Editor's Note: Ching Lee is the assistant editor of Ag Alert, the newsletter for the California Farm Bureau Federation.
With more dairies disappearing from Southern California and a shrinking milk supply to serve processing plants in that region, dairy farmers and their cooperatives say they are now moving their raw product much longer distances at greater cost to accommodate those markets.
"We have been deficit in milk production relative to our customers' needs for quite some time," said Eric Erba, senior vice president and chief strategy officer of California Dairies Inc., the state's largest dairy cooperative. "It's just that now instead of being able to pull milk from, say, southern Kern County to satisfy all the customers' needs, we're having to pull it from occasionally northern Tulare County."
He noted the cooperative has lost a number of dairies in Southern California, but its customers are requiring at least as much milk as they used to. Meanwhile, there are no new dairies being developed or planned south of Kern County, where the milk deficit is.
Since dairy farmers typically pay the cost of hauling their milk to the plant, their inclination has been to ship to plants closer in vicinity, leaving plants in urban centers such as the Los Angeles basin with an inadequate milk supply, said Michael Marsh, CEO of Western United Dairymen.
Historically, plants that bottle fluid milk or make products such as yogurt, cottage cheese and ice cream—that is, milk going to higher-value uses—tend to be located in areas with larger populations, while manufacturing plants that produce butter, cheese and dried milk powders—the lower-value uses—tend to operate where the milk supply is, Erba said.
Under the state's current milk-pooling system, milk-sales revenues are distributed equitably among producers in the pool, removing the economic incentive for producers to ship milk to those higher-value uses—or Class 1, 2 and 3. To ensure plants in deficit markets have a reliable milk supply, transportation allowances were created to partially compensate producers for the cost of hauling milk to those plants.
These allowances—which apply only to plants receiving Class 1, 2 and 3 milk—are taken out of the producers' revenue pool at an annual cost of about $27 million, according to the California Department of Food and Agriculture.
Erba said California Dairies Inc. currently serves 12 to 15 customers in Southern California. It is using more of its transportation allowances to cover the longer hauls, and the available funds are not enough, he said. For this reason, the cooperative has asked CDFA to consider changing the current rates to bring them into better alignment with what it calculates to be the actual cost of milk movement.