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Could a Surplus of California Milk Fulfill China’s Cheese Needs?

June 14, 2013 at 12:00 AM EDT
Milk production is a nearly $8 billion business in California. Meanwhile, Chinese milk consumption tripled in the last decade and the dairy industry there wants to produce more. In another report in the "Food for 9 Billion" series, special correspondent Suzanne Rust examines the complex exchange of resources and money over milk.
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JEFFREY BROWN: And finally tonight, we conclude our weeklong look at food security and how climate change is affecting what we produce and how we eat.

Special correspondent Susanne Rust reports on how China’s growing demand for dairy products is affecting California farmers, the economy, and global trade.

It’s part of our series “Food for 9 Billion,” in partnership with Public Radio International’s “The World,” Homelands Productions, American Public Media’s Marketplace, and the Center for Investigative Reporting. 

SUSANNE RUST: At the Culinary Institute of America in California’s Napa Valley, a group of pizza executives is taking a cooking class. They have come all the way from Asia to try cooking with California cheese.

Davis Wei works as a cheese buyer for the largest pizza chain in China.

DAVIS WEI, Cheese Buyer: I definitely like dairy. I’m very passionate about it. Just look at my figure, and you can tell that I really love this type of food.

SUSANNE RUST: Wei is here on a tour of the state’s dairy industry organized by the California Milk Advisory Board to drum up business.

Ross Christieson heads up the organization’s international efforts, and he’s bullish on milk’s future.

ROSS CHRISTIESON, California Milk Advisory Board: Many people in the industry believe we make too much milk. My view is, we don’t make enough milk here in California. If you take a global view of the international dairy market, there’s actually a shortage of milk around the world.

We know a lot of these markets in China will grow 10- or 20-fold over the next few decades. By being there now, we can be at the start of that growth and we can capture that growth in the early stage.

SUSANNE RUST: Milk production is a nearly $8 billion dollar business in California, and the state is the country’s largest producer.

But the business is changing, and that’s raised a host of economic and environmental issues. To some, China looks like a great new market for milk; to others, it’s a symbol of what’s wrong with the old way of doing business.

For one thing, California dairies have been going bankrupt. Ray Souza has been producing milk in Turlock, Calif., for over 30 years, and manages a herd of about 900 Holstein cows. But he’s worried. Nearly 300 dairies in California have gone out of business in the last five years, including three of his neighbors.

RAY SOUZA, California Dairy Farmer: To the south of me, that farm was seized by the bank, and I happened to witness that. And it was kind of a sad day to see everything those people had worked for lost.

This was a functioning business. The dairy family had been here for years and years and years. Father, mother, and children were here involved in the operation, the daily operation of the dairy. But it’s one of those things where feed costs got high, and through no fault of their own, they were not able to sustain the business.

SUSANNE RUST: The problem is the cost of grains, like corn and soy, which are used in dairy feed, has reached record highs.

RAY SOUZA: My corn costs, which is a prime source of energy for dairy cows, has darn near tripled in the last five years.

SUSANNE RUST: Why? Supplies are tight due to an increased demand for exported grain, the use of corn to make biofuel, and a drought in the Midwest.

Feed prices have affected dairies across the country, but California was particularly hard-hit.

Bill Schiek is an economist at the Dairy Institute of California.

BILL SCHIEK, Dairy Institute of California: In California, the traditional model of production has been one where you bring in — purchase feed from the rest of the country and transport that to California and feed it to dairy cows, and it’s a very specialized operation.

SUSANNE RUST: By importing cheap feed grains from the Midwest, instead of growing them on the farm, as dairies in other states do, California producers are able to raise more cows and produce more milk on smaller parcels of land. It’s a model that worked when grain was cheap.

BILL SCHIEK: I don’t know that were going to see those kind of prices return again. There’s simply too much demand for feed in the world today.

SUSANNE RUST: While feed costs have gone up, the price of milk, which is controlled by the state, has lagged. Historically, California dairy producers have coped with low prices by increasing production and selling more milk. So, despite the loss of hundreds of dairy farms, milk production in the state has never been higher, says Dan Putnam, a forage expert at the University of California, Davis.

DAN PUTNAM, University of California, Davis: We have increased production per cow at about two percent to 2.2 percent per year relentlessly for about 30 years in California, and that even continues today.

