Dairy producers seek answers to economic crisis

Ag Alert
Issue Date: April 8, 2009
By Ching Lee
Assistant Editor

Faced with wild price swings and an increasingly unstable market, California dairy producers, processors and business leaders convened last week in Modesto to discuss how they can best meet domestic and global market demands through innovation and development of value-added products.

The meeting was the final in a series of sessions organized by Western United Dairymen to examine the dairy sector’s challenges and opportunities as it explores ways to keep producers and processors competitive in a world market and bring them higher returns.

The plan now is to take information and ideas from the three meetings and develop short-term strategies and long-range policies that would do just that, said WUD President Ray Souza, who is heading up a task force to review the issues and hammer out a plan.

The organization’s first meeting, held in February, centered on the state’s plant capacity problem and the need for a supply management program. The second meeting, held earlier last month, focused on the stability of California’s milk pooling and pricing system and how it compares to federal milk marketing orders.

In the final session, attendees heard from a panel of experts in the area of manufacturing and ingredient marketing, global marketing and dairy product development.

Michael Marsh, WUD chief executive officer, in a media conference call after the meeting, said that Matt McKnight, vice president of ingredients marketing for the U.S. Dairy Export Council, “made a valuable point” to producers about the importance of sustaining their export markets and being in those markets for the long haul.

“We can’t be in the export market catering to customers one year and then jumping out the next year, depending upon what prices do in the United States,” Marsh said.

But he said some producers, coming into the meeting may not have agreed, contending that California should not have gotten involved in exporting dairy products because when those markets dried up recently due to the failing economy, milk prices fell.

“It’s like they tie the decline in their price to being on the world market,” said Marsh. “And to some extent they’re not wrong. But for most of 2008, the export markets drove a much higher price for California producers.”

He noted that 12 percent of the state’s milk last year went into some type of market offshore.

“It is a global marketplace we’re in,” he said. “It’s not a marketplace that’s insular and we’re completely protected from what’s going on around the rest of the world.”

Marsh said Alan Reed, senior vice president of manufacturing and ingredient marketing for Dairy Management Inc., brought into perspective some opportunities that might exist for California’s dairy sector when he raised the point that by 2050, the world population could potentially reach 9.2 billion. With all those additional mouths to feed, U.S. dairy products could provide the higher-valued proteins that consumers want in the international marketplace.

Numerous market opportunities also exist for different dairy ingredients such as milk powders, whey proteins, edible lactose and milk powders with low-spore counts. Marsh said as food scientists do more work with dairy proteins, markets for those products are poised to expand. According to Reed, Dairy Management Inc. is predicting that the global protein ingredient market will exceed $25 billion in the next six years.

But despite the market opportunities awaiting California’s dairy sector, Stan Andre, chief executive officer of California Milk Advisory Board, said that the state is not yet manufacturing the kind of dairy products that customers in the world market are demanding.

Marsh said there needs to be a “paradigm shift from the processing side” to start making those products if the state is to penetrate international markets. That means additional resources are needed for new product development and innovation, said Phillip Tong, director of California Polytechnic State University’s Dairy Products Technology Center in San Luis Obispo.

“One of the things where we’re falling short on is research and development,” said Souza, noting that competitors such as New Zealand have invested much more in this area than the United States.

The challenge is finding enough resources to do more market analyses to determine who the potential customers are and what products they want to buy, Marsh said. Even after that, there is still the question of what investments to make so that processors can manufacture those products for new customers, he said.

While the discussion on value-added products was focused on what the dairy sector in California as a whole can do, Marsh said some individual producers are already finding ways to get into value-added products, such as producing their own niche cheeses.

Souza said he was surprised to learn that some California cooperatives are already developing new products. Tulare County-based California Dairies Inc., for example, has developed a protein bar using powdered milk that it is being marketed through its Challenge label, best known for butter.

“You’re beginning to see co-ops, which up until now have basically been commodity producers, beginning to look into that kind of market expansion for the membership,” he said.

Souza said WUD will now send questionnaires to participants of the meetings and request feedback “from the grassroots level.” In early May, the organization will convene a task force, which Souza is heading. The task force will then review the issues from the three meetings and subsequent comments from producers, after which they will try to develop some long-term policy goals, “not just for California but for the entire country to better position producers and processors for our domestic and international market,” Souza said.

“We hope that we’re able to provide a road map that will take us well into the next generation of dairy farmers,” he added.

Dino Giacomazzi, a Kings County dairy producer who attended the meeting, said that the session “brought to light many opportunities for California’s dairy families.” He added that despite the current troubled economy, he believes the dairy business will continue to grow and that the state is “positioned very well to capture a good share of many foreign markets as long as we are willing to be innovative with new products and focus on the needs of these emerging markets.”

But for now, the dairy sector needs to “find a way to flatten out the extreme volatility” of the milk price, and that will take a combination of supply management and new marketing strategies, added Giacomazzi, who also sits on the California Farm Bureau Federation’s commodity advisory committee for dairy.

He said he was disappointed that WUD’s third meeting was not as well attended as the previous two meetings. Marsh noted that last week’s meeting drew about 100 attendees, compared to a packed room of more than 250 people in the second meeting.

“This may indicate that producers are not as interested in new ideas as they probably should be,” Giacomazzi said. “Let’s hope I am wrong.”

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.

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