State Issues

April 6, 2013

Should AB 31 become law? No: California dairy products will be 'whey' too expensive

Other than a cheese maker, why should anyone in California care about the cost of whey, a component of milk and a byproduct of cheese making?

Other than a cheese maker, why should anyone in California care about the cost of whey, a component of milk and a byproduct of cheese making?

Because if legislation succeeds in raising the price of milk used to make cheese in California, it's going to take another big slice out of our economy, kicking the legs out from one of California's few remaining manufacturing success stories — an industry that makes enough cheese each year for about 35 billion grilled cheese sandwiches. And whey will be the reason why. The Wisconsin State Journal reports that Wisconsin cheese makers are "salivating" over the prospects of AB 31 becoming law, predicting it will increase their market share by about $200 million a year at California's expense.

At a time when we should be encouraging investment to grow the industry, AB 31 will shrink it by driving up production costs to levels that will make it impossible for cheese makers to profit or compete in California. This isn't fear-mongering. When milk prices spiked for California cheese makers in 2007, three cheese-making facilities closed, costing jobs and local tax revenue. AB 31 would make high milk prices permanent, forcing more cheese makers out of business or driving them to relocate or expand in other states. We've seen it happen with aerospace and other industries that have left.

Cheese making has become an increasingly important part of our agricultural economy. Second only to Wisconsin, California cheese makers produce about 2.2 billion pounds of cheese annually, pumping $27 billion into the state's economy each year, providing over 190,700 jobs, and paying millions in state and local taxes. At this fragile point in California's economic recovery, we would all feel the loss if the industry falters.

Since the 1930s, milk prices in California have been set by experts in the state's Department of Food and Agriculture, who work to balance the needs of dairy farmers, processors and consumers. AB 31 transfers this authority to the Legislature, dramatically increasing the risk that milk prices will become a political football, creating market chaos and regulatory uncertainty, precisely what the current system works to prevent.

Rather than being guided by California's unique market environment, AB 31 mandates that milk prices in California mirror the higher optional price of milk set by the U.S. Department of Agriculture in other states, which has nothing to do with the actual cost of producing and processing milk in California. By arbitrarily inflating the cost of milk, AB 31 not only hurts cheese makers, but could flood the market with surplus milk, causing prices to plummet, with dairy farmers ultimately earning less for their milk, not more.

Supporters of AB 31 say milk prices need to be raised to reflect the value cheese makers derive from processing whey into marketable commodities such as food additives and dietary supplements. In fact, whey is exceedingly expensive to process, with the needed equipment costing millions.

Typical small cheese makers need to produce about 1.2 million pounds of whey daily to recover their investment in the processing equipment. But of the state's 57 cheese-making facilities, 33 are producing less than 64,000 pounds of whey a day, and an additional six are below the 1.2 million pounds needed to break even. Their only other option is to dispose of the whey instead of processing it, but that too is expensive.

Without question, California's dairy farmers have been hit with higher feed costs in recent years. But AB 31 isn't the answer. By hurting cheese makers, dairy farmers will shrink their market considerably, driving away the people who now buy over 40 percent of their milk, with both sides ultimately losing.

The California Department of Food and Agriculture has created a task force of dairy farmers, cheese makers and other milk processors to deal with the problem in a way that's fair to all. AB 31 would derail this effort.

In addition to the immediate damage AB 31 does to cheese makers, dairy farmers and our economy, it does an even deeper harm. It reinforces claims by Texas, Nevada and other places that California is a poor place to do business, where arbitrary and unpredictable regulatory changes make it difficult to grow a company or complete with other states. AB 31 simply burnishes this image.

Kaldor is executive director of the Dairy Institute of California.

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