| Download attachment |
|---|
Dairy IndustryTable of Contents Summary Story ‘Natural’ Niche for North Coast Dairies? Processors Make it with Milk Got Goat Cheese? Too Much of a Good Thing Summary Back to Table of Contents The North Coast dairy industry brings $70 million to $80 million into Humboldt and Del Norte counties annually and employs about 500 workers. But the industry generates more than dollars. While farms have disappeared from much of the California coast, here the 103 dairy ranches create a working agricultural landscape that is cherished by residents and visitors. The industry’s future prospects, however, are clouded by national trends in food manufacturing and retailing. Industry leaders are working with the Prosperity! Network on strategies to help local dairies survive and thrive through the 21st century. Story Back to Table of Contents Dairy ranches are woven tightly into the social and historic fabric of Humboldt and Del Norte counties. First established on coastal bottomlands in the late 1800s, dairy ranches and their creameries fed the growing local population and supplied butter and cheese to people in San Francisco and elsewhere. Houses and barns built by the early dairy families still stand, creating intact historical landscapes that are rare in the United States. But the North Coast dairy industry is no artifact. Those sturdy old homes shelter third- and fourth-generation dairy families, and the weathered barns are equipped on the inside with modern milking and feeding machinery. “Other crops have come and gone,” said Bob Laffranchi, owner of Loleta Cheese Co. and a dairy ranch in the Ferndale area. “Oil beans were grown here in the ‘20s and ‘30s. For a long time we had potato growers supplying snack-chip makers. And farmers in the Loleta area once tried to compete with Salinas Valley growers and ship lettuce to the Bay Area.” “Only the old dairy cow has endured,” said Laffranchi. “She just keeps staying here generation after generation after generation.” The dairy industry is the North Coast’s largest agricultural sector. It includes 103 dairy ranches, three dairy-product manufacturers and dozens of support businesses like equipment dealers and veterinarians. Dairy ranches generate about $35 million to $40 million annually selling raw milk, primarily to Humboldt Creamery, Loleta Cheese Co. and Rumiano Cheese Co. These manufacturers -- also known as processors -- add another $35 million to $40 million in value annually by turning the raw milk into ice cream, milk powder, cheese and fluid milk. About 500 workers are employed at North Coast dairies and processors, and another 100 families make their living running dairy ranches. A small but growing goat-dairy industry is also thriving here. Four ranches supply goat’s milk to two cheese makers: Cypress Grove Chevre in McKinleyville and Capricious Cheese on Humboldt Hill. (See “Got Goat Cheese?”) Economic Storm Clouds But hard times are casting a shadow over the North Coast dairy industry. The last several years have brought unprecedented volatility in the prices paid to U.S. dairies for raw milk, which are set monthly by the federal and state governments based on commodity price indices. In 2002, prices plunged to the lowest level in 20 years. “The dairy market has taken on a boom-and-bust character that was not experienced as dramatically in the past,” said Laffranchi. At the same time, the costs of running a dairy have never been higher. “From insurance rates to power rates to feed costs ... everything is up and nothing is down,” said John Vevoda, whose Ferndale dairy is one of the larger on the North Coast. “When equipment breaks down, it doesn’t get fixed. It’s extremely frustrating,” said Vevoda. “Sometimes you feel hopeless.” Several North Coast dairies have gone out of business in the last few years. Most of their cows were bought by other dairies, so the number of milking cows has not declined. But the financial crunch is creating concerns for the future. “If the younger generations of the dairy families are going to continue taking over, the dairies have got to be profitable,” said Tim Miranda, who runs a dairy ranch in the Ferndale area with his wife, Dorice. “Right now our kids show interest in the dairy. But will they want to take on these seven-day-a-week, 24-hour-a-day jobs if the dairy is not financially viable?” People in the dairy industry here and throughout the United States blame the pricing problems on a vicious cycle in which the supply of milk is exceeding the demand. As large-scale dairy processors, distributors and retailers have merged and consolidated, they’ve used their economic power to force down the raw milk prices paid to dairy ranchers. To meet their costs and make a living, dairies have responded to the low prices by increasing their production with larger herds and synthetic hormones. This has led to more supply, pushing prices even lower and in turn leading to more over-production as dairies try to sell more milk to make ends meet. Keeping the whole system afloat is a complex system of government price supports. Many people in the dairy industry say this system is also partly responsible