July 15 ADN Op/Ed: Alaska's Dairy Industry Must Change To Survive

The recent actions by Governor Palin's hand picked Agriculture Board concerning the fate of the state owned Matanuska Maid Dairy have shown yet again why government has no business operating a business.

With the seventy year old dairy in troubled waters due to competition from cheaper outside brands, Mat-Maid has been losing money on every gallon of milk they've been selling for the past year. So what did the newly installed Agriculture Board do? They're forcing Mat-Maid to pay more for locally produced milk. Mandating a higher price for local milk will simply force Mat-Maid to re-coup the cost by raising retail prices which already run about $1.50 more per gallon than cheaper store brands.

This exercise appears to be no longer about protecting Mat-Maid; it's about protecting a handful of private business owners.

Ironically, Governor Palin's recent vetoes of appropriations that she deemed not the state's responsibility, would certainly lead one to believe that she would strongly oppose subsidizing a handful of private business owners.

In 2004, Commissioner of Natural Resources Tom Irwin supported an effort to boost the price Mat-Maid paid for locally produced milk by $2.00 per hundred pound. Mat-Maid, already facing intense market competition from lower cost rivals, convinced the Creamery Board to reject the proposal. Angry at the Creamery Boards decision, Irwin encouraged in a memo for less autonomy at the Creamery Board level by suggesting that the Board of Agriculture “exert itself” into the corporate oversight role. Irwin was rebuffed.

For the last twenty years, the Creamery Board has exercised its role as an independent oversight body of the dairy and has provided a system of checks and balances. Today, the Governor and Commissioner Irwin have eliminated the vital system of checks and balances by installing the Agriculture Board as the Creamery Board. This arguably violates the law under which state management of the dairy was adopted and has led to biased decision making.

With Alaska's Dairy Industry hanging in the balance, the question is: Can Alaska sustain its own dairy industry without state subsidies?

In Alaska, local milk producers face a number of challenges from low production per cow and higher labor costs, to lower quality feed and higher debt per cow. These economic realities make it impossible to compete against cheaper outside brands. If the industry has any hope of surviving they must abandoned the current Mat-Maid business model and create their own niche market for an all Alaska product.

Studies have shown that consumers have a willingness to spend more on organic milk. This is one option but it requires years to adopt due to the production requirements surrounding what qualifies as organic. The current hope many seem to be embracing is the proposal for a small milk bottling plant. However this to has challenges.

This year the USDA awarded a $475,000 grant to a partnership proposing a milk bottling plant in Palmer. After the bid award, protests concerning the fairness of the process led to an appeal which has spawned an investigation. This week, the USDA will bring a team of investigators to Alaska to review a bid award some say was specifically designed to favor one applicant.

In the long term, if Alaska's Dairy Industry has any hope of surviving they must become truly independent.

According to Tom Myers at the Alaskan Manufacturing Extension Partnership, a number of things must occur. The farmers must be organized into a professionally managed co-op. The co-op must have a strategically located physical outlet. Alaskan consumers must be able to purchase product even if they do not have access to the physical outlet.

A funding option to facilitate these efforts could be to liquidate Mat-Maid's assets and place the proceeds into the agriculture revolving loan fund. Local milk producers or their co-op could borrow on terms to finance the industries desired business model.

It is safe to say that without a major paradigm shift in Alaska's Dairy Industry, the economic outlook for a sustainable dairy industry without expensive government subsidies is not positive.