AURELIUS — Following the installation of its drying equipment on Sept. 15, Cayuga Milk Ingredients, LLC is now in full production.

The company was established to manufacture quality dairy ingredients for use in the global food and nutrition industries. Cayuga Milk Ingredients (CMI) has the capacity to manufacture liquid products such as pasteurized whole and skim milk, bulk cream, and milk-protein concentrates and isolates as well as dry products including milk powders, protein concentrates, and isolates. “The plant can custom-formulate products on the fly,” says Kevin J. Ellis, company CEO.

CMI was formed as a separate company by the members of Cayuga Marketing, LLC. The marketing company, which now has 29 members, was formed by a group of Central New York dairy producers to operate as a cooperative buying agent for supplies and a collective bargaining agent for selling raw milk that the member farms produce. On April 24, 2012, Cayuga Marketing created CMI to construct and operate a local processing plant that would give added value to the farmers’ raw milk, reduce their cost of transportation for processing, and create a vertical business that would ensure quality control from the farm to the customer. The ceremonial groundbreaking at the plant in Aurelius, near Auburn, took place on Nov. 15, 2012.

“This is a major project,” Ellis notes. “The capital investment totals $101 million, $88 million in hard assets and $13 million in soft costs. The footprint for the plant is 110,000 square feet, and the dryer levels add another 48,000 square feet of usable space. The facility is sited on 25 acres. We have hired 52 employees to date and need to hire another eight. In our first full year of operation, we project generating $130 million in revenue with an economic impact on the area of $260 million. The design of the plant allows us to double our capacity as the business grows. I expect we will be in phase two within the next two to five years and plan on investing in our growth from retained earnings.”

Ownership of CMI is held by 21 members of Cayuga Marketing, Ellis, and Keven W. Bucklin, company COO. The owners invested $44 million, New York State’s Empire State Development awarded the project $4 million, and a syndicate headed by Farm Credit East loaned the venture $62 million.

Shambaugh & Son, a national construction-engineering services business headquartered in Indiana, acted as the construction-manager on the project. (Shambaugh, a member of the Fortune–500 Emcor Group, also was the prime design/builder on the Chobani plant in Twin Falls, Idaho, which was constructed in a record 10 months.)

Quality control
What distinguishes CMI from the competition?

“Natural goodness, quality nutrition, and personal accountability differentiate CMI from other milk manufacturers,” asserts Ellis. “We chose to adopt international standards for the milk quality we accept. In 2013, CMI completed a 12-month study conducted by Cornell University to assess the spore-forming bacteria. The purpose was to be as bacteria-free as possible. Samples were collected from 12 of our farms and from 33 other farms across New York state. The study confirmed that the quality of milk from CMI farms was significantly higher than others in the study. Seventy percent of our [raw milk] supply is furnished by farms no more than 12 miles distant.”

CMI employs five people dedicated to quality control at the plant. It also relies on outside labs and a French company called Ingredia, Inc. to test its products and procedures. “Ingredia, a world-renowned expert in biological hydrolysis, filtration procedures, concentrating, drying, and blending dairy products, is a partner with whom we have a seven-year [cooperation] contract. The company employs 380 worldwide. It also has similar agreements with Cremo in Switzerland, Lactinov in France, and Tatura in Australia. The company’s history is similar to ours: a group of French milk producers formed a cooperative in 1949 called Prosperite Fermiere to produce and store butter. The coop formed a subsidiary in 1991, which promoted milk production to its members. The coop now has 1,200 farm members. CMI pays Ingredia a marketing fee.”

CMI is in a very competitive position. “There is huge global potential here,” continues Ellis. “The domestic market grows at [a modest] 1 percent annually while the global market grows at 7 percent. When we extract the water from the milk, shipping costs are not an impediment, whether it’s to the Middle East, North Africa, or Southeast Asia. CMI is currently investigating shipping from the Port of New York/New Jersey, Oswego, and Montreal. This industry has a number of competitors: Fonterra in New Zealand, which controls 40 percent of the export market, and Idaho Milk Products, to name just two.”

While CMI is a start-up operation, it already has worldwide sales through Ingredia. “All sales are handled through Ingredia,” states Agathe Gergaud, the Cayuga–Ingredia interface manager. “My role is to manage the relations between both entities in order to ensure workflow consistency among all of our partners where sales processes and customer service are concerned; my role also includes recruiting and training staff. Global sales will be handled through the headquarters in France, while local staff will focus on NAFTA sales.

“CMI is small enough to be able to tailor its products to a customer’s particular needs, for example: protein contents or specific microbiological-quality requirements for cheese and chocolate applications, which gives it a special advantage. It also distributes its mainstream products to Ingredia’s top customers, which are some of the largest global, food-manufacturing groups. All of CMI’s products are grade A and bear both kosher certification through the Orthodox Union and halal certification. [Furthermore], on top of its technological expertise in milk cracking, which helped CMI design a cutting-edge processing facility, Ingredia has a dedicated staff of about 30 researchers who utilize their pilot plant in France for in-house development of new ingredients, recipes, and processes, as well as customer trials and problem solving. Ingredia also has a team in Ohio dedicated to address the domestic market,” Gergaud says. The sales/marketing team located at CMI is employed by Ingredia. Gergaud is a 12-year employee at Ingredia who has also held positions as a sales-process manager and as a customer-service manager.

CMI is very selective in the hiring process. This summer, as of early July, CMI had hired 52 people out of 700 interviews. “We have to have the right employees,” Ellis asserts. “We train daily on 190 different topics, and we need people who are conversant with an environment that is always changing and dedicated to ensuring quality. They need to know not only how to perform a function but also why. This is a complete business start-up; there’s no opportunity to grow over time. Running the business today is like drinking from a fire hose. I have to rely on my management team of Keven Bucklin as COO, Tim Gaul as controller, and Michelle Hubbard as the human-resources director.” Ellis also counts on Freed Maxick CPAs, P.C. (which has offices in Buffalo, Batavia, DeWitt, and Rochester) for accounting. He turns to Nixon Peabody LLP in Rochester for legal work.

Ellis comes from a long line of dairy farmers on both sides of the family. He attended Cornell University in 1992, majoring in animal science. After graduation, Ellis took a job in the Midwest, consulting as a dairy nutritionist before returning to Upstate as a commercial loan officer with Farm Credit in Geneva. In 2005, he earned his M.B.A. from the Simon School at the University of Rochester and took positions first at KeyBank and then at the Northwest Savings Bank in Rochester. Five years ago, Cayuga Marketing contacted him with their plan to build a new business. Ellis, 40, resides in Pittsford with his wife and three children.

Contact Poltenson at npoltenson@cnybj.com