-added perspective by a third party, we feel that you have to insist that those third parties are audited from a third-party food safety audit perspective.

Passing PA Department of Agriculture inspection is probably not enough for you as a third party bringing milk to a plant.

We feel like you should insist that there is a food safety systems plan in place and that they are an audited facility.

You're most likely gonna find this at the very large facilities.

And some of the smaller ones, they're gonna likely have systems in place, but they may not be audited.

And that's something that we think you really need to think about.

Because if you ever do choose to take a product and sell it sort of more than just on your farm, you wanna go into a retailer, you may find that retailers are requiring that, and so you don't wanna be caught short that you're down the path with a processor and then you get a retail outlet, but you cannot sell your product because you're not able to check the retailer's, the boxes from a regulatory perspective.

So these are some of the things that we look at that we think you need to consider when you're looking to have a co-packer process your product, and then if you are a co-packer, you know, what you want to offer out to your customers.

So from our point of view, we look at this across this line, right?

So define what your end goal is, right?

What type of product do you wanna have made?

What style of product do you wanna have made?

Or if you're gonna get into the business, what do you want to make?

Know your market.

Understand if you have a market for the type of cheese that you think you wanna have made, or the type of dairy product that you wanna have made, where are you gonna sell it?

Who are you gonna sell it to?

Are you able to move the amount of product that you need to move to make the numbers work?

So you need to make a plan.

And that's something that we think that you would sit down, if you were coming to us, we'd sit down and make a plan for the types of cheeses we wanna make, how often we wanna make product, et cetera, and then follow it.

We have struggled with, from time to time here, where we bring things like cultures or packaging in with the anticipation that we're making certain types of cheeses, and then there's delays.

And so then we have to throw cultures away because they go out of date, and that costs everybody money on both sides.

But make a plan and follow it.

Do it right.

And that's you as the person bringing the milk and us as the co-processor or the co-packer making sure that we're doing things right on both sides.

And I think if you have a commitment for doing things right, you'll have a better outcome.

And then at the end of this, especially at the small, bespoke artisan cheese level, we wanna have fun.

We wanna have fun on the, you know, making your product for you.

And we want you to have fun selling that product and representing that product into the marketplace.

Because at the end of the day, if you're at that smaller end of the market, you're probably a smaller, closely held family farm or small business, and your brand means a lot to you, and you should have fun marketing that brand out to your customer base.

And so with that, Ginger, I will stop and offer to answer any questions.

- (indistinct) Thank you very much, Jason and Jonathan.

I think you both made excellent points.

I know I have a few questions.

Dr. Kaylegian also has some questions.

We'd also like to make sure that our attendees, if you would like to ask questions, please put them in the chat or into the Q and A.

- First of all, I'd like to say thank you to both Jason and Jonathan.

You guys made some excellent points, talked about some things we didn't think about, and really got to the heart of some really interesting issues.

One thing I really enjoyed was the perspective.

Jason, we've got you on the small farm, Jonathan, we've got you on the bigger side.

So I think our processors had a chance to see some real ranges.

And Jonathan, for the record, I'm really sorry to hear you guys aren't gonna be making cheese anymore.

Swiss cheese not at Penn Dairy is gonna be the start of a new era, so.

But before we get to my questions, let's definitely see what we've got from our attendees.

- I don't see any at the moment, Kerry, so feel free to ask yours. - Ginger, go ahead.

- And I'll keep watching.

- Nope. Ginger, go right ahead. I'll let you go.

- Well, yeah, I have a couple.

Is there a preferred minimum time when you start to work with a client that you would like to reach that agreement for?

- [Jon] Go ahead, Jason.

- I think given our size, we like to try to work with them multiple months before they actually wanna have product being manufactured.

So for us, for example, if we're looking at a, if they wanna manufacture a product that's gonna take 90 to 120 days to come to market, and they wanna be selling it in June at a farmer's market, we probably wanna be engaging with them in October, November of the previous year, to be talking about what type of product we wanna make, how they wanna make it, et cetera.

So yeah, I think engaging earlier is better in the cheese world, since some products have a pretty long aging time.

We really wanna look at, you know, what the goals are and what we think we're able to make.

And then frankly, you also need to back into some test batches from a timing perspective as well.

- So as far as Penn Dairy, it really kinda depends on the company or the individuals that come.

Some people contact us and they have no idea about anything with yogurt, even how it's made, and they wanna know if they have a special formulation, if we can do it for them.

