A Manufacturer s Perspective on the California Dairy Industry. Sue Taylor VP, Dairy Policy & Procurement Leprino Foods Company November 9, 2010

Transcription

1 A Manufacturer s Perspective on the California Dairy Industry Sue Taylor VP, Dairy Policy & Procurement Leprino Foods Company November 9, 2010

2

3 About Leprino Foods Company Privately held Started in 1950 by Mike Leprino, Sr. Innovation-driven Initially focused on mozzarella for quick-serve restaurants (QSR) Have broadened to variety of pasta filata-based product applications Additional focus on the manufacture and food application of value-added protein and lactose products

4 Leprino Foods Plant Locations

5 Plant Siting Considerations Milk Supply Ability to develop desired milk volumes Long-term viability of milkshed Ability to service target market Logistics Competitive landed all-in costs Regulatory & business environment Current Future Risk Workforce considerations

6 Milk Supply Ability to develop desired milk volumes Scale efficiencies significantly impact cost of manufacturing, particularly for bulk commodities Scale efficiencies less of a factor with small batch processing

7 Scale Efficiencies Important for Commodity Products Source: Stephenson Testimony, Class III/IV Hearing (9/16/2006)

8 Milk Supply Long-term Viability of Milkshed What is the health of the producer sector? Absent milk price and other government programs, would fundamentals favor milk production in the area? Resource availability (feed, water, etc) Climate conducive to efficient milk production

9 Ability to service target market Logistics Can you deliver product within customer expectations of: Remaining shelf life Responsiveness Competitive landed all-in costs Combined cost of inputs (including milk) and costs of manufacturing, transportation and distribution

10 Regulatory & Business Environment Current Supportive (or at least, accepting) of animal agriculture and manufacturing Tax & fee structures Business development incentives Future Regulatory Risk Science-based approach to environmental issues Economic-based approach to pricing Safety valves in regulated pricing system

11 Workforce Considerations Sufficient pool of potential employees within reasonable commuting distance Is there a dairy (or food production) culture? Is the quality of life in the area going to aid or challenge recruiting?

12 How Does California Stack up?

13 Plant Siting Considerations Trend Milk supply Scale efficiency advantages (No longer only game in town) Producer health/competitiveness (purchased feed model is less competitive than it had been, but availability of alternate byproduct feeds in CA is a benefit) Underlying fundamentals (water concerns)

14 Plant Siting Considerations Trend Ability to service target market Competitive landed all-in costs Domestic sales (reduced by higher freight costs related to fuel costs and trucker shortages)

15 2009 Per Capita Milk Production

16 What would you rather transport? 10 lbs of Cheese 5.5 lbs of Whey 100 lbs of Milk

17 Plant Siting Considerations Trend Ability to service target market Competitive landed all-in costs Domestic sales (reduced by higher freight costs related to fuel costs and trucker shortages) International sales

18 Dollars per Pound Historic View: US v. World Cheddar Price January 1999 October 2010 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 Oceania U.S. CME Block

19 US Cheese Exports January 2005 August Exports (Million Pounds)45.0

20 Plant Siting Considerations Trend Regulatory environment Regulatory costs high and likely to get higher (propensity to extend burdensome regulations and use fees to address state budget woes) Regulatory risk (Unpredictable but CARES has done good job shifting farm-side environmental debate to be science-based)

21 Plant Considerations Regulated price risk Minimum milk pricing is mandatory for all plants in CA; participation by all manufacturers other than fluid processors is optional in FMMOs. (No opting out as a safety valves if regulated prices get out of synch with finished product values). Impact Milk pricing decisions have become more political.

22 CDFA Weighted Average Manufacturing Cost and Manufacturing Allowance for Cheddar Cheese cents per lb CDFA Manf. Cost Make Allowance month/year

23 Conclusions California s competitive position in attracting plant capacity has decreased for several reasons. However, CA: Will remain attractive for processors of certain products. Will remain attractive for processors looking for an export platform. Plant capacity will follow growth in milk production which, under the current biofuels policy, will likely be east of the Rockies.