Guest Editorial
Two milks

by John Umhoefer

John Umhoefer is executive director of the Wisconsin Cheese Makers Association. He contributes this column monthly for Cheese Market News®.

The Wisconsin Cheese Makers Association has not taken a specific position on rbST (recombinant bovine somatotropin). In discussion, our members have expressed that it isn’t necessary, or even appropriate, for dairy processors to pass judgment on a technology deemed safe for use. It is what it is.

But the marketing and labeling of dairy products with regard to rbST directly impacts producers, processors, bottlers and retailers, and that impact merits discussion. This entirely new milk product from dairy farms has evolved without planning, promotion or push from the dairy industry. “rbST-free” milk is not a product that the dairy industry nurtured, tested and unveiled for consumers. It’s a reaction, an apology demanded by retailers ostensibly following the demands of consumers.

Set aside any debate about the safety and efficacy of this production tool. The end result is two milk streams from dairy farms: milk from farms using this technology and milk from farms that do not. This differentiation all the way back to the farm has some precedents, such as organic and even kosher milk, but the comparison quickly fails.

At the retail level, rbST-free products play out similarly to organic: a growing niche product that demands a higher price point. But the comparison fails inside the dairy industry. Organic milk was a “push” product, created and nurtured by a segment of dairy producers and processors seeking to add value to milk and sustain dairy farms. And until recently, organic farm milk earned a solid, value-added margin for farmers. (Today, rising costs to produce milk have assailed that margin.)

Bottled rbST-free milk is a new niche for retail grocers, earning 90 cents more per half gallon than ordinary milk, according to American Farm Bureau Federation’s quarterly Marketbasket Survey. But this mark-up hasn’t resulted in a value-added margin for dairy farms that produce the milk or cheese plants that assemble and ship the milk to bottlers.

rbST-free milk has become entwined in the pricing and pooling of milk, entwined in federal milk marketing orders. As of February 1 in the Upper Midwest order, dairy processors that sign on with the Central Milk Producers Cooperative (CMPC) system to pool milk on the federal order and share in the dollars generated by the order must deliver rbST-free milk. Milk from cows treated with rBST is not acceptable. The financial health of all dairy producers shipping to these dairy plants — these farmers’ ability to collect PPD dollars from the federal order — depends exclusively on the production, segregation and shipment of rbST-free milk.

In essence, the requirement to deliver this new milk stream to qualify for Federal Order 30 redoubled the need for rbST-free milk. The Upper Midwest order has become an unwitting tool in building demand for rbST-free milk.

The end result of the marketplace pulling a new milk stream out of an unprepared dairy industry is added effort without added benefit. The February 1 deadline in the Upper Midwest order to deliver rbST-free milk sent notaries out into rural Wisconsin to witness signed affidavits from dairy farmers. Milk loads are segregated, and trucks drive past farm after farm to build rbST-free loads. Wisconsin’s infamously inefficient farm milk pick-up system has become even less logical in a time of record diesel prices. CMPC pays a credit of 75 cents per hundredweight to allay the cost of segregating milk, but the difference in wholesale value between these two, indistinguishable milk streams is unclear, and for all the effort, rbST-free milk earns producers no more money than ordinary milk.

Looming ahead for the dairy industry is a patchwork of state decisions on labeling dairy products made from rbST-free milk. Ohio regulations would not allow the phrase rbST-free; Wisconsin does.

The cost of providing bottlers with this segregated milk stream follows a year of record losses for cheese factories. The cost of providing different product labels for different states would prove insurmountable. This is a new dairy product that at the wholesale level adds no value, but creates new costs.

The media, activists, academia and regulators have filled volumes in a debate over rbST. The debate is vital. The fate of rBST will signal the future of production technologies built to respond to a hungry world.

But little has been written on the impact of this debate on the producers that must alter their production plans and processors that must split their milk supply to provide two products — both milk — to a marketplace that perceives a difference.

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.