And so somebody like that is probably not gonna come to fruition.

And then you've got some people that come and they are already working with a different co-packer, and they either want to change co-packers for whatever reason.

Recently, like two years ago, there was a company that discontinued yogurt production, and then there was kinda some businesses that were looking for a place to make yogurt.

And so some people that are like that, they've already got a process, they've already got sales, they've already got all these things worked out.

And so it really kinda depends where they land on that continuum of experience and actual sales, or just hopes and dreams that they're trying to bring to reality.

And it really is gonna vary in there.

I would say the proper amount of time is the time it takes to make sure you get all of your T's crossed and all your I's dotted.

I'd rather have everything worked out as much as possible than try to rush into something and it be costly for everybody.

- I had a question on the tip of my tongue and then all of a sudden I just lost it.

I know what it was.

Regarding standards of identities and testing, product testing.

You guys are both working with products both in and out of standard of identities, having customers come to you that may ask for something that they may or may not be aware of those.

How do you handle those requests, and whether or not you do your own in-house testing, or if you're sending out, Jason, you've got a lot of moistures, fat and moisture content, salt and moisture, and I know, Jon, you're gonna have moisture contents as well as cultures and things like that.

How do you guys handle that as well as the environmental monitoring that you're gonna need to have?

Jason, before I get any farther, that plug for third-party audits for our webinar next April, I don't know if you did that on purpose, but yeah- - So good. Yeah, so good.

- We've got that one coming up.

So I'd really like to hear how you guys are handling all of that stuff.

- Yeah, go ahead Jason.

- Yeah, so I'll break that down into three parts.

So there'll be the standard of identity component.

We typically have a quick conversation up front around, you know, are you going to sell and market your product as an Alpine-style cheese, for example, that would be covered under the the CFR?

And if they are, then we know that we need to make sure that we're doing some component analysis as we get those first batches out the door.

And so we send that out to a third-party lab to do for us so that we get that fat and moisture back, and salt.

And then from a biological perspective, our make agreement just clearly states that our food/safety plan may pull their product for, you know, random QA hold, and that's sort of our process.

And if it gets pulled for a random QA hold, then it's held until that product clears QA, which I think just sorta fits into our overall manufacturing side.

The one part that I think has been a little bit more interesting for us, and maybe a little bit more complex for our partners to understand, is some of the environmental monitoring.

So we're obviously doing environmental monitoring of our product and everything coming in, but we've had some discussions around, do we need to do more than the standard testing for milk that's coming into our plant, right?

So we're gonna get the standards that are required by PA Ag, but I think there's been some question, you know, of whether or not we need to do additional pre-pasteurization and post-pasteurization testing of the milk.

And I think in a couple instances we have, because we were, like, seeing, I don't wanna say funny things, things that weren't unsafe, but just funny things with the way the milk was behaving.

And I think we found that there, you know, there was preexisting bio things in that milk that were causing some unexpected results down the line.

And I think that one of the things that we find different as a small processor, 'cause we're typically getting, you know, 2 to 10,000 pounds of milk, so it's coming out of one farm, maybe one set of cows on that farm, and so we're not able to quote, unquote, "standardize that milk" through, you know, blending.

But yeah, so those are the things that are very important to us from a standard of identity and testing perspective.

- Yeah, as far as standard of identity, you need to really be an expert in that arena, because there can really be some gray areas about whether or not there is a standard for it, and whether or not there's a standard for it, and whether or not what you're doing matches that standard or doesn't match that standard.

And so I've asked a lot of incriminating questions to people.

I'd rather ask the questions and look dumb asking than not ask the questions and be dumb not knowing.

So we talk with the regulatory people, we try to have a very open relationship with them and, you know, ask-for-a-friend sort of a thing with them.

But it's really, really important to understand what your capabilities are and what the standards of identity are for those, and just to surround yourself with understanding and smart people.

It's generally a good idea to be the dumbest person in the room, 'cause that means you're surrounded by a bunch of smart people, and just trying to learn as much as you can from all the different regulatory people and private sector, and just asking lots of questions.

'Cause it's an important thing, when you're talking with somebody who's interested in co-packing, you really need to know your way around so that you can ask the specific questions about what they're trying to do.

Because for one, they may be trying to figure out what they want to begin with, and so if they don't even know exactly what they want, they're not gonna have a clue as to whether or not there's a standard of identity about it.

And so you need to know kinda what those parameters are, and how that may or may not fit into one of those standards.

And if it does, what does that do for your process, and how do you manage those expectations?

