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New rule could hurt independent dairy

Edaleen may cut back if it's forced into milk support system


BY JOHN STARK
THE BELLINGHAM HERALD
June 9, 2005

Edaleen Dairy could be a victim of a change in the complex federal rules that govern the price of milk.

The dairy, at 9593 Guide Meridian, north of Lynden, is the only one in Whatcom County that processes, packages and sells its own milk and other products from its herd of about 2,700 cows. Until now, Edaleen and a handful of other similar Northwest dairies were exempt from the federal milk price support system that other dairies rely on.

But dairy farmers and processors who operate under federal price regulations have argued that Edaleen has taken advantage of its unique legal status to grow at their expense.

Edaleen could be about to lose its regulatory advantage.

In April, the U.S. Department of Agriculture proposed a new rule that would force Edaleen and three other similar operations into the federal price support system. If the new rule takes effect this fall, Edaleen general manager Dale Brandsma said, his company would face two unpleasant alternatives:

. Cut production in half, from the current 6 million pounds of milk per month to 3 million. That would put Edaleen under the monthly size limit that the new federal rule would impose for milk producer-processors who want to stay out of the price control system.

. Move into the federal milk price system and begin paying more than $100,000 per month into that system - an amount that is meant to eliminate the difference between what Edaleen gets by marketing its own milk, and the price that other dairies get under the federal system.

As Brandsma sees it, that price difference is nothing more than the return that Edaleen gets on its sweat and its risky investment in processing and packaging facilities that other dairies don't have. Any dairy that wanted to get a little more for its milk could follow Edaleen's example and get into the processing and packaging business, he said.

Brandsma's parents, Ed and Aileen Brandsma, started the business 30 years ago with 80 cows.

"We just want to be able to run our business as we have in the past," Brandsma said. "We reinvested our money into the company continually. We grew to stay in business."

But to dairies already operating under the federal price system, Edaleen is getting an unfair advantage, skimming the cream off the market for dairy products.

WestFarm Foods, which collects and processes the output from most local dairies, sells milk under the Darigold brand. Bill Anderson, WestFarm's vice president for legal and public affairs, said Edaleen and other producer-processors have used their exemption from federal price regulations to get a bigger share of the most lucrative part of the dairy market: fresh liquid milk.

Most dairy farms in the region are far smaller than Edaleen, Anderson said, and those operations can't afford to do what Edaleen does. He estimated that Edaleen's impact on the milk marketplace costs the average family dairy farm about $322 a month in lost revenue - an amount that would be made up if Edaleen is forced to pay into the federal milk price system.

"They are benefiting from a particular slice of the market that we would otherwise benefit from," Anderson said.

As he sees it, the federal rule change would do no more than put Edaleen under the same rules as other players in the dairy industry. Edaleen could still survive under those conditions, he added.

Brandsma isn't so sure. He acknowledged that he is usually able to offer his customers a better price than they would get from regulated processors like WestFarm - but not always. In recent years, Edaleen lost a big contract with Starbuck's when a regulated processor undercut Edaleen's price, he said. Paying hundreds of thousands of dollars into the federal system would cut Edaleen's margins and threaten the survival of a 75-employee business with a $2.5 million payroll, he said.

The option of cutting the company's production in half to get under the federal regulation limit would be equally risky, Brandsma said.

"Ten of the last 11 producer-handlers in the Pacific Northwest to go out of business were below that number," Brandsma said.