Tuesday, October 16, 2018
 Complex Dairy Landscape Pushes Chobani to Idaho  

The growing popularity of thick Greek-style yogurt has brought hundreds of manufacturing jobs to New Berlin, New York, where Hamdi Ulukaya decided in 2005 to buy an idled cheese plant and start producing a brand named Chobani.

Now, with Americans quickly developing a taste for the stuff, Mr. Ulukaya is running into an unlikely problem for a factory owner in the middle of the third-largest dairy-producing state in the country: He can't get enough milk to keep increasing production.

"We are coming to the point that the availability of the milk is becoming a challenge," said Mr. Ulukaya, whose company, Agro Farma Inc., is on track to do $1 billion in sales in 2012.

Meanwhile, the long-struggling dairy farmers of New York aren't seeing their bottom line soar thanks to the Greek yogurt boom—and they aren't adding to their herds to meet the demand.

So instead of expanding his plant here—in a region trying to reverse a trend of population and job loss—Mr. Ulukaya is building a factory in Idaho, in part because he can be sure of a steady supply of milk there. The New Berlin plant will remain open, but Mr. Ulukaya said he might have expanded it instead of opening another if he knew he could get enough milk.

Milk production in states such as Idaho has surged in the past decade. Land is cheaper and dairy farms tend to be larger than in New York, making it easier for farmers to grow their herds. New York farmers say they are weighed down by property taxes and the high cost of land. Since their herds are smaller, expansion tends to be riskier.

"You'd think that a growing business can go to their supplier, whether you're talking about rolled steel or paper products or chip makers, and the supplier would say 'Great, I'd be glad to help you,' " said Andrew Novakovic, a Cornell University professor who wrote a paper titled "The Chobani Paradox" about how New York's dairy farmers have struggled to capitalize on the Greek yogurt industry. "In this case it's not so straightforward."

That is because there are important differences between milk and rolled steel. A complex structure has grown up around milk in order to protect farmers from price swings and ensure that milk ends up somewhere. Once a cow starts milking, she can't be idled like a steel plant.

The federal government sets minimum prices for milk in much of the country, including upstate New York. Farmers rarely sell directly to factories. Instead, they form cooperatives which then sell their milk through dairy marketing firms—something experts and some farmers say reduces incentives for individual farmers to produce more.

New York's politicians are pushing for legislative changes that they say would help the state's farmers meet demand. Sen. Charles Schumer, a Democrat, is pushing a measure that would allow farmers more leeway in writing off the purchase price of cows.

"In the past many of our farmers have struggled with an oversupply and that's why many of them haven't made it," Mr. Schumer said. "It's not that easy for them to expand, particularly given that this industry is growing so quickly."

Still, the Greek yogurt business has generally been good for upstate New York, providing needed jobs. In 2009, only California and Wisconsin had more people employed in manufacturing dairy products, according to the Census Bureau.

The U.S. unit of Greece's Fage S.A. opened a plant in upstate New York in 2008 that produces less yogurt than Chobani. The owners aren't worried about milk supply, a spokesman said. Another yogurt maker—a joint venture of PepsiCo PEP -0.76%and Theo Müller GmbH—is building a plant near Buffalo, where it can more easily get milk shipments from the Midwest.

Dairy farmers say the factories have likely helped alleviate a milk glut that devastated the industry in 2009, but many are still having a hard time making money.

"We knew that we were pushing the limit in New York State," said Mr. Ulukaya, the Chobani founder. "We knew that we had to go someplace else."

Source: Wall Street Journal


Posted on Thursday, June 28, 2012 (Archive on Thursday, July 05, 2012)
Posted by bsutton@adpi.org  Contributed by bsutton@adpi.org