And one thing I wanna mention real quick at the tail end of that, I just comment that Jason's presentation was fantastic.

There were so many great points pointed out.

Really appreciate sitting and listening to that.

There were so many different things where I was just like, "Yes, yes.

I'm glad you mentioned that, because I didn't say that." So, that's all.

- Between the two of you guys, you did an awesome job.

So, do your customers come to you asking for you to do their labels, both, like, the ingredient deck or the nutrition statements and approval?

Or are you pretty much having them take care of that and then working within their parameters?

'Cause I know that's a whole separate service, as well as a headache, on getting labels approved and- I didn't mean it to be a trick question.

It was just more a matter of- - It's okay.

- Where should that responsibility be?

And you talked about standards of identity, 'cause I get questions a lot on people looking for labels and just trying to figure out, where do people need to go as they're starting out this process?

- Go ahead Jason, I'll let you take first. - I think, for us, our plant ID is the ultimate item on the label that the regulatory authority will come back to.

So generally what we do is we point them to the regulatory guidance for labels, ask them to define their label.

We give them some minimum information that we require on the label.

And I think in Pennsylvania, cheese labels have sort of gone reverse, where there's no longer pre-authorization required, but there is enforcement if you're wrong.

And so we try to point them to the appropriate regulatory information.

And then, you know, knowing that at the end of the day, the buck is gonna stop with us from a label perspective.

- Yeah, so it really kinda comes back to what I said before too.

So some people don't know how to read a nutrition label.

And some people come to us and they say, "Here's our nutrition label.

It's all complete and we've done testing on it." And so we really try to help manage through there.

But Jason's exactly right, where, if you're putting your sticker label on there, you better be darn sure it's right.

Because people are counting on you: people eating it, your customer, your employees.

There's too much riding on it to hope that it's right.

And so you need to be sure, and that usually comes from a collaboration.

We do some work in-house to be able to generate some labels, I'm sorry, nutrition information.

We try to do training with our people here, primarily Laura in quality assurance, send her off and just have her learn for a week about nutrition guidance and how that goes.

As far as labels and any printed material goes, so kinda related but unrelated, if it has somebody else's name on it, as a general rule for our company, we do not own that material.

Because if the customer decides that they wanna change the formulation or change the packaging type, or if they go bankrupt or move businesses or anything like that that we have no control over, we're stuck with packaging we can't use.

And so we require all of our customers to, if it's got their name on it, if it's got their brand on it, that they're buying that material.

It's not as easy as what I'm explaining, but that's our policy.

- Yeah, we do the same thing.

We make sure they buy the label.

- Yeah. - 'Cause- - I don't know if you both can see the Q and A, but we do have a couple of questions, several questions in there.

I think they're related.

The first one is, do either of you do one-on-one or group sessions with potential clients at your facility?

- So would a customer come to us to talk about it?

That is a regular occurrence.

Usually it's, you start with a phone call or an email.

If it looks interesting enough they'll make a trip, and then you carry on the conversation from there.

- [Jason] Yep.

- Okay, okay.

And then to follow up on that, I'm going to modify the question very slightly.

They said they'd like to know exactly what a co-packer can do so they know where to create, concentrate, I'm sorry, time and energy.

So I guess what I would ask is, maybe where you recommend that they start.

I think you've already given us some great things, but, like, that one takeaway, this is what you need to do before you get going on this.

- Okay, so are they looking for a specific co-packer or?

I'm not exactly sure of the question.

- Yeah, I could, maybe it's easier if I just read the question to you as it's phrased here, 'cause I don't have additional information.

The person said, "I'd like to know exactly what a co-packer can do so I know where I need to concentrate my time and energy." But yeah, I think you're both gonna answer that differently 'cause you're doing different things.

So that's what where- - Thank you, mm-hmm.

- I was thinking maybe just some, okay, start with this and this, is where I would concentrate my energy first before I go any further.

I guess your recommendation for that would be a question.

- Yeah, it's- - I think (indistinct)

- Go ahead, Jason. Okay. - Go ahead, Jon.

I was gonna say, from my point of view, I think it would be understanding, you know, what you wanna make and what you think your market is.

And then once you understand that then I think you can go and look for a co-packer that's gonna match to that product type and that type of market.

- Yeah, and I see that they feel like they got the answer.

That's good.

But I'll kinda mention as well that, we're talking about co-packing, there are so many different aspects to it, that I know that when somebody calls and they say I wanna talk about this, I wanna talk about that, or they send an email, I feel overwhelmed with questions, like I don't even know where to start.

