Thursday, January 08, 2009

By JOHN HOLLAND
jholland@modbee.com

last updated: March 08, 2008 02:07:38 AM

Leaders in the state's dairy industry agreed this week that it needs more processing capacity to soak up the huge output from its cows.

Meeting in Modesto, the heart of dairy country, they said demand for their products is healthy, but plant construction is hindered by state regulations.

"California is a disaster on plant capacity," said Richard Cotta, president and chief executive officer at California Dairies Inc., which has plants in Turlock, Los Banos and elsewhere.

He was part of a panel discussion at the annual convention of Western United Dairymen at Modesto Centre Plaza. Also taking part were John Jeter, president and CEO of Hilmar Cheese Co., and Bill Schreiber, a vice president for Land O'Lakes Inc. in Tulare.

After the session, all three told The Bee that they had no plans for converting the recently closed Hershey Co. chocolate plant in Oakdale to dairy processing. Cotta said California Dairies did consider the option but found that it would be too expensive and too far from its milk suppliers.

Milk is No. 1 in gross income among farm products in the Northern San Joaquin Valley, bringing an estimated $1.35 billion to farmers in 2006. A few thousand people work at plants that make cheese, butter, ice cream and other dairy products.

Milk is the top farm product in California, the nation's leading producer, with about 4.5 billion gallons in 2006.

The state often has a surplus, a result of its large per cow output and farm size, its mostly good weather, and its advanced breeding and feeding practices.

"Through genetics and technology, we're going to produce more milk," said Marin County farmer Joe Mendoza, one of the 600 or so people at the convention. "It's just going to happen."

Often, a surplus leads to low prices for farmers, as happened in 2006. This year, prices are relatively strong, because of a drought affecting Australian producers and other factors.

Still, California farmers face increased costs for feed, fuel, labor and other things that go into producing milk. They believe that an expansion of plant capacity would prompt processors to compete for the milk with high prices, helping meet expenses on the farm.

Hilmar Cheese looked for expansion sites in the past few years and decided on Dalhart, Texas, in large part because of California's environmental rules.

"We were very thorough and looked around California, but California is a challenging place to do business," Jeter said.

Cotta said the process would be easier if his company could find a site that already had the needed permits.

Processing capacity aside, the executives said the industry overall is doing well. Exports are strong, and many consumers believe that dairy products are good for them.

"Milk really is the best raw material in the world," Jeter said, "and that's why we invest in it, not just in Texas, but here."

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

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