On The Make

April 1, 2006
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On The Make
by Stephen Barlas
Most of the cheese and butter processors in the United States hope the U.S. Department of Agriculture (USDA) is about to drop the minimum price they are required to pay for milk. That price is set under Federal Milk Marketing Orders (FMMO), which affect cheese and butter makers in most of the country outside California, Idaho and some other areas.
The minimum milk prices are inversely proportional to manufacturing costs (also called make allowances), such as natural gas, paid by manufacturers of cheese, whey powder, butter and nonfat dry milk powder, all of which are Class III and IV milk products. The higher the make allowances — last set in 1998 — for a particular class of milk product, the lower the minimum milk price the processor pays.
The USDA’s Agricultural Marketing Service is now considering whether to give Class III and IV make allowances a much-needed inflation adjustment. That decision is imminent. But two separate groups of dairy farmers are working to stop an increase.
Bob Wellington, senior vice president of Agri-Mark, manufacturer of Cabot cheeses, says his company has been losing millions of dollars a year operating its three cheese plants — two in Vermont and one in New York. Agri-Mark’s manufacturing costs are up more than 5 cents per pound from 1998 to 2004 at its largest cheese and whey facility in Middlebury, Vt. Butter manufacturing costs are up about 2 cents per pound during that same period.    
In late 2005, Agri-Mark asked the AMS to increase the make allowance for cheese, butter, dry whey and nonfat dry milk using, as a minimum, 2005 energy prices. Wellington estimates that this would result in a drop of 40 to 50 cents per hundredweight of milk paid by Class III and IV product manufacturers. The AMS held four days of hearings in January. A decision could come in April or May, says Wellington, with new make allowances in place on the first day of the next month after the decision is announced. Agri-Mark’s request for a reduction in milk prices is supported the International Dairy Foods Association.
In this case, dairy farmers selling their milk to Class I and Class II processors — this would be manufacturers of drinking milk in the first instance and yogurt, ice cream marketers in the second — are telling the AMS that make allowances should not be increased for Class III and IV if that results in a lower milk price for Class I and II products. Dairylea Cooperative Inc. and the National Milk Producers Federation head this camp.
A second opposition camp is led by an ad hoc group called Select Milk Producers, which is essentially a group of Texas and New Mexico dairies that are among the joint venture owners of Southwest Cheese Co. in Clovis, N.M., the new mega cheese processor that started accepting milk in October 2005. The Select producers oppose any change in make allowances and instead want a broad review of the entire milk pricing scheme, of which make allowances are only one component.  m
Stephen Barlas has been a full-time freelance Washington editor for business and trade magazines since 1981.
TRIBUTE TO AN INDUSTRY VET
UW-Eau Claire student receives scholarship honoring dairy businessman.
A nationally recognized dairy industry leader and University of Wisconsin-Eau Claire graduate has been memorialized with an endowed scholarship at his alma mater. The first Mike Reinke Scholarship has been awarded to Vanessa Ann Klemish, a UW-Eau Claire junior from New Auburn who has a dual major in economics and political science.
The scholarship for UW-Eau Claire economics majors was established in memory of Mike Reinke, a 1971 Eau Claire economics graduate and dairy industry businessman who died in a bicycle accident in August 2004. “I think Mike would be pleased by the selection of Vanessa,” says Ed Young, chairman of the economics department. “She is from a farm background as was Mike. She is an excellent student and a fine person who will represent the best of UW-Eau Claire as did Mike.”
At the time of his death, Reinke was an associate director of dairy procurement for Northfield Ill.-based Kraft Foods Inc., where he had worked for 23 years. He also worked closely with Washington, D.C.-based International Dairy Food Association (IDFA) on regulatory affairs.
Colleagues at Kraft and IDFA worked with Reinke’s family to establish the scholarship to honor his memory and recognize his impact in the profession. “Mike’s death was a big loss to the trade association,” says Connie Tipton, president and chief executive officer of IDFA. “Mike was committed to getting things right. He was always questioning issues and finding the right information. His knowledge of the complexities of milk pricing regulation and dairy policy was extraordinary. He gave a lot to our trade association and helped make us a lot more effective.”
Alyssa Burns, senior manager of corporate and government affairs for Kraft, says with the leadership of IDFA, other industry companies also decided to support the initiative. Collectively, the association members, Kraft Foods and Reinke’s family contributed to the UW-Eau Claire Foundation to establish the endowed fund, which will generate an annual award of at least $2,400. The gift is considered part of the Fulfilling the Promise of Excellence campaign, the UW-Eau Claire Foundation’s ongoing comprehensive campaign to benefit UW-Eau Claire’s people and programs.  m
Faces at the forum
What industry leaders were talking about at the 2006 Dairy Forum
What new product trends have you been following?
“The convenience issue and looking at nutrition and health. Convenience is definitely having an influence on packaging and new products. And adding color — people are always looking for something different.”
Jim McMullen Tillamook County Creamery Association

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