for encouraging over-production. Representing less than 0.5 percent of U.S. dairy production, North Coast ranchers and processors have little influence on these nationwide economic trends. But some members of the local dairy community are working together to do what they can to aid their industry locally. Strategies for Survival “There’s a real sense of urgency among the dairy people,” said Jacqueline Debets, Humboldt County economic development coordinator and facilitator of the Prosperity! Dairy Industry Cluster, a group that has met since last fall to discuss ways to ensure the industry’s long-term viability. “These folks are passionate about their industry and their lifestyle, and they want to see it continue to grow here.” One of the group’s approaches is to help dairy ranches reduce their costs. “If they can become more efficient in their day-to-day operations and bring costs down, they have a better shot at making a profit,” said Ken Andersen, dairy advisor for University of California Cooperative Extension and a member of the cluster group. Andersen is advising dairies how to conserve irrigation water -- and the energy costs for pumping it -- and how to make the best use of their cows’ manure for fertilizer. Other ideas being considered to aid the dairies include: English classes for their Hispanic immigrant workers, Spanish classes for dairy owners, workshop sessions to share “best practices” for grazing and pasture management, and generating electricity with the methane created by cow manure. Additionally, the cluster group is working with water-quality officials on some difficult regulatory issues (see “Too Much of a Good Thing”), and adding its voice to those of other business groups advocating for the widening of sections of Highway 299 to allow better truck access. Marketing the Family Farm While these efforts seek efficency gains and other improvements in dairies’ operations, the cluster group’s main strategy is to carve out a new market niche for North Coast dairy products. In a nutshell, the idea is to tell the story of North Coast dairies to the increasing number of consumers who care about where their dairy products come from and are willing to pay higher prices for products that represent certain values. While most dairies in California and the West are large industrial operations, with thousands of cows that never see a blade of grass, North Coast dairies are small family-run operations where cows spend most of their time grazing on open pasture land. “We’re unique in the dairy industry,” said Laffranchi, who is also a member of the cluster group. “With our pasture land, the smaller size of our dairies, and the continuing history of family ownership, we have a great story to tell.” The smaller size and more traditional methods of North Coast dairies have made it relatively easy for several of the larger dairy ranches to become to certified-organic dairies. And within the last two years, all North Coast dairies have pledged not to use the controversial growth hormone rBST. Dairy cluster group members think these attributes -- small family farms, more “natural” milk, better animal welfare -- can be packaged as a regional brand or a new set of products that will bring higher prices and make local dairies and processors more profitable (See “Natural Niche for North Coast Dairies?”) Ties to the Land As the North Coast dairy industry struggles through a difficult period, it is important to recognize that this industry provides more than economic benefits. The dairy ranches that spread out across the lower Eel River Valley, the Arcata Bottom and the Smith River area create images of stirring beauty: cows foraging in lush fields of grass; sloughs and creeks meandering through fence-lines; and geese, egrets and other shorebirds gathering in seasonal wetlands. For most Americans, dairy products are anonymous commodities with no visible ties to the ranches that produced them. On the North Coast, we can drink milk and eat cheese and ice cream from local processors – and even see the cows that produced the milk. These connections between farming and food, between working landscapes and natural beauty, are at the core of what many of us appreciate about the North Coast. ‘Natural’ Niche for North Coast Dairies? Back to Table of Contents When Tim and Dorice Miranda investigated organic certification for their 500-cow dairy ranch near Ferndale, they learned that their operation already met most of the USDA organic standards. “We thought, ‘Why not just take that other step and become certified,’” said Tim. “It was an easy decision for us.” Two other North Coast dairies have also been certified as organic, including the region’s largest dairy operation, Alexandre Dairies, which has 2,500 cows on three ranches. Several more are in some stage of certification, and many others are considering it. While organic dairies receive as much as 80 percent more for their raw milk, they incur higher costs for organic hay and grain and make other economic trade-offs. How much more profit they’ll ultimately make and how much the local organic dairy segment can grow are topics of great interest to virtually everyone