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Minnesota milk producers find new processors to fill void

ST. CLOUD, Minn. — The Minnesota Milk Producers Association says all 10 Minnesota dairy farms who lost contracts due to changes in pricing in Canada for ultrafiltered milk have found new processors to buy their milk.

Lucas Sjostrom, executive director of Minnesota Milk Producers, says his association believes they have had contact with all of the Minnesota producers affected by Grasslands Dairy Products' decision to stop taking milk from approximately 75 producers in Wisconsin and Minnesota effective May 1. As of April 26, the association believed all the producers had found new processors.

The issues surrounding the loss of processing for dairy producers are complex matters, dealing with trade issues, new technologies and supply and demand.

Marin Bozic, an assistant professor in the University of Minnesota's department of applied economics in the areas of agricultural policy, commodity marketing and finance, explains new technology in recent years allowed U.S. companies to offer ultrafiltered milk to fill the needs of Canadian processors. Because ultrafiltered milk is such a new product, it was not addressed in the North American Free Trade Agreement and was not a separately priced product under Canada's mandatory pricing schedule.

Those factors made the U.S. ultrafiltered milk — used in the making of other dairy products, like cheese — cheaper for processors to buy than the same product from Canadian sources, Bozic explains.

He says Canada has been working for the past year on new rules to allow for pricing of ultrafiltered milk as a separate product, which would allow Canadian producers to sell it cheaper.

"It wasn't really a surprise that this was coming," he says.

When those new rules went into effect, the buyers in Canada could purchase domestic products cheaper than U.S. products, so processors like Grasslands lost Canadian business and, in turn, had less need for milk from the U.S. farmers with whom it contracted, Bozic says.

For that to happen during the "spring flush season" of higher milk quantities has made it even harder, Bozic says. He says conditions should improve by this summer.

"Right now it's very hard to find room for even a tanker load of milk," he says.

Sjostrom says three processors found ways to take in more milk from the Minnesota producers who lost contracts. He says Agriculture Commissioner Dave Frederickson and the Minnesota Department of Agriculture worked behind the scenes to connect producers with processors, and he thanked U.S. Sen. Al Franken for holding a meeting April 21 on the issue.

"But most of all, we appreciate our processors for doing what they always do — look for a way to help add value to our state farmers' milk," he says.

While the Minnesota dairy farms appear to be taken care of for the time being, both Bozic and Sjostrom think there will be long-term changes to the industry.

"People will be more careful who they contract their milk with and the nature of those contracts," Bozic says.

He believes dairy farmers will be more likely to contract through cooperatives rather than private handlers, even if the private handlers offer a slightly higher premium, because they know their cooperatives, of which they are owners, won't dump them. He and Sjostrom also think dairy producers will be more likely to study marketing agreements and clauses regarding dissolution of contracts and insist on more warning for such moves.

They also see continued consolidation and vertical integration as likely industry trends. Bozic says producers may buy into processing facilities as a way to hedge their interests, much like how some dairy farmers have purchased fields on which to produce feed and spread manure.

He also thinks dairy farmers will be more amenable to supply limits going forward, as being told to produce 5 or 10 percent less would be markedly easier than having nowhere to sell their milk.

While both Bozic and Sjostrom think expansion of processing capabilities in the region is possible, Sjostrom says there are factors that make that difficult. He believes processors would expand if they had clear signals from the market that it was a good idea. He says issues with health insurance, lack of demand and overregulation are keeping some processors from expanding. They also have to make sure there is no "yo-yo effect" if they do expand — basically, moving from too much milk and too few processors to too many processors and not enough milk, Sjostrom says. And both processors and dairies need to find employees.

"Both our plants and our farms are really struggling to find reliable labor," he says.

Bozic says the current issues in the dairy industry could lead to "last generation" dairies — those without anyone to keep them going into the future — selling out a little earlier than planned. However, he hopes none of the region's modern, efficient operations with bright futures close down because of the issues with processing capacity.

"That would be tragic," he says.