Land O'Lakes Inc. Annual Report 2003

FOCUS ON DAIRY FOODS

George and Lindy Longfellow stand next to
some of their 900 cows. They also farm nearly
2,000 acres of cotton, corn, alfalfa and wheat.
Longfellow Farming Company became a
member of Land O'Lakes as part of the
Dairyman's merger in 1998.

Sharpening our focus was a clear objective for Dairy Foods in 2003. This effort resulted in $6 million in earnings before income taxes, a $37 million improvement in earnings versus 2002.

This improvement was led by another record year of profits by both the Deli and Foodservice groups, another very strong year for retail butter volume, and significant improvement in earnings versus a year ago in Midwest operations. The start-up investment at Cheese and Protein International (CPI) continues and significant quality improvements were made throughout the year. Excluding the start-up investment in CPI, Dairy Foods earnings before income taxes were $41 million in 2003.

Deli Cheese record profits were created by focusing on our higher margin branded deli
products: LAND O LAKES, Alpine Lace and New Yorker. New products, self-service shingle- pack and deli chunks, were also introduced and brought additional convenience to the deli case.

Foodservice focused its efforts on full-service restaurants, casual dining and mid-scale dining, as well as the school management service business, which resulted in exceptional volume growth of 8 percent. New products, cheddar and jalapeno cheese sauce cups, as well as tortilla wrapped cheese sticks, were introduced by the school management team as they continued to bring innovation and convenience to their customers.

Retail butter closed 2003 with a very strong fourth quarter, which contributed to full year volume growth of 5 percent. This business unit also brought the first significant new products to the category with the successful launch of LAND O LAKES® Spreadable Butter with Canola Oil and LAND O LAKES® Soft Baking Butter with Canola Oil. These products received positive support from customers and consumers. Dairy Foods magazine named these products among the top dairy foods new products for 2003.

Dairy case cheese faced a challenging year amidst intense competition and a grocers’ strike in our key western market. However, this business unit successfully repositioned the Lake to Lake brand to the LAND O LAKES brand in Southern California for a sharper focus, enhanced efficiency and improved long-term growth potential. This unit also rolled out new snack cheese items and deli-style slices into the dairy case.

Dairy Foods continued -->