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Dairymen, processors spar over milk pricing

Published on March 20, 2013 3:01AM

Last changed on April 25, 2013 8:42AM


Capital Press

The debate continues over raising the dry whey factor in California's minimum price formula for Class 4b milk, which is used to manufacture cheese, and is likely to become more heated.

Dairymen contend they should share in the value of high-value whey products processors are marketing from their milk. Processors contend they can't afford higher milk prices, which would cause them to go out of business or move out of state, and need to recoup the enormous investments they have made in whey-processing facilities.

A bill to increase the whey value and increase 4b milk prices is set for a hearing in the Assembly Ag Committee on April 17.

AB31, introduced by Assemblyman Richard Pan, D-Sacramento, would require California Department of Food and Agriculture to bring the whey value in 4b pricing within 80 percent of the whey value in Class III in federal milk marketing orders.

The Dairy Institute of California, which represents processors, has numerous concerns with the bill, said Rachel Kaldor, executive director of the organization.

It would be incredibly damaging to cheese makers, particularly small and medium operations, which don't have whey processing capabilities, she said. While the bill does include an exemption on the first 100,000 pounds of milk a day, that represents only 1 percent of the state's milk production and would inhibit those operations under that cap from growing, she said.

Larger companies that invested in whey processing did so out of necessity, given the cost of disposing of the byproduct, but their investment was enormous. The bottom line is processors don't just go out there and start making money on whey; it takes a lot to market it globally and a lot of investment, she said.

While processors recognize dairymen are struggling due to high feed costs, producers don't understand the other side of the industry. It cost more to build a whey facility than a cheese plant, and putting cheese plants out of business is not the answer, she said.

In addition, only five or six cheese plants process whey in the state, representing about 30 percent to 40 percent of milk production, she said.

Dairymen hear all the same arguments any time processors are asked to pay a little more for milk, even if processors are paying more in neighboring states, said Michael Marsh, CEO of Western United Dairymen.

"The issue is they really don't want to share that value with farmers," he said.

Marsh said he doesn't see any cheese manufacturers shuttering their plants as dairymen are being forced to shut their doors.

In fact, he said, Hilmar expanded operations in California and built a new plant in Texas, and Leprino expanded in-state and built a new plant in Colorado, where it has to pay the significantly higher federal order Class III price.

"The regulated minimum price was clearly not an impediment," he said.

California's market structure doesn't compare to that in federal orders where processors are competing for milk and are closer to domestic markets, Kaldor said.

Making milk harder to sell by raising the price is not the fix, she added.

Raising the whey value won't fix all the ills in the industry but it certainly will help, Marsh said.

"This doom-and-gloom argument by the Dairy Institute and processors that it will somehow put them at a disadvantage and push them out of state is pure malarkey," said Rob Vandenheuvel, manager of the Milk Producers Council.

AB31 would shrink the gap between the whey value in federal orders and California's 4b, but it would still be $1 per hundredweight of milk below federal orders, he said.

The Dairy Institute has long argued that their cheese manufacturers should pay a price significantly below what their counterparts pay in other states. The claim that it is so unfair to cheese manufacturers is garbage, he said.

Claiming that dairymen are getting cheated out of the whey value is an easy pitch to sell, it sounds good, but it's not reality, Kaldor said.


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