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Low plant capacity hurts California dairymen

Published on December 14, 2012 3:01AM

Last changed on January 11, 2013 9:30AM

State loses business; group urges governor to offer incentives


Capital Press

Western United Dairymen are urging California Gov. Jerry Brown to form a public-private partnership to identify and provide incentives to expand dairy milk processing capacity in the state.

The lack of plant capacity in the state is at the root of the current financial crisis faced by many California dairymen, Western United's President Tom Barcellos and CEO Michael Marsh said in a letter to the governor.

The regulatory environment in the state discourages businesses, Marsh said Dec. 11.

Processors can get permitting to build a plant in other states in 90 to 100 days, compared to several years in California, he said.

Processors, such as Nestle and Chobani, have looked at locating in the state, the largest milk shed in the country, but decided to go elsewhere where the business climate is friendlier, he said.

Nestle wanted to site its largest-in-the-world bottling facility in California several years ago, but decided against it and took its business to Indiana. The regulatory process took too long and the likelihood of being sued by environmental groups was too great, he said.

Nestle's analysis of the business climate in California was that bureaucrats in other states rolled out the red carpet for the company and California rolled out the red tape, he said.

"The state's less friendly business environment is often cited as a major reason for locating plants elsewhere," the letter to Brown stated.

California needs to streamline the permitting process so processors will invest in the state, building processing capacity and driving additional competition for the state's milk production, Marsh said.

More competition, through new or expanded processing, would raise prices to dairymen, create jobs and build the state's economy, he said.

Western United pointed out a successful agreement with Samsung about a year ago that included financial incentives and expedited permitting and led to a new electronics operation in the state.

Western United is urging the governor to take similar measures to attract dairy processing investments.

Some existing processors in the state appear to have plans to expand but are looking for a favorable climate in which to do that. Others have come shopping but opted for states that better understand the needs of the industry, said Rachel Kaldor, executive director of Dairy Institute of California, which represents processors.

"I think cheese manufacturers would welcome a business environment and regulatory environment that encourages more capacity," she said.

The big producer co-ops are also in the processing business and are challenged with finding a home for some of their milk. That milk is leaving the state at deeply discounted prices and coming back as competing products, she said.

Processors would rather have a balanced milk supply and processing capacity and be able to manage for better returns for producers.

More capacity, more competition and higher milk prices is far better than imbalance and would benefit the industry as a whole, she said.

In addition to regulatory relief, the question of incentives being offered is also a huge consideration, she said.

Taxes are another challenging issue in the state, with just about every tax in the state hiked to address California's budget deficit, Marsh said.

The agreement with Samsung included tax credits, fee reductions for construction taxes, and a 10-year utility tax rebate. Such measure could be used to attract dairy processors, he said.


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