So I just kinda pick one and we just start having a conversation, and then we just kinda work through that as we go to make sure that we catch everything.

And so you just really have to ask a question that leads to a question that leads to a question.

You just kinda work through it.

One thing that can be helpful is, we did this more so for the cheese, we haven't done it as much for the yogurt, is we kinda put together a co-packing guideline.

And I think maybe I sent this to Jason, because we're getting out of our cheese, and I offered to him some of our customers to see if he was interested in them.

But like he said, he's already pretty close to capacity.

But just kinda write down your thoughts of, these are the things that we can do.

We can do this, we can do this.

We can do this, we can't do that.

And then just give that to the potential client, and it will kind of spur on more ideas that can kind of be a basis for your conversation and kinda work like a guideline for talking about it.

- Great, thank you.

- [Jon] Yep.

- Ginger, I believe Sarah had submitted a couple questions that, she wasn't able to be here.

I know we've got time for about one more question before we need to wrap up.

- Yes, and one of the ones I asked was Sarah's.

And I think maybe you've already touched on this, but one of the other questions was, do you have written contracts?

And if so, what does that cover?

What do those contracts cover?

- Go ahead, Jason.

- We do have a written contract.

It covers the up-front, basic roles and responsibilities, and then we would put in, and liabilities, and then we would put in sort of any additional details based on the type of product that's being made.

You know, I think probably for Jonathan as well, but I'll let him answer this, but for us the biggest thing is, what is recourse for a failed batch, right?

If a batch doesn't pass micro, or if it just sucks, you know, what do you do?

And we've been really lucky that we haven't had to, like, sort of fall back on that clause yet.

But it is in our contract, and something that we talk about up front with everybody of, you know, if you get a bad batch, what happens?

'Cause a bad batch will happen at some point in time.

But that's the biggest thing for us in the contract, is to understand what that liability is.

- Yeah.

Oftentimes, not always, people come to us and they wanna be able to do an NDA as well, and we have no problems doing NDAs.

And so if somebody wants to do it, fine. If not, fine.

And then as far as agreements go, it's, again, it's the continuum.

Some people are good with a handshake and you kinda work it out, and some people are like, "Here's a 10-page document we'd like you to review." And so it just really kinda depends on the situation, what their comfort level is and what your comfort level is, and just making sure that everybody's clear and, like, there's no frustration that would be because of unmet expectations.

And that's really what the contract is to address.

- Okay.

One of the other questions Sarah submitted, and Jason, you had a slide I think that addressed this pretty thoroughly, but could you outline, or tell us what you want to, about your fee structure?

- I think it's gonna differ greatly based on the type of product and the size, but for us, the fees that we outlined on that one slide, those match pretty close to what we charge, and that's why I said it, Jonathan's gonna think those are pretty high, but at a small level those are the costs.

In the cheesemaking world, there's three main things that we charge for.

One is the actual make of the product.

The second is the aging or care, the affinage of that product.

And then the third would be conversion.

And we're very clear that we'll make your product and give you the green cheese and you're welcome to take that, age it yourself, or we'll give you the mature cheese and you're welcome to take that to, there are places in Pennsylvania that actually just specialize in conversion.

And so we provide those options to our customers.

- Yep, and then our fee structure, it really depends on how much ownership they have on it.

So we've got some customers that actually send us their own milk and send us the packaging.

They even send us the cultures.

Like, almost everything they send us, and all we do is just charge a process fee.

And then we've got other customers where they're like, "You know, we don't know anything about this.

We need you to source and supply everything for us." And so the pricing that we have is really gonna be all over the place, depending on what the needs are of the customer.

And again, some are conventional, some are organic, some are just every which way.

So it really, really, it's very customer specific.

It seems like all of our customers are like snowflakes, so.

In the right, nice kind of way.

- Sure, thank you.

We are at one o'clock. I wanna be considerate of time.

Thank you both very much.

I think, great information. - Thank you.

- Thank you. - Feel free- - Mm-hmm. Yeah, thank you. - To jump in there, Kerry, if you have comments, but very, very useful.

Thank you. - Very helpful.

And everybody that's watching, we will get this up on our website, so if you weren't able to join us today, we'll get this information out.

It's really, really valuable.

And a reminder about our third-party audits, second Tuesday of next month.

Same time, same place.

- Okay, very good. - Okay.

Have a won- - Thank-