Dairy Institute of California warns bill would hurt industry
By CAROL RYAN DUMAS
Legislation that would increase the price of milk used to manufacture cheese in California is drawing fire from dairy processors.
The bill, AB31, proposes raising the value of dry whey in the California Food and Agriculture Department's formula for setting minimum prices for Class 4b milk to bring that price in line with Class III prices in federal milk marketing orders.
Dairymen and dairy co-ops have petitioned the department repeatedly for three years to increase that whey value and milk prices to dairymen to little avail.
Processors realize dairymen are struggling, but the legislation to bring the whey value into 80 percent of the value in federal orders is shortsighted and ill-advised, said Rachel Kaldor, executive director of the Dairy Institute of California, which represents more than 40 dairy processors.
The increase in milk prices would hit mid-size cheese processors hardest, making them completely uncompetitive. Those mid-sized processors either don't have whey processing facilities to capture the value of value-added whey products or they're still paying off their investments in such facilities, she said.
Large cheese makers could weather the price increase better but it would make them less competitive as well, she said, because of the distance California cheese has to be shipped to markets. And it would hinder their further investment and growth.
Processors say higher milk prices not only threaten existing processing in the state, but it would inhibit outside investment. California is already a hard place to do business, with its strict environmental regulations, lengthy permitting processes and higher taxes, she said.
"Why would we make it harder? In the long term, it doesn't help farmers," she said.
There has been no outside investment in cheese plants in the state in almost 10 years, and some companies with plants in California have taken their expansions to other states, she said.
Small farmstead cheese makers would have an exemption to the higher prices in the form of a dry whey credit for up to 264,480 pounds of milk per month. And while as many as half of the state's cheese makers are small and would qualify for the credit, they only represent 1 percent of the volume of milk produced in the state, she said.
Dairymen have argued their prices should be closer to the price paid for milk going into cheese vats around the country, but California's dairy structure isn't the same as such places like Wisconsin, she said.
Wisconsin has ample plant capacity and a lot of milk, so processors there are competing for milk. California has the opposite situation of limited capacity and an abundance of milk. California is more in line with Texas and New Mexico, and its milk prices are in line with those states, she said.
The average mailbox price to California producers in 2012 was $16.20 per hundredweight, in line with $16.51 in New Mexico and $17.43 in Texas. By comparison, milk prices were $18.91 in Wisconsin and $21.41 in Florida, which has high fluid milk (Class I) utilization, she said.
"The Institute's arguments are ridiculous," said Michael Marsh, CEO of Western United Dairymen, which drafted the legislation.
Dairymen aren't asking for 100 percent of the whey value in federal orders. And the reality is it's the dairy farmers who are taking turns walking into bankruptcy hearings and closing their doors, he said.
"Processors haven't done that," he said.
Processors have long argued that a higher value on whey would harm small processing without the capability to process whey. Marsh said Western United has tried in the past to take that issue off the table by exempting an amount of milk that would be used by those small processors to all processors and wrote it into AB31.
But the big players are still not happy, he said, claiming they were just using the small manufacturers as a shield.
Another sticking point with processors is that the Class III price in federal orders is not mandatory, but California's 4b price is a mandatory minimum. If there's a surplus of milk, processors in federal orders can pay below the formula price to clear the market; processors in California can't, Kaldor said.