Soaring Profits for Cheese Processors vs. Financial Crisis for Family Dairies

California Cheese Processors are enjoying soaring profits in the first six months of 2013 while milk producers continue to face a financial crisis that is putting hundreds of family dairies out of business. “Although dairy farm margins showed a slight improvement in the first quarter of this year, family dairies are still bleeding red,” said Michael Marsh, CEO of Western United Dairymen (WUD).

First-quarter dairy farm margins in 2012 resulted in a loss of $1.72 per cwt. This year’s first quarter still yielded a negative margin of $1.16 per cwt. It is a pyrrhic victory when it is considered progress that dairy farms are losing money, just not as much money as they have in the recent past.

Over the past five years, California dairy farmers saw a loss of $2 billion, forcing nearly 400 California family dairies out of business. An estimated 100 more dairy farms are on the brink of closure this year if something isn’t done to stop the financial devastation they continue to face.

“It’s very important to face the fact that family dairies are still reeling from the worst part of the recession,” said Marsh. “It is great that cheese processors are doing well, but there is also a need for a realistic approach to pricing milk that will provide a sustainable system so that California family dairies can survive. It is helpful that cheese makers paid dairy farmers more in the last quarter, however, the question remains, did they pay a fair price?”

On the last day before the Senate recessed for the summer, Senator Cathleen Galgiani (D-Stockton), chair of the Senate Agriculture Committee, convened a hearing to review the historic milk pricing deal negotiated and agreed to by cheese processors and milk producers.
The dairy producers and processors agreed on a short-term fix of $110 million in new money that cheese processors will pay into a milk pool to be shared by dairy farmers. The $110 million will come from increasing by 46 cents the price of 4b milk, the milk used to make cheese, and by expanding the whey scale to $1.

The deal will bring deserved relief to the state’s still struggling dairy families by narrowing the price between what California dairy farmers receive for milk going into cheese production and the price paid by processors for the same milk in surrounding states.

Assemblymember Richard Pan was instrumental in helping negotiate the deal. As part of the agreement, Pan authored AB 1038, which would charge a California Dairy Future Task Force – whose members are dairy producers, processors and co-ops – with providing economic research materials and proposed structural changes to the California dairy industry’s milk pooling and milk pricing programs. The ultimate goal is the long term sustainability of California family dairy farms.

Galgiani was joined by her Republican colleagues on the committee, Tom Berryhill (Modesto) and Anthony Cannella (Ceres) in unanimously passing Pan’s bill AB 1038 out of the committee.

“It is critical that we stay the course and immediately implement the pricing deal for short term relief and pass and enact Dr. Pan’s AB 1038 for the long term viability of our family-run dairies,” added Marsh.

Posted Aug. 2, 2013 WUD Friday Update