If Indiana proves to be successful in adding two or even three new milk processing plants this year, as expected, one industry leader says it would go a long way toward creating new markets for Indiana milk.
Doug Leman, executive director of Indiana Dairy Producers, welcomes recent news from Indiana State Department of Agriculture Director Ted McKinney that Indiana is close to attracting up to three milk processing plants this year.
Leman, whose input helped shape the 2015 Indiana Dairy Strategy, says most processing plants in this region are running at full capacity, due to an abundant supply. This is one factor driving down the price of milk at the farmgate.
The IDP leader says a new processing plant, particularly a cheese plant, would have "far reaching effects economically" on Indiana. One example is exports. During each of the past two years, Leman has traveled with the lieutenant governor and other agriculture representatives on trade missions to Asia. As the dairy industry's representative on these trips, Leman has gained a firsthand look at what foreign buyers want. He said there is "an excellent opportunity" in Indiana to make cheese for the export market, which would create new opportunities for Indiana producers.
Another group that would benefit from a new cheese plant would be those who purchase cheese byproducts. David Grant, president of Strauss Veal Feeds in North Manchester, said his company purchases whey from cheese plants and feeds it to veal calves.
As one of the largest veal producers in Indiana, Strauss Veal Feeds consumes large volumes of whey, buying product from as far away as Wisconsin, Ohio and Michigan, as well as a cheese plant in Middlebury. Grant says a new cheese plant in northern Indiana would create an opportunity for the company to significantly reduce its feed costs.
Despite the optimism, at least one industry veteran expresses a cautious tone.
Dick Byslma, who is the director of sales for Guggisberg Cheese in Middlebury, said many companies have studied the opportunity of building a new cheese plant in northern Indiana and have concluded that it wouldn't be profitable due to the state's relatively high cost of sourcing milk, compared to other regions of the country. He said most of the "commodity" cheese is manufactured in California, which has a roughly $2 per hundredweight advantage over Indiana's average milk price.
"A large cheese manufacturer in Indiana simply could not compete with the large Western manufacturers," said Byslma, who has 28 years of industry experience.
He points out that Guggisberg Cheese manufactures specialty products that sell for a higher price than commodity cheeses and therefore are more profitable. Even so, they represent a small, declining market segment. Most consumers, Bylsma said, are looking for convenience items that are sliced, cubed or shredded. Most of those cheese products are made in the Western U.S.
According to the Indiana Dairy Strategy, 4 million pounds of milk move across state lines every day to processing plants located in other states. McKinney, Leman and other state leaders cite this as the basis for expanding the state's processing capacity.
However, Bylsma points out that most of that volume comes from one large dairy in Northwest Indiana.
"I believe this is a good thing," Bylsma said. "Under the Federal Order system, milk for bottling has the highest prices in the Southeast. By shipping this milk there, we (Indiana dairy farmers) are capturing some of the highest prices for raw milk in the country and bringing that money back to Indiana. If that milk were processed and bottled in Indiana, the price the dairy farmers would receive for that milk would be much lower. We should encourage this type of 'export' instead of looking for ways to stop it."
By contrast, Leman says producers will always choose to sell their milk wherever they can get the most value. As new processors come to Indiana, dairy farmers will have new markets and value-added opportunities for their milk. However, he said currently some milk sells for a discount or is dumped because there is no place for it to go.
"When there's no market, there's no value," he said.