What that does is, it creates a real problem for the dairy producer, in the sense that a couple of years goes by and they have another five percent more milk that they have to figure out how to market.

SUSANNE RUST: So who’s going to buy all this milk? Remember Mr. Wei, the cheese buyer for a Chinese pizza chain? He’s part of a growing middle class in China, who, as incomes rise, are consuming higher-protein diets, including more dairy.

In fact, milk consumption in China has tripled in the last decade, and Chinese milk producers are desperate to ramp up. Recently, leading Chinese dairies came to the World Ag Expo in Tulare, Calif., to acquire the latest technology.

Leon Sun is with the Shanghai Dairy Group.

LEON SUN, Shanghai Dairy Group: Our main priority in this World Ag Expo is trying to expose ourselves to the world dairy business. So that’s why we have to fill in the gaps very quickly. Everything that we can absorb and import into China and boost our production and revolutionize everything.

SUSANNE RUST: The Shanghai Dairy Group is also here to import alfalfa hay, a high-protein feed supplement that will boost milk production for cows in China.

DAN PUTNAM: They now have fairly large dairies outside of the major cities in China. And these dairies are every bit as modern and as advanced as many of the Western dairies.

And they are rapidly learning how to increase milk production per animal, but a key missing ingredient is high-quality forage crops.

SUSANNE RUST: Alfalfa is California’s largest acreage crop and also one of the most water-intensive, using about a fifth of the state’s precious water.

Despite China’s land mass, it has a shortage of water and arable land, so a few years ago Chinese dairy producers began buying alfalfa from California and other Western states.

DAN PUTNAM: Exports to China are definitely increasing. We have seen a pretty dramatic rise since the year 2005-2006, and I think all expectations are that it will probably increase again this coming year.

SUSANNE RUST: Not everyone is eager to see that happen. Critics complain that California shouldn’t be shipping its valuable water supplies to China in the form of alfalfa.

What’s more, environmental advocates point out that dairies cause serious environmental damage, and question if California should support such a large industry, much less seek to supply China.

TOM FRANTZ, Almond Farmer: Here’s some smaller lagoons. Those are manure separators right there, those tilted things.

SUSANNE RUST: Tom Frantz is an almond farmer in Kern County who heads a group called the Association of Irritated Residents, or AIR.

TOM FRANTZ: Ten dairies that are all new since 1990. It’s a relatively recent phenomena in the last 20, 30 years that you see dairies with more than 2,000 cows. And now, I mean, the biggest dairy about 50 miles north of here has 18,000 animals.

SUSANNE RUST: A 2012 report from the University of California, Davis, found that one of the leading causes of nitrate pollution in groundwater comes from dairy manure used to fertilize cropland.

TOM FRANTZ: But, by aerating there, they’re getting ammonia to go up into the air.

SUSANNE RUST: In addition, according to the Central Valley’s Air Pollution Control District, dairies are a major source of pollution in the area.

Fermenting dairy feed and gases from the cows themselves contribute to ozone pollution and greenhouse gases. Brent Newell is an environmental lawyer with the Center on Race, Poverty and the Environment.

BRENT NEWELL, Environmental Lawyer, Center on Race, Poverty and the Environment: Already, California communities are overwhelmed by the amount of air pollution that comes from these facilities. The effect on groundwater is really unacceptable.

So continuing to produce milk to put on a ship and ship across the Pacific Ocean to China to satisfy some kind of growing demand in China for dairy products really makes no sense at all.

SUSANNE RUST: If the Chinese continue to develop their own independent dairy industry, California will lose much of its market for surplus milk, and California farmers will pay more for alfalfa as exports to China drive up demand.

In this complex exchange of resources and money, China may well end up the global food industry winner.

JEFFREY BROWN: On the environmental issues in our story, the dairy industry sent a statement saying, Central Valley farmers abide by some of the nation’s strictest water quality regulations, including sampling and testing manure and soil, as well as monitoring groundwater.

They noted that air emissions are also regulated and cited a U.N. study showing California dairy farms lead the world in a number of sustainable farming practices, including having the world’s lowest emissions of greenhouse gases.

And you can watch our entire “Food for 9 Billion” series on our website.