$250 million cheese plant could bring 220 jobs To Tulare

Source: The Business Journal
Written by John Lindt

Looking to tap into the booming export market in Asia for cheese and protein, CaliCheese LLC, a startup cheese maker, plans a cheese plant in Tulare producing 4 million pounds of milk per day and is valued at $250 million. The Tulare City Council is expected to approve the sale of nearly 60 acres to the new company to build a 300,000 square-foot cheese plant on city-owned land in west Tulare. The purchase price would be $2.1 million, according to a staff report. The council will take up the project at their Jan. 15 open session meeting. The sale of the land comes after a year of negotiation with the company when the Tulare County Economic Development Corporation brought the prospect to the area. The company identified several potential locations within the county for the site of the plant, but settled on Tulare. The firm has also considered a site in Sanger The cheese plant expects to employ 220 workers and make cheddar cheese and whey protein as its main products. The company's mission statement says they hope to close financing by June 30, 2012, in which case the plant would begin operation in early 2015. The property at 2600 W. Paige—near the city wastewater treatment plant—has been the subject of several closed-door agenda meetings naming the consultant firm from Georgia who is helping the company secure a site. The property is the same city-owned land that was the subject of a lengthy and court tested environmental impact report for a meat-packing plant.That meat-packing plant has yet to gain financing and its proponent was notified it no longer had an exclusive right to purchase the property. They have been told however, they could buy a nearby piece. EIR In Place It is expected the cheese plant would qualify as a similar type user and thus could use the same EIR allowing it to move forward with full entitlements to the land, a huge time saver for any large project in California and subject to the California Environmental Quality Act. Who Are These Guys? Project development manager of CaliCheese is Jeffrery F. Lee, with a Mineral King address in Visalia, and the LLC is based in Delaware. The Visalia address is for Schuil & Associates, an ag-oriented real estate firm. Schuils and Lee are also affiliated with Bakersfield attorney David Albers who five years ago tried, but failed, to build a a large cheese plant in Fresno County under the name Blue Ribbon Cheese. Lee was a founder of and the project development advisor to what was this prospective $340 million cheese company. Lee is also affiliated with Manhattan Beach-based California Ethanol and Power. California Ethanol & Power, LLC focuses on production of renewable energy from sugarcane and on developing, financing, installing and operating sugarcane-to-ethanol-and-electricity production plants in California. The company says it is in the permitting stage to build a plant in Imperial Valley by 2015. CaliCheese lists Lee as the former division counsel for a $1 billion Bechtel Power Corporation operating division and a senior development manager with Bechtel Enterprises, where he led or participated in a number of project developments and financings for industrial processing facilities. Lee also wrote the business plan that provided the foundation for Southwest Cheese Company in Clovis New Mexico founded in 2006. He holds a bachelor's degree in economics with honors from the University of Michigan, and a Juris Doctorate from the University of Michigan. The company lists Chief Operating Officer Daryl D. Boddicker—a 30-year Kraft Foods veteran and recipient of the Kraft Merit Award. Boddicker had responsibility for all Kraft North American plant operations and also for all Kraft research and development activities worldwide. Company officials said they could not comment until after the Jan. 15 meeting. CaliCheese mission statement says the huge project requires it to raise as much as $350 million in financing to fund the $250 million facility. The statement says the plant "will generate cash flow that is more than sufficient to provide adequate debt service coverage, a fair market return to the project finance equity provider(s) and robust returns to the CCC ownership interests, particularly once the senior debt is retired." Their project is huge by any standard. At $250 million - the project would be the largest in Tulare County in recent memory. The largest project underway in the county now is the new Porterville courthouse valued at $91 million. Visalia’s largest commercial projects in recent memory was the VWR warehouse, valued at $22 million, or the Kaweah Delta hospital wing in 2009, valued at $143 million. The Leprino cheese plant—built almost a decade ago in Lemoore—was valued at $300 million and has expanded since—processing some 12 million pounds of milk a day into mostly mozzarella cheese. The CaliCheese (CCC) statement says their business plan calls for expansion of the 4 million pounds a day production by 50 percent, which would increase its planned capacity at 6 million pounds a day. Asia Market Regarding the market opportunity the company's statement says, “Asia's growing appetite for cheese and whey-derived products has caused wholesale cheddar cheese prices to increase more than 50 percent, and whey-derived products prices almost 100 percent, over the past year. CCC expects to enter into long-term contracts for the sale of the majority of its cheese and the totality of its whey-derived products to a major industry player at pricing indexed to market prices.“ “The U.S. shipped more than twice as much cheese to Asia in 2011 than in 2010, and the demand for whey-derived products is growing even faster, also driven in large part by the increasing demand for protein from Asia.“ The US Dairy Export Council recently stated that ”through the first 10 months of 2012, the volume of major products increased a combined 5.5 percent to more than 2.8 billion pounds. Although growth had softened in recent months, U.S. cheese and whey protein concentrate were poised to shatter volume records and nonfat dry milk/skim milk powder was tracking at or near record levels. "For the second consecutive year, the U.S. export volume accounted for more than 13 percent of total milk solids produced in the United States.“ Must Perform The City of Tulare's agreement with CaliCheese has provisions that include: a six-month feasibility period for the developer to approve the site; a $10,000 non-refundable deposit; a 12-month period for the developer to obtain project financing; a six-month period after the close of escrow for developer to initiate the project; failure to comply would result in a reversion of the property to the city. Tulare officials wanted the last provision to be in the agreement keep a developer from buying the land and just siting on it or flipping it. This is a sensitive issue in this community where two large projects, a meat packing plant and a huge race track project were near final approval but in the end failed to get financing. The projects, instead of producing jobs, actually cost the city lots of time, grief and money, as well as the jobs of several politicos. Tulare is already home to many of the world's largest dairy product producers and the largest cluster of dairy firms in the U.S. West. They include names like Land O'Lakes, employing nearly 600, Saputo (now with three plants and 400 workers), Haagen-Dazs (owned by Nestle), with some 300 employees, and Kraft Foods, employing 120 workers. Scores of supply firms for the industry are based here as well, with employment of hundreds more. Tulare County is the largest milk producing county in the world, with $2 billion in milk sales annually. Despite the size of the California dairy industry, producers have complained they feel they are being paid too little for their milk, particularly from the private cheese plants who suck up about half the milk produced in the state. Cheese makers argue they are the ones in danger of being driven out of business. Caught in the middle is California Department of Food and Agriculture ag secretary Karen Ross, who is expected to make a price adjustment upward for some dairy products later this month. That could translate into higher costs for local cheese manufacturers. Welcoming More Competition “Producers would favor a new processor” said Tom Barcellos, a Porterville dairyman and president of the Western United Dairymen. ”We need more competition for our milk.”

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