Dairy Air

Dairy AirDairy Air

Michael Marsh, CPAMichael Marsh, CPA

Chief Executive OfficerChief Executive Officer

Western United Dairymen/Western Western United Dairymen/Western United Resource Development Inc.United Resource Development Inc.

January 11, 2007January 11, 2007

# of Farms & Cows Per Farm# of Farms & Cows Per Farm

0

2,000

4,000

6,000

8,000

10,000

12,000

1960196319661969197219751978198119841987199019931996199920022005

0

100

200

300

400

500

600

700

800

900

1000

Number of Farms Cows per Farm

Trend Trend towards towards

smaller # of smaller # of larger larger dairiesdairies

# Farms & Milk Production in CA# Farms & Milk Production in CA

1960196319661969197219751978198119841987199019931996199920022005

# of Farms Milk Production

Since 1960, the # Since 1960, the # of dairy farms has of dairy farms has decreased by 79% decreased by 79% – 9,764 to 2,0439,764 to 2,043– Numerous sellouts Numerous sellouts

in 2006in 2006

Milk production Milk production has increased by has increased by 380% 380% – 7 to 37 billion lbs7 to 37 billion lbs

CMAB StudyCMAB Study

Western United DairymenWestern United Dairymen

Largest dairy producer Largest dairy producer trade association in the trade association in the Western USWestern US

Represent 1,100 of CA’s Represent 1,100 of CA’s 1,950 dairy families1,950 dairy families

20 member Board 20 member Board

Environmental Environmental compliancecompliance

CDQAPCDQAP

Economic analysisEconomic analysis

Litigation supportLitigation support

Labor relationsLabor relations

Safety trainingSafety training

Government relationsGovernment relations

Political advocacyPolitical advocacy

Communications and Communications and media relationsmedia relations

Renewable energy and Renewable energy and biofuels - WURDbiofuels - WURD

Clean Air ActClean Air Act

Passed in 1970Passed in 1970

Amended in 1977Amended in 1977

Amended again Amended again in 1990in 1990

California California Agriculture Agriculture exemptexempt

Clean Air ActClean Air Act

2/4/2002 Earthjustice 2/4/2002 Earthjustice petitions 9petitions 9thth Circuit for Circuit for judicial reviewjudicial review

5/14/2002 USDOJ 5/14/2002 USDOJ announces settlement announces settlement of Earthjustice petition of Earthjustice petition on behalf of USEPAon behalf of USEPA– California agriculture’s California agriculture’s

exemption from CAA exemption from CAA to be eliminated to be eliminated

What were farmers to do?What were farmers to do?

Fugitive sources vs. Fugitive sources vs. stationary sourcesstationary sources

No tailpipe nor No tailpipe nor smokestack smokestack

National Academy of National Academy of Sciences - Air Emissions Sciences - Air Emissions from AFO’s: Current from AFO’s: Current Knowledge, Future Knowledge, Future Needs (2003)Needs (2003)

Most recent ag emission Most recent ag emission research – 1938research – 1938

SB 700SB 700

Florez (D – Shafter)Florez (D – Shafter)

““Regulate now, worry Regulate now, worry about the science about the science later.”later.”

9/22/039/22/03

Effective 1/1/2004Effective 1/1/2004

CAFO’s 7/1/2006CAFO’s 7/1/2006– VOC emissionsVOC emissions

Regulatory schemeRegulatory scheme

~ 3/15/2004 Draft ~ 3/15/2004 Draft BACT dairies to have BACT dairies to have digestersdigesters– 1938 study1938 study– Unilateral acceleration Unilateral acceleration

of timetableof timetable– Mathematical errors Mathematical errors

and erroneous and erroneous assumptionsassumptions

– Repeated requests to Repeated requests to correct and adhere to correct and adhere to legislative mandatelegislative mandate

CottonWood DairyCottonWood Dairy

Covered LagoonCovered Lagoon

Merced CountyMerced County

Currently 300kWCurrently 300kW

Soon to be 700kWSoon to be 700kW

Castelanelli DairyCastelanelli Dairy

Covered Covered LagoonLagoon

San Joaquin San Joaquin CountyCounty

160 kW160 kW

Hilarides DairyHilarides Dairy

Covered Covered LagoonLagoon

Tulare Tulare CountyCounty

500 kW500 kW

ON-FARM ENVIRONMENTAL COMPLIANCE COULD COST ON-FARM ENVIRONMENTAL COMPLIANCE COULD COST PRODUCERS BETWEEN $650 MILLION AND $2.6 BILLIONPRODUCERS BETWEEN $650 MILLION AND $2.6 BILLION

Source: McKinsey & Company, Foundations for Consumer-Driven Dairy Growth Strategy

On-farm producer compliance costOn-farm producer compliance cost

$ Millions $ Millions

550600

1,900

100100

Low Cost ScenarioLow Cost Scenario

650650

100100

2,6002,600

High Cost ScenarioHigh Cost Scenario

Fixed water costsFixed water costs

Variable water Variable water costscosts

Covered Covered lagoon lagoon digesters (air)digesters (air)

WUD/AWMP v. SJVUAPCDWUD/AWMP v. SJVUAPCD

5/1/20045/1/2004

Challenged draft Challenged draft BACTBACT

Challenged Challenged accelerated timelineaccelerated timeline

Challenged lack of Challenged lack of sciencescience

SettlementSettlement– DPAGDPAG

Dairy Permitting Advisory Group Dairy Permitting Advisory Group (DPAG)(DPAG)

Environmentalists, Environmentalists, academics, district staff, academics, district staff, dairy representativesdairy representatives

Reviewed existing and Reviewed existing and emerging emissions emerging emissions sciencescience

5 lbs. v. 12.8 lbs. v. 35 5 lbs. v. 12.8 lbs. v. 35 lbs.lbs.

APCO 19.3 lbs. (15.5 lbs. APCO 19.3 lbs. (15.5 lbs. VFA’s)VFA’s)

Regulation and litigationRegulation and litigation

5/20/04 Rule 4550 5/20/04 Rule 4550 regulating ag PM10 regulating ag PM10 emissions passed by emissions passed by DistrictDistrict

June 2005 June 2005 AIR v. SchakelAIR v. Schakel

December 2005 December 2005 AIR v. AIR v. VanderhamVanderham

Latino Issues Forum v. Latino Issues Forum v. SJVAPCD (Rule 4550)SJVAPCD (Rule