Dairy association warns of damage to export market, costs

By CAROL RYAN DUMAS

Capital Press

The International Dairy Foods Association opposes adopting California's higher fluid-milk standards nationwide, a move that would require an additional 350 million pounds of nonfat solids annually.

The initiative, which has been proposed and analyzed many times over the past several years, is in the spotlight again following a recently released study by the Food and Agriculture Policy Research Institute at the University of Missouri.

While the higher standard would result in higher prices to producers, it would ultimately be bad for the industry, the dairy association stated.

Milk bottlers separate milk into solids, fats and water, then reblend it to formulate whole, 2 percent and 1 percent milk.

In the 1960s, the California Legislature mandated that bottlers who took nutrition out of milk by reducing butterfat had to return it by way of nonfat solids. That fortification is largely in the form of condensed skim milk.

In a letter to USDA's Dairy Industry Advisory Committee, IDFA CEO Connie Tipton said raising the standard would limit consumer choices, raise retail milk prices and increase calories, resulting in decreased consumption.

It would also raise processing costs, increase costs of government nutrition and feeding programs and harm nonfat skim milk powder exports.

"I urge you to ensure that the committee considers the negative impact this policy would have on the dairy industry, consumers and taxpayers and reject any proposals that force consumers to pay extra for milk they may not want," she said in the letter.

The research institute's report found the additional demand from fortifying milk would raise farmgate prices 27 cent per hundredweight, and increase retail prices 17 cents a gallon in the first year. Producer prices would moderate to 9 cents a hundredweight by the seventh year, with retail prices at 18 cents a gallon higher than the baseline price in the 10th year.

The report did not include any additional costs in processing equipment or the cost of transporting the additional solids, which would further increase the retail price and increase the costs of federal nutrition and feeding purchases, the association stated.

Government purchases of nonfat powder and cheese in the past were a means of milk-price support because it used up oversupply. In the report's projection, increased use of nonfat solids would reduce Commodity Credit Corporation inventories and government purchases and would slightly reduce product available for export.

While the industry would not want to reduce exports, raising the standard for milk wouldn't necessarily harm exports, said Michael Marsh, CEO of Western United Dairymen.

U.S. dairymen have the capacity to increase supply, and reports of growing global demand look favorable, he said.

"The key is marketing aggressively to boost demand, both domestically and internationally ... building demand and continuing building demand," he said. "Not only is world economy picking up, so is U.S. economy."

Increased costs to processors and further increases in retail prices aren't necessary either, he said. Costs for equipment and testing are minimal, and the industry could adopt California's fortification allowance to help pay for the additional condensed skim milk, about 9 cents a hundredweight paid by producers.

"Interestingly, some bottlers (outside California) are already doing it and selling it as a value-added product and getting quite a bit more, but they don't have to pay producers more," he said. "So they have the ability to do this. They just don't want to pay more for milk."

Taking into account the increased price to producers falls to 9 cents per hundredweight and the fortification allowance, the question is whether this would just be a short-term improvement.

"The marginal impact will diminish, but total sales will increase," Marsh said.

Adopting the standard would increase prices to producers by $500 million overnight. While the return per hundredweight would diminish over time, that increased demand would continue, so producers would sell more milk, he said.