in the North Coast dairy industry. But many North Coast dairy folks think that even without more certified organic dairy ranches, the “natural” dairy methods common here -- the style of ranching that made it easy for the Mirandas to become certified -- can be used to access new high-value markets and create products that fetch higher prices. North Coast dairies are small, family-run operations where cows spend most of their time grazing on open pasture land. At one time, most dairies operated like this. But today, the typical dairy in California is a huge industrial facility where up to 10,000 cows are confined in pens and buildings. “We’re different than the dairy industry as a whole,” said Rich Ghilarducci, president of Humboldt Creamery. “We have family farms practicing sustainable agriculture, and that can be a marketing asset.” Family-owned, pasture-based, rBST-free National consumer surveys and market data show that an increasing number of shoppers care about the sources of their dairy products. For example, consumers will pay $1.50 more per half-gallon for organic milk. Publicity about the conditions in industrial dairies has also led to new market niches for dairy-product companies that certify their cows are treated well. “Animal welfare is a huge topic on the minds of consumers,” said Dan Benedetti, president of Petaluma-based Clover/Stornetta Farms. That company’s sales have grown since the American Humane Association certified all the ranches that supply it with milk. Many consumers also have a soft spot for family farmers. Consider the success of Florida’s Natural orange juice brand, which advertises itself as “The only leading brand owned by a small co-op of growers.” North Coast dairies possess all these attributes and more -- and sales have already benefited to some degree. “When we’re competing with other companies for a major account, and all of us are saying we can manufacture ice cream for the same price, these natural qualities are advantages we bring to the table,” said Ghilarducci. “We make a super-premium ice cream for Double Rainbow, and on the label it says, ‘Double Rainbow’s milk and cream come from California cows that graze on lush green pastures in Humboldt County,’” said Ghilarducci. “The characteristics of our member dairies helped us get that account.” While most dairies here had never used the controversial growth hormone rBST, the ability to capitalize on markets for rBST-free dairy products has recently led all dairies in Humboldt and Del Norte counties to pledge not to use it. So, in addition to being pasture-based and family-owned, the entire North Coast milkshed is rBST-free. North Coast dairy producers might also be able to tout health benefits for their products. Some research shows higher levels of the healthful omega-3 fatty acids in milk from cows that eat a high proportion of grass. Dairy-industry leaders have been discussing how to communicate these qualities to consumers in meetings of the Prosperity! Dairy Industry Cluster, facilitated by the Humboldt County Office of Economic Development. “We think we can appeal to consumers who desire products with the characteristics we naturally have,” said Bob Laffranchi, owner of Loleta Cheese Co. “If we’re successful, we’ll develop additional markets for our products.” The dairy group is crafting its plans, but don’t expect to hear too much about the specifics until a campaign is underway. North Coast dairy processors compete with hundreds of other dairy manufacturers, and they don’t want to show their hand early. When thinking about a campaign to communicate their unique qualities, North Coast dairy operators often mention the California Milk Advisory Board’s ubiquitous cheese ads, with the theme: “Great cheese comes from happy cows, and happy cows come from California.” That campaign has been credited with boosting California’s cheese sales. But the images of serene cows in tranquil pastures are at odds with the reality of most California dairies. (In fact, an animal rights group is suing the milk board for deceptive advertising.) “You’ve seen those commercials for California cheese with the happy cows?” said Tim Miranda. “Well, the cows in this valley are the happy cows.” Processors Make it with Milk Back to Table of Contents In its Fernbridge and Loleta manufacturing plants, Humboldt Creamery processes 100,000 gallons of raw milk per day into dozens of products, from half-pints of milk to half-gallons of ice cream to 55-pound bags of powder destined to become the milk in milk chocolate candies. The creamery’s capacity to make and sell this diverse mix of products is the result of heavy investment and nimble adaptation to changing markets over the last decade -- a period of unprecedented consolidation and volatility in the dairy industry. The 74-year-old cooperatively-owned creamery didn’t even make ice cream until 1994. Its board saw an opportunity to gain more value from the butterfat in cow’s milk and decided to invest in an ice cream plant. Eight years later, the creamery makes about $35 million a year manufacturing ice cream for several national brands and selling its own brand. Up until the late 