Plan would require surrendering federal price support


Capital Press

SACRAMENTO -- While there is support among market observers for a statewide cooperative to export California dairy products, one industry representative says convincing producers won't be easy.

Bill Van Dam, president of the Alliance of Western Milk Producers, said domestic dairies can create a significant presence in export markets, but they would need to give up their federal price support.

Van Dam said he has argued for such a strategy. But it's a jump that producers as a group won't take easily, and no one has yet formulated a plan that would convince them, he said.

"I can't go to the dairies I represent and say get rid of the support price," he said.

Sean Haynes, a manager with ag lender Rabobank, told the Assembly Agriculture Committee at a recent hearing that California's dairy industry should create an export cooperative similar to New Zealand's.

That organization, called Fonterra, was created in 2001. It's now the country's largest multinational firm, owned by more than 10,000 producers and controlling about a third of the international dairy trade.

"They have become one of the best worldwide producers of milk products hands-down," Haynes said. "I don't see why California can't do the same thing, given our proximity to ports, given the technical basis that we have ... and the quality of milk, and the (stable) production of milk that we have here."

Of the producing regions currently poised to grab a chunk of international markets -- namely in South America and Africa -- California is the best situated, Van Dam said. That's because the state holds an edge in the quality of its infrastructure and stability of its government.

New Zealand took advantage of market turmoil to restructure its industry, and now may be the best time for something similar to happen in the U.S., Van Dam said. But it would require approaching the market in a way that makes domestic producers uncomfortable.

As it is, California supplies export markets only when other suppliers stumble. That's what happened in 2008, when a severe drought hit New Zealand and U.S. supplies took up the slack.

But when other countries rebound, they need only drop prices a cent or two below the federal price-support level, and that cuts U.S. producers out of the market, Van Dam said. Foreign buyers opt for the lower prices of international competitors while U.S. producers opt for the higher price of the U.S. government.

That's why the price-support system must go away, Van Dam said. But it would leave domestic producers completely reliant on the market, and they're not accustomed to that.

But the rewards could be huge, he said.

"Ten years out, the projections say there's a staggering amount of business out there for someone like California," Van Dam said.

"And that demand is going to continue to grow for another 10 years at least."

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