Dark Days Send Chill Through Dairyville

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Fair use for educational/research purposes only

Dark Days Send Chill Through Dairyville By EVELYN NIEVES

TULARE, Calif., Jan. 19 — To understand how serious the utility crisis has become in California, consider the case of the Land O' Lakes Inc. Western Region factory here, the largest milk processing plant in the United States.

Every day, 34 shiny, refrigerated tankers capable of carrying 50,000 pounds of milk each make several round trips from 200 dairies across the state to a six-block compound here. These trucks bring in a total of 230 tanker loads, or 11 to 12 million pounds of milk, every 24 hours, 365 days a year.

To keep the production line from dairy to processing plant flowing smoothly, Land O' Lakes runs a tight operation: tankers come in, unload their milk and go. If a plant was shut down, the milk trucks would be delayed, the dairies' operations would get backed up and their perishable product would have to be dumped.

At noon today, when the power to the plant was restored after being off for six hours, 20 tankers were waiting at the unloading zone. On Thursday, when the compound was off for 16 hours, all 34 trucks had a wait.

"We know that suppliers are already dumping milk," said Jack Prince, the executive vice president and chief operating officer of Land O' Lakes Inc.'s dairy foods group, as he sat in the dark in an office that felt colder than the outdoors. "I could also say that some suppliers cannot keep this up for more than a week or two."

For California's $4.3 billion dairy industry, the largest in the country, the problems could not be more dire. Even before power was deliberately cut this week in California — for the first time since World War II — the dairy industry was in serious straits. Natural gas prices began rising several months ago, worsening the losses that dairies were already absorbing in this depressed wholesale market for milk. And that was before the higher rates for electricity were approved this month. Since California's dairies and milk processors represent a large part of the national industry, producing a fifth of the nation's milk, the effects of a dairy industry disaster here — farms shut down and production diminished — would be felt across the country.

"You have to understand that this is a phenomenon that's only 45 to 60 days old," said Jim Gomes, vice president of operations for California Dairies Inc., the second- largest farmers' cooperative in the nation.

"The impact of this has not even fully been felt yet," Mr. Gomes said. "We don't know what's going to happen. But I could tell you this: the state is going to be sick in terms of economic activity; it's going to be very sick."

Over the last several weeks, as the power crisis has deepened, agricultural industry leaders here have been meeting to devise emergency plans in the face of blackouts. Last week, the Western United Dairymen, a trade association representing about 1,100 of California's 2,000 dairy farmers, asked the California Department of Food and Agriculture, which regulates dairy prices, to raise the price of milk to reflect the climbing energy costs.

Michael Marsh, the chief executive officer for the association, said that dairies had been operating at a loss for the last year, producing milk at a cost of $1.05 a gallon and making 94 cents a gallon. "Two cents of that $1.05 is for utilities," Mr. Marsh said. "If the price goes up to four cents, multiplied by thousands of gallons a day, farms will not survive."

Mr. Marsh said a decision is expected by Feb. 1 on the request by the industry to raise milk prices, which would translate to perhaps a penny a gallon at the retail level, from about $3.19 to $3.20.

But if power shutdowns continue, even a price increase will not keep the industry afloat, milk producers and processors both predict.

After 40 years in the milk-making business, Frank Faria said he was wondering whether it was worth it. His family farm, Faria Dairies Inc., which produces 8,500 gallons of raw milk from 1,400 cows a day, is already suffering the effects of natural gas increases over the last few months, Mr. Faria said.

"Our gas bills are up 140 percent," Mr. Faria said, adding that he was not sure how long the business, which houses 13 employees and their families, could absorb the cost. "We haven't gotten our electric bill yet," he said. Of three sites, two have backup generators, but a blackout affecting even the one without backup power would be catastrophic, he said.

"Cows have to be milked twice a day every day," Mr. Faria said. "If they're not milked, they get very sick. If that happens, we lose cows."

Anxiety is eating at the industry at all levels.

Hilmar Cheese Company, in Hilmar in the Central Valley, the largest cheese-producing plant in the world, voluntarily shut down one of its three processing plants on Thursday so that the surrounding community, serviced by a public utility, the Turlock Irrigation District, would not be faced with blackouts, said John Jeter, Hilmar's chief executive. But with one-third of its operations down, it was losing money, on top of absorbing huge increases in the cost of natural gas; it cost 475 percent more for gas in December than in it did the December before.

Mr. Jeter said that since the company competed nationally against processors who were not faced with these higher costs, it had already lost business.

"We'll take in anywhere from 160 to 180 tanker loads of milk a day," he said. "It comes in 24/7, 365 days a year. To stop at any point in the process from dairy to processing is very damaging economically. People making business decisions are going to ask, `Should I buy my cheese from California or from Wisconsin?' "

Land O' Lakes' Western Region plant, which receives its power from Southern California Edison, has had to make hard financial decision this week. The compound is on "interruptible power," which means that in exchange for lower utility rates, the company agrees to have its power shut down at times of peak demand. For more than 10 years, or as long as anyone who works in the 550-employee operation can remember, power was never interrupted. But since mid-December, power has been disrupted 17 times. And each time, the length of the interruption has increased.

From Tuesday to today, Land O' Lakes' factories were shut down every day for 6 to 16 1/2 hours at a time. On Wednesday, faced with a choice of backing up operations for a day and forcing dairies to dump their milk, the company chose to operate and pay tens of thousands of dollars per hour in penalties for using power, said Mr. Prince, the chief operating officer.

The rule of the agreement stated that the plant would be without power for only six hours, Mr. Prince said, but that has not happened. "Yesterday we were down for 16 hours with a half-hour of power in between," he said.

Beyond the losses in milk production are larger economic losses in the community. To conserve energy, the company has shut down one of its four processors, sidelining 125 workers. That's 125 more unemployed households in already depressed Tulare County, one of two counties (the other being Kings County, which includes Sacramento) with the most dairy farms in the state. The unemployment rate in Tulare is hovering at 14 percent, compared with 4.9 percent statewide.

"The impact that we're having in California can be mitigated by our other plants in other sites," Mr. Prince said. "But ultimately, there are going to be some very substantial implications to the economy of the state and the industry if this crisis continues."

http://www.nytimes.com/2001/01/21/national/21FARM.html?printpage=yes

-- Martin Thompson (mthom1927@aol.com), January 20, 2001


Moderation questions? read the FAQ