Health-conscious consumers are on a low-fat buying craze and major dairy companies are having a cow about how to shed tons of fatty leftovers squeezed out of milk, ice cream and other products.
"As we take more fat out of our products, which consumers are wanting more and more, you have to have a place to put it - which we don't," said William D. Fischer, president and chief operating officer of Dean Foods, the nation's second-largest dairy."We're losing half a million dollars a month" by selling the fat for less than it costs to remove it from the milk, he said Tuesday.
Dean Foods, based in suburban Franklin Park, produces about 4.4 billion pounds of fat annually and is selling it at a loss while looking for some other way to use it.
The largest U.S. dairy, Borden Inc. of New York, faces similar problems, although it keeps no detailed records of the amount of money lost this way, said Jim McKinley, manager of financial communications.
"It's a problem that affects the entire dairy industry," McKinley said. "Sales of low-fat products have been increasing at a higher rate than other products."
Skim and low-fat milk sales accounted for about 40 percent of the market 10 years ago, but now comprise about 60 percent, industry analysts said.
"It reflects a changing consumer preference for low-fat products," said John McMillan, food-industry analyst with Prudential-Bache Securities Inc. in New York. "Fifteen years ago, nobody bought low-fat and skim milk."
The turnaround occurred so quickly, officials said, that dairymakers were taken by surprise and had no alternatives for getting rid of the fat except to continue selling most of it for use in the production of butter. Butter, however, is also shunned by health-and cost-conscious consumers.
"There's now more butter on the market than we can possibly consume," Fischer said. "There's also a glut worldwide."
The industry has asked the federal government to ease its predicament with legislation aimed at providing incentives for farmers to breed cows producing low-fat milk with more protein.
Farmers currently have no incentive to change breeding patterns because, under federal pricing guidelines, they receive the same amount of money no matter what fat content milk has.
"The new way would reward farmers for producing milk with more protein and less fat," Fischer said.
The Agriculture Department supports such legislation because its budget is taking a beating after buying surplus butter in a multibillion-dollar dairy price-support program.
The government this year reported 397.5 million pounds of stockpiled butter, purchased at a cost of $502.6 million under the support program in which it annually buys about 10 percent of national dairy production.
Those costs and the price of storing the dairy products are so high the government began giving them away to needy families in the early 1980s. But the government began having problems giving it away because the stockpile was so huge, said Kelly Shipp, a USDA spokesman.
Giveaways to schools and other agencies now help reduce the stockpile each year, but butter still is being produced at such a rate that the government suffers huge losses, Shipp said.
Changes in the government's milk-marketing rules are years away, however, she said.
"Unfortunately, the rules say we have to have a nationwide hearing process and farmer referendum before we make changes," Shipp said. "We're moving as fast as we possibly can. We can't just go out and change things tomorrow because we want to."
Dairy companies grumble that even after any possible changes are drafted, it would take years before farmers could breed cows to produce low-fat milk.
"This is a problem we've had for years, and each year that goes by without a solution costs us money," McKinley said.