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Energy Costs Sows Internal Turmoil

December 21, 2000

FRESNO, Calif. (AP) _ Rising energy costs are squeezing milk producers in the nation’s largest dairy state and in turn may pinch consumers at grocery checkout counters nationwide.

Milk processors rely on natural gas power to process butter, cheese and powdered milk. Their power costs could rise as much as tenfold this winter, according to California Dairies Inc., the nation’s second-largest farmer-owned dairy cooperative.

``We hope to get some opportunity to pass (the cost) on, but it’s harder when you’re not just selling locally,″ said Jim Gomes, executive vice president of operations.

Nationwide, the Energy Department estimates that heating oil prices will be 29 percent higher than last winter, and natural gas prices will be 40 percent higher.

In the short-term, milk producers can’t recoup losses suffered from rising energy costs because competition keeps milk prices stable.

But because California produces a fifth of the nation’s dairy products, its clout ultimately could drive up prices nationwide, unless ``cows fall from the skies in Wisconsin,″ said Michael Marsh, chief executive of Western United Dairymen.

The state’s ongoing electricity crisis as well could worsen the slump. ``Tack on top of that another energy crunch and it’s going to be very difficult for many of the dairymen to hang on,″ Marsh said.

California, which is deregulating its power industry, has been forced almost daily to warn customers to conserve energy or risk rolling blackouts.

U.S. Energy Secretary Bill Richardson on Wednesday extended by a week an order that required Western energy suppliers to sell electricity to California. An earlier federal regulatory order that capped the wholesale price there had spurred suppliers to sell to other states willing to pay more.

The dairy industry is unique in agriculture because it operates year-round, but a power shortage also would impact producers of other livestock and crops. Citrus growers rely on irrigation and wind machines to keep fruit from freezing. Poultry farmers need to keep hen houses heated and eggs refrigerated.

``We have our members screaming, `What are you going to do about this?‴ said Kevin Clutter of the Pacific Egg and Poultry Association. ``In a time like this where your energy prices are going up so high, you can only control your costs for so long.″

Two years after a freeze devastated the state’s citrus crop, there is a fear that a cold snap coupled with a blackout could be the industry’s death knell.

State lawmaker Dean Florez has called on the Public Utilities Commission to exempt citrus growers from blackouts. Utilities so far have avoided blackouts, which they could impose if power reserves drop below 1.5 percent.

``Citrus trees can be frozen in an hour, and they could be gone for a five-year growing season,″ Florez said. ``Agriculture doesn’t have the ability to start up as easily at all following a blackout.″


On the Net:

California Department of Agriculture: http://www.cdfa.ca.gov

California Independent System Operator: http://www.caiso.com

Western United Dairymen: http://www.westernuniteddairymen.com

California Public Utilities Commission: http://www.cpuc.ca.gov

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