1990s, 70 percent of the creamery’s powdered milk went to grocery stores in Asia and Latin America. When those economies went sour, the creamery quickly developed new accounts supplying U.S. manufacturers of candies, desserts and sports drinks. Fluid milk sold through North Coast and Southwest Oregon grocery stores makes up about 7 percent of the creamery’s sales, a figure that has stayed relatively consistent. But Humboldt Creamery’s board and managers are not resting easy. They say they have to work hard just to retain their existing customers, not to mention find new ones. No Match for Dairy Conglomerates “Our competitors have gone through a huge wave of consolidation,” said Humboldt Creamery President Rich Ghilarducci. “They’re so much bigger than us that they can offer volume discounts and other incentives we can’t hope to match.” “Retailers like Wal-Mart, Safeway and Albertson’s have also consolidated, absorbing smaller grocery-store chains,” said Ghilarducci. “So there are fewer wholesale buyers and bigger competitors. We have to continue to evolve to stay competitive.” Similar challenges face the North Coast’s two other cow’s milk processors, Rumiano Cheese Co. in Crescent City and Loleta Cheese Co. in Loleta. Like Humboldt Creamery, both produce their own brands as well as private-label store brands; and both make ingredients for food manufacturers. And, like the creamery, they are little fish in an ocean of corporate giants such as Kraft Foods Co. and Land O’Lakes. “We’re a small company, and we’re always looking for a niche,” said Kirk Olesen, spokesman for Rumiano Cheese Co. “We seek out people who need a specialty cheese like havarti or azadero or queso fresco, but who don’t need a million pounds a month, just 20,000 or 30,000.” Maintaining a specialty niche can be even harder than finding one, however. For several years Rumiano enjoyed strong sales of pepper jack, a new variety that was not then widely available. But pepper jack’s growing popularity caught the attention of larger manufacturers. “Now almost everybody is doing it, and that’s cut into our market,” said Olesen. Rumiano will continue seeking out specialty niches, and it is also hoping to boost sales with a tourist-oriented facility on Highway 101 at the Del Norte County Fairgrounds. “It would be a 10,000-square-foot building with cheese demonstrations and a retail store,” said Olesen. If Rumiano secures the permits and financing to build the project, the company figures to make money from retail sales and win customers who will look for Rumiano cheese back home. Turning Tourists into Loyal Buyers This approach has worked for Loleta Cheese Co., which operates a retail storefront at its factory in picturesque downtown Loleta. Free cheese samples are always available, and two large windows let visitors watch workers packing curds into 40-pound tubs and other steps in the making of cheese. “We probably bring in 20,000 to 30,000 people a year, and our best tourist business comes from locals who bring their out-of-town guests,” said owner Bob Laffranchi. “We have a mailing list of people who have visited from all over.” Turning visitors into loyal customers allows Loleta Cheese to hold its own against much larger cheese-makers. “There are cheese plants that produce more cheese in a day than we produce in an entire year,” said Laffranchi. “We’re looking for those customers who really appreciate great tasting cheese and care about where it comes from.” Together, the three processors employ about 170 people, and wages for most jobs are higher than average for the North Coast. While their payrolls are important to the North Coast, the processors’ monthly milk checks are indispensable to the region’s 103 dairy ranches. And the processors are equally dependent on the dairies. While manufacturers in many other industries aren’t restricted by geography when seeking suppliers, the perishability of raw milk forces dairy processors to obtain it close to home. Dairy ranches also need nearby processors who will accept large shipments of raw milk every day or two. Processors pay the dairies for their milk monthly based on a price schedule that is set by state and federal governments based on market conditions. With these “state-announced” prices at 20-year lows for most of 2002, many North Coast dairies are struggling and several have chosen to sell their herds. This concerns the processors. “Keeping the dairymen in business is one of our biggest challenges,” said Olesen. Formula for Sustainability: New Markets, Higher Profits To generate the kind of higher profit margins needed to make the entire North Coast dairy industry more economically sustainable, North Coast processors are trying to develop new and distinctive products. “We’re looking at market niches where there’s room for new value-added products,” said Ghilarducci. Ghilarducci and Laffranchi are working with dairy owners, farm advisers and economic-development specialists in the Prosperity! Network to investigate using the distinct nature of North Coast dairies -- pasture-based family farms -- to create and market natural and organic dairy products that sell for price premiums above