Wisconsin's cheese producers are poised to profit — perhaps mightily — from a feud that has buckled the knees of California's dysfunctional dairy industry.
California cheesemakers have prospered for decades because the price of milk used to make cheese has been set lower than what competitors from other states, including Wisconsin, pay. Now, California's financially strapped dairy farmers are saying their future depends on whether their state's cheese producers can be forced to pay the same price as everybody else.
If California cheesemakers are forced onto a level playing field, sales of Wisconsin cheese — estimated at about $5 billion — could increase by $200 million, according to a top dairy industry executive from Wisconsin.
"It could be very significant," said David Fuhrmann, chief executive officer and president of Foremost Farms, a Baraboo-based company that is Wisconsin's No. 1 cheese producer. Foremost makes cheese and other dairy products for sale worldwide.
"I'm excited about the opportunities to gain market share and grow our business in Wisconsin," said Fuhrmann, who added the change could add jobs and increase farm values throughout Wisconsin's $27 billion dairy industry.
In California, dairy vs. cheese
At issue is that California sets its own milk prices, and those prices are usually lower than those paid in the federal system followed by most states, including Wisconsin.
California's dairy farmers didn't complain about the low prices until recently when feed costs began to soar. Most farms there don't have room to grow their own feed, so they must buy it, usually from another state. Factor in higher regulatory costs, and environmental and water concerns, and it all led to more than 100 of the state's 1,600 dairy farms closing in 2012, according to Michael Marsh, CEO of Western United Dairymen, a group that represents about 65 percent of California's dairy farmers.
The state's cheese producers claim they can't stay in California if the price they pay for milk goes up. But for years they've enjoyed a substantial advantage, pricing their cheese lower than products from Wisconsin and elsewhere. Fuhrmann said. California cheese is as much as 10 to 15 cents a pound cheaper. "That's huge," he said.
Nobody knows that better than California's dairy farmers.
"We've got a cheese industry that is addicted to cheap milk. Unfortunately, that is causing our dairy farmers to go broke. We have to break that cycle," said Rob Vandenheuvel, general manager of California's Milk Producers Council, a lobbyist group that represents about 100 of the state's dairy farms. He echoed the claims made by some dairy farmers that the prices were artificially lowered in the 1990s to lure more cheese producers to the state and the policy never changed.
California Department of Food and Agriculture secretary Karen Ross, who sets the prices, has drawn the ire of both sides as they wait for her to decide if any changes are necessary. Dairy farmers have staged protests that have drawn hundreds in Sacramento to bring attention to their cause, and webinars have been offered to help them deal with stress, anger and depression.
If Ross leaves prices unchanged, Marsh said, dairy farmers have lobbied the state legislature to pass a bill forcing milk price formulas to be more competitive with the federal order. Dairy farmers also could vote to join the federal order, although that process would be slower.
Wisconsin poised to capitalize
The thought of California producers losing that milk-price advantage has Wisconsin cheesemakers salivating.
"If they have to pay more for the milk, and get on a more level playing field with us, we will gain market share because the majority of their cheese is being shipped to the Midwest or the East, and we have a huge transportation advantage," Fuhrmann said. "That should allow us to be a lot more competitive and gain market share at their expense."
John Umhoefer, executive director of the Wisconsin Cheese Makers Association, said Wisconsin has a strong reputation for its quality specialty cheeses, but that's a small percentage of its overall production. High-volume production of mozzarella, Cheddar and Italian-style cheeses dominates, much like in California.
"It's price that keeps us from the sale," Umhoefer said. "If the prices were to equalize, we'd have a better chance at making a sale."
About 90 percent of Wisconsin milk goes to cheesemaking, but Fuhrmann believes more volume is needed for state cheesemakers to remain competitive in the long term.
"There's lots of us here in this industry that would love to grow our businesses more but we don't have access to the raw material."
Farms, and dairy and cheese companies throughout Wisconsin have made big investments over the past five years, fending off California's plan to become the nation's top cheese producer. In 2011, Wisconsin produced 2.6 billion pounds of cheese while California produced 2.2 billion pounds.
Foremost, for instance, spent $50 million to expand its cheese plant in Appleton and invested heavily in whey processing plants.
"If you look at the dollars spent at the farm investing in facilities, it's incredibly impressive," said Fuhrmann.
'This is the place to be'
Unlike California, Wisconsin's dairy farmers and cheese producers have a strong marriage. "There's the realization that we each need each other, that neither of us would go very far without the other," said Ron Buholzer, a cheese master from Klondike Cheese Co. in Monroe and president of the Wisconsin Cheese Makers Association.
They've also made an effort to work with the Legislature. "Wisconsin's state Legislature has more respect for the farmers and what agriculture means to Wisconsin than we have here in California, even though dairy is a big component of our economy," said Marsh, the Western United Dairyman CEO.
Fuhrmann, who sits on three national dairy boards and has close relations with some competitors, offered some sympathy for California.
"It's been very interesting over the past two years," he said. "Dealing with Midwest producers, they've been generally upbeat and positive. Talk to the California guys and they are down in the dumps and life is not good for them. There's a definite attitude difference in what's happening here and what's happening there."
Fuhrmann has some long-term worries, such as a potential surplus that could force prices to plummet if California farmers get the price increase they want and flood the market with milk. But he said it has been proven that California is not the dairy utopia that many were claiming it was a few years ago.
"It all gets back to the dairy farmers and if they can produce milk profitably," Fuhrmann said. "Here in the Midwest we've got land, we've got rain, we've got the infrastructure. In California, those pieces that are lacking. Long term, this is the place to be."