Dairies and cheese makers compromise on milk price

Bloomberg Businessweek
July 16, 2013 

— California dairy farmers and cheese makers have agreed to a short-term compromise over the price of milk bound for the cheese plants.

The proposal, which has been written into state legislation, could help farmers get through an economic crunch that started nearly half a decade ago.

"We go from black to red month by month," said Ray Souza, a Turlock-area farmer and industry leader. "For us, it's break-even at best."

The deal calls for an increase in the minimum amount that processors must pay for milk that's made into cheese, and a separate increase reflecting the value of whey, a cheese byproduct sold to other food companies.

The increases would be added to the monthly minimums that long have been set by the California Department of Food and Agriculture.

"We are extremely pleased with the hard work that all have put in to help our family dairies," said Gary Conover, government relations director for Western United Dairymen in Modesto, in a news release. "Although we have already lost hundreds of dairy farms in California, there is a light at the end of the tunnel for those that are still fighting to stay in business."

Assemblyman Richard Pan, D-Sacramento, has introduced a measure, Assembly Bill 1038, that would carry out the change. He failed to win passage of an earlier bill that would have increased the cheese portion.

"We needed to get immediate relief for California dairy farmers," Pan said. "This is a good first step."

Stabilizing over long term

The new bill calls on an industry task force to come up with reforms that could stabilize dairy finances over the long term.

Milk is the top-grossing farm product in the Northern San Joaquin Valley and statewide, but farmers have seen profits dry up because production costs, mainly cattle feed, often exceed milk prices.

The compromise would call for cheese makers to pay an extra 46 cents per 100 pounds of milk, which is about 12 gallons. The minimum set by the CDFA was $15.91 as of June.

Under current policy, the value of whey fluctuates between 25 cents and 75 cents per 100 pounds of milk. The compromise would raise the upper end to $1.

The combined increases are less than what Western United Dairymen and its allies had sought in a CDFA hearing — a surcharge of $1.20 per 100 pounds of milk bound for cheese making.

Food and Agriculture Secretary Karen Ross instead approved a six-month surcharge adding 12.5 cents per 100 pounds on average for all classes of milk. It started July 1 and applies to milk bound for the fluid market and to plants making cheese, butter, ice cream, yogurt and dozens of other products.

Processors say they would like to help dairy farmers regain their footing, but not with milk price increases that could put California at a disadvantage against other states, notably Wisconsin.

"There needs to be a balance between producer prices and what the market can bear in terms of the product we manufacture and the market for those products," said Rachel Kaldor, executive director of the Dairy Institute of California, a Sacramento-based processor group. "In order for us to be able to stay in business, we need to be able to buy milk at a price that allows us to do that."

The institute also notes that whey production is expensive, and few processors make money at it. Hilmar Cheese Co. is a major player in this business.

Production increasing

Despite the losses for farmers, annual milk production generally has increased in recent years as surviving farmers expanded and cattle breeding improved.

The loss of family farms still brings pain. Souza said that in the past year, three of his neighboring farms went out of business. He watched one day as cattle trucks rumbled up to one of those farms and repossessed the owner's Jersey cows.

"She was sitting off to the side and crying," he said. "There is so much emotion right now in the industry. These are folks who have worked their entire life in dairy, sometimes multiple generations, and suddenly they don't have a farm anymore."

Modesto Bee staff writer John Holland can be reached at jholland@modbee.com or (209) 578-2385.

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