conventional products. (See “‘Natural' Niche for North Coast Dairies?”) Such strategies, it is hoped, will allow North Coast dairy processors and the dairy ranches that supply them to continue to compete successfully against ever-larger dairy conglomerates. Got Goat Cheese? Back to Table of Contents Twenty-five years ago, almost all the goat cheese sold in the United States was imported from Europe. Then some enterprising Americans -- mostly women -- began making it at home in small batches and selling it to restaurants. One of these pioneers was Mary Keehn of McKinleyville. Keehn had raised goats as a hobby for years before she tried making cheese from their milk. Family members raved over her kitchen creations, and a friend, Dixie Gorrell, asked Keehn to supply her new restaurant in Trinidad, Larrupin’ Café. After making a hit with diners, Keehn created a brand name, Cypress Grove Chevre, and began calling on food distributors. Sales were slow at first. “In the early ‘80s goat cheese was not very popular,” said Keehn. “Even in the major cities like New York and San Francisco it was a brand new item. But it turned out that many Americans had a taste for it, and Keehn’s sales have grown about 20 percent each year. Her cheeses won awards at food expositions, which helped get the attention of distributors and retailers. “Now if you go to a Safeway in any small town in America, you’ll find Cypress Grove along with other brands of goat cheese,” said Keehn. Today, Cypress Grove employs 22 people and buys milk from four local dairies that milk about 400 does (female goats); the firm also buys milk from a co-op of producers out of the area. Success has given Keehn the confidence to embark recently on a major new project: building a larger plant and retail store on the Arcata Bottom. “It’s on Q Street where the old Arcata Creamline Dairy used to be,” said Keehn. “We used to buy milk for my kids there. They milked their cows and bottled the milk right there. We’re going to revive the old use of it in a more modern way.” Keehn says the new plant will include a cheese tasting room, and she hopes it will become -- like Loleta Cheese Co. in Loleta -- a draw for tourists who will not only buy Cypress Grove products there but look for them in their supermarkets back home. Farmsteaders Do It All The North Coast boasts another successful goat-cheese maker: Capricious Cheese run by Ginger Olsen and Diana Livingston. They operate their own goat ranch, with more than 150 milking does, and make cheese in a facility on the ranch. This allows them to qualify as farmstead cheese makers and to operate under a different level of regulatory requirements. Capricious Cheese started out selling at the Arcata Farmers Market, but its reputation and distribution have grown rapidly -- especially since winning awards at national food competitions. “We now have four distributors that sell all over the U.S., primarily to restaurants,” said Olsen. “We also sell at farmers markets in San Francisco and Davis, and we still sell at the Arcata market.” Capricious has become so popular that the two partners and their three part-time employees are scrambling to keep up with demand. “We are behind in filling orders, so we’re rationing out what we make,” said Olsen. Olsen and Livingston have considered contracting with other goat dairy ranches to obtain more milk, but then they’d lose their farmstead status. “To be farmstead, you have to raise the animals, milk the animals and make the cheese all in one operation,” said Olsen. Instead, they’re exploring a coalition with other farmstead cheese-makers. “We’d sell new varieties under that coalition label,” said Olsen. Because of its higher costs -- anywhere from $10 to $25 a pound at retail -- goat cheese consumption is far less than that of cheese made from cow’s milk, and the industry is much smaller. “We’re one of the largest goat cheese manufacturers in the U.S., but we’re still tiny compared to any cow’s milk cheese-maker,” said Keehn. But with national distribution and growing reputations, Capricious and Cypress Grove have established successful niches that will likely continue to grow. Too Much of a Good Thing Back to Table of Contents When dairy cattle are grazing on pastures, their “cow-pies” fertilize the soil and complete the nutrient cycle that fuels all life on earth. But when cows are gathered to be fed and milked -- usually twice a day -- they create pools of manure so large and potent that if the material is not handled properly it can poison nearby watercourses. In dry weather, dairy operators use various methods to distribute the manure back out to the fields where it will add nutrient value without polluting water. But when heavy rains come, the low-lying dairies get inundated, and manure from confined cows can quickly wash into a stream or river. To comply with water-quality laws, most dairies on the North Coast have had to -- or will have to -- construct new systems to contain their manure during wet weather. “They have to contain all manure and runoff such as stormwater that comes in contact with manure,” said Tom Dunbar, senior engineer for the North Coast Regional Water Quality Control Board. The needed improvements can range from simple fixes like new gutters on a barn to complex projects with manure ponds large enough to store four months’ worth of waste. The price tag can be as high as $200,000. USDA’s Natural Resources Conservation Service (NRCS) and the local Resource Conservation District (RCD) provide dairies with free design and engineering services, and sometimes funds are available to cover part of the building costs. With these agencies’ help, many dairies have made the necessary improvements. But many have not, and concerns are being raised during inspections by staff of the water quality board. Recognizing the costs involved for the dairies, the agency is taking a cooperative approach, steering dairy operators toward NRCS and RCD and giving them time to comply if they show progress. “Citations don’t make anybody happy and don’t solve problems,” said Dunbar. But ultimately all dairies will have to comply or face stiff penalties. Some smaller dairies simply cannot afford the required improvements, and this has been a factor in a few families deciding to get out of the dairy business. A Prosperity! Priority The Prosperity! Network, a collaborative that includes the County of Humboldt and several nonprofit economic-development agencies, is providing additional help to dairies facing water-quality issues. “We want to ensure that the dairies are not driven out of our bottomlands,” said Jacqueline Debets of the county’s Economic Development Office. “We have to innovate ways for the dairies to comply with the regulations and stay economically viable.” In 2001, the county streamlined the process of obtaining building permits for manure-management systems; and last year it funded research into using dairy manure to create “biogas” to generate electricity. That study by the Schatz Energy Research Center at Humboldt State University should be ready this summer. But the county’s biggest task in the manure-management area is sorting out a complex regulatory tangle that is blocking many dairy ranches from complying with water-quality laws. The problems stem from two other sets of environmental regulations. Dairies located on land regulated by the state Coastal Commission have to obtain coastal development permits. Because so much of the low-lying dairy land is inundated during heavy rains, a great deal of it is considered wetlands under the definition of the state Coastal Act. In most cases, before a dairy operator can build a manure pond in the Coastal Zone, they must agree to construct new wetlands up to three times as large as the pond. That means incurring more costs and taking more land out of pasture. “It’s a major disincentive for folks to move forward with manure management systems,” said Tom Hedt, NRCS district conservationist. The Economic Development Office has contracted with Mad River Biologists to study the dairy lands in question. Working with Coastal Commission staff, the firm will look closely at how dairies can site and build manure ponds to restore habitat features that will compensate for -- “mitigate” in legal jargon -- some of the loss of wetlands. “In some cases, a manure storage pond may be sufficient mitigation in and of itself,” said Tamara Gedik of Mad River Biologists. “Birds like manure ponds. They simulate a freshwater environment with a lot of insects to forage on.” Flood Rules Strand Eel River Dairies Federal rules affecting dairies in the Eel River Valley are proving more difficult to deal with.The valley is the core of the North Coast’s dairy industry because of its fertile soil, flat terrain and abundant water. But the same periodic flooding that has laid down countless layers of rich soil is now the cause of a regulatory quagmire for dairies. The Federal Emergency Management Agency prohibits any building or placement of fill on land in a floodway -- the central area of a floodplain where water runs most deeply and strongly during a flood -- because such changes to the existing topography are likely to increase flood levels. Most of the Eel River Valley below Fortuna is a floodway on FEMA’s maps, and if the county permits any building in the floodway, even a manure storage pond, it risks being cut from national flood insurance coverage. “Without federal flood insurance, a single flood event could bankrupt the county or leave us with roads that would be closed forever,” said Todd Sobolik, chief building official for Humboldt County. (Exceptions can be made if an engineer certifies that a given project won’t increase flood levels, but this is very expensive and rarely done.) Sobolik and others believe the Eel River floodway is smaller than shown on the maps, but redrawing the lines requires surveys and hydrologic studies of the entire valley -- a costly project that is far beyond the county’s means. The county is now exploring the possibility of conducting a limited study that might persuade FEMA to allow some building of the required manure-management structures; and it has requested that FEMA do a flood study to re-map the area. “FEMA has money available [for flood studies], but we’ll be competing with counties and cities all over |