I’d never profess to be a milk market analyst. But I know what motivates investors and entrepreneurs to venture into innovative markets — money. Lack of money, caused by negative milk margins and overwhelming competition, is what drives dairy farmers out of business.
An in-the-know authority recently told me that roughly 33% of Pennsylvania dairy farmers are cash-flowing, 33% are “hanging in there” and the rest are already gone and maybe don’t realize it yet. Recent milk market cut-offs only added to the crisis.
We all know it takes money to make money. And current farm gate milk prices “suck,” to put it politely. So do Pennsylvania’s economic incentives to import value-added market innovations. Fluid milk sales ceded their market-driving influence at least a decade ago to cheeses, yogurts and a host of ultra-filtered products.
Major incentives (grants and low-interest loans) must be dangled in front of dairy product manufacturers to cover risks of market innovation and investing in Pennsylvania. That message can’t be strongly enough communicated to Gov. Tom Wolf and his administration. That’s the top bottom line of this commentary.
A major study funded by Pennsylvania Department of Agriculture and Center for Dairy Excellence calculated that investing $433 million in two new processing (cheese) plants would generate $34.7 million in annual hauling cost savings and higher marginal milk values.
Considering the size of Pennsylvania’s 10.8-billion-pound milk industry, that’s not a jaw-dropping benefit. Two plants would theoretically reduce hauling costs less than 5 cents a hundredweight. But it’s a starting point that would also benefit dairies in neighboring states.
Where's the money going?
Recent economic development “dangles” touted by Gov. Tom Wolf, his Action Team and Pennsylvania Industrial Development Authority included:
• A $2.25 million 10-year loan at 2% interest to buy a Bedford County multi-tenant building
• A $2.25 million 15-year loan plus a $633,000 10-year machinery and equipment loan, fixed at 2%, to renovate and expand a Bucks County manufacturing business
• A $2 million 15-year 2% loan to purchase a building for a weapon assembler and distributor in Dauphin County
• A $2 million, 15-year 2% loan to acquire and redevelop an industrial property in Bucks County
That’s a $9 million short list of a far longer list of recent PIDA loans, submitted through local and county economic development agencies. PIDA also funds small business projects, including poultry and hog facilities. “From supporting manufacturers to assisting our farmers, these projects will provide a boost to several sectors of our economy,” Wolf notes.
The Wolf Administration also gleefully celebrated The Hershey Company’s Kit Kat plant expansion at Hazelton, Pa. While it’ll reportedly create 111 new jobs, it’ll be using powdered (surplus) milk and won’t really help farm gate prices.
Keystone State financial incentive tools do exist. But dairy industry development has been conspicuously missing in action. Kicking the Action Team’s butt is a decade overdue.
Seeing ‘red’ yet?
Pennsylvania must quickly learn from industry successes. New York’s Gov. Andrew Cuomo aggressively courted major yogurt manufacturers, drawing in Chobani, Dannon, Fage and 32 others. Wisconsin, Idaho and other states have similarly “perked” dairy manufacturers. Manufacturing investments by Dairy Farmers of America recently put a joint venture cheese and whey facility in Michigan with Glanbia and Select Milk Producers, plus a dairy ingredients plant in Kansas.
Instead of launching a specialty cheese plant next to its fluid plant near Carlisle, Pa., Land O’Lakes opted for Vermont Creamery and its fresh and aged cheese product lines. Yes, manufacturing plant decisions are far more complicated than that. But dairy ingredients, not milk, are the most promising “investment cows” to be milked.
There’s yet another powerful incentive for more aggressive pursuit by Pennsylvania of innovative dairy manufacturing. Dairy farmers forced to “cash out” won’t put their farms into a farmland preservation program. So, governor, it’s time to kick butt!
The past is only for reflection and lessons; it has no connection to the future.