Dick Groves
Editor, Cheese Reporter

 

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The Past, Present And Future Of California’s Dairy Industry

The past several years have been extremely challenging for California’s dairy industry, to put it mildly, which raises questions about what the future holds for the largest US dairy state.

Perhaps the best way to look at the future of California’s dairy industry was offered at last week’s ADPI Dairy Ingredient Seminar in Shell Beach, CA, by Joey Fernandes, a dairy producer and Land O’Lakes member, who opined that California is “still a great place to milk cows.” When pondering California’s dairy future, that’s a pretty good place to start.

It’s also helpful to look at the past and present of California’s dairy industry. As noted in this space just last week, California underwent a period of amazing, non-stop growth in milk production from 1978, when the state’s milk production totaled around 11.9 billion pounds, until 2009, when the state’s milk output of 39.5 billion pounds was down about 1.7 billion pounds from 2008.

There are a couple of notable points about that period of growth for California’s milk production. First was its sheer size: the state’s milk production more than tripled between 1978 through 2009.

Second, growth was pretty uneven over that three-decade period. There were a couple of instances in which California’s milk production grew by more than 2 billion pounds in a single year, and there were also some instances when the growth in California’s milk output was well under half a billion pounds a year.

All of which brings us to the present, when California’s dairy industry has recorded not just one but two milk production declines in the past six years (in 2009 and again in 2013).

It’s worth remembering just how important, and significant, California’s dairy industry is to the US as a whole. California last year produced about 41.3 billion pounds of milk, or around 20.5 percent of the total US milk supply.

Also in 2013, California led the US in butter production, at 634.4 million pounds (over one-third of total US output); and in nonfat dry milk output, at 583.1 million pounds (almost 40 percent of total US output). California ranks second behind Wisconsin in cheese production, at 2.3 billion pounds (20.8 percent of US output); and ranks second behind New York in yogurt output, at 591 million pounds (about 12.5 percent of US production).

The state not only has a huge dairy industry, it also has a vibrant dairy industry. For example, California is home to some 64 cheese plants, second only to Wisconsin’s 126 cheese plants. And its dairy industry is evolving to meet the needs of the world’s dairy importers: for example, Hilmar Cheese Company is currently building a milk powder plant in Turlock, CA.

With that as a brief look at California’s current dairy industry, we turn to what the future might hold for the state. Despite its current status in the US and global dairy business, there are at least a couple of clouds hanging over California’s dairy industry right now. One is the state’s current milk pricing system.

California has spent a lot of time, energy and money in recent years trying to satisfy all parties with its Class 4b pricing formula. The state’s dairy farmers have long sought to have California’s Class 4b price more closely aligned with the federal order Class III price (by raising the value of the dry whey factor), while cheese makers have resisted such a change. And the California Department of Food and Agriculture has generally sided with cheese makers.

But this situation won’t last forever. There are currently a couple of different avenues being pursued for changing California’s milk pricing system. The first is an effort by the three main California dairy cooperatives — California Dairies, Inc., Dairy Farmers of America, and Land O’Lakes — to bring California into the federal order system.

This is not as simple as California simply adopting federal order pricing formulas and basically adopting the federal order Class III price as the minimum price for cheesemilk.

Rather, there are numerous differences between the California and federal order systems beyond just the level of the Class 4b versus the Class III price. These differences range from California’s quota program and depooling rules to the hearing process and how producer-handlers are treated.

The second cloud hanging over California’s head might better be described as the lack of clouds hanging over California. Specifically, California has a water problem, and is currently in the midst of its worst drought ever.

What does this mean for California’s dairy industry? Who knows? As Fernandes pointed out, California “has always been a desert.”

And for at least three decades, that fact has been mentioned as one thing that will stand in the way of California’s dairy growth. For the record, three decades ago, California’s milk production totaled around 15 billion pounds, or roughly 26 billion pounds less than what it was last year.

The point is, while California’s water problems have long been cited as a reason the state’s milk production growth will slow down or even stop, the fact of the matter is that California’s milk production continues to grow, water issues or no water issues.

As far as the future is concerned, California will likely have some sort of new pricing system or systems in the not-too-distant future, and will undoubtedly continue dealing with water issues. And the state’s milk production will keep growing, but that growth will moderate, Fernandes said.

Of course, any growth in a state with a dairy industry as large as California’s is significant, both nationally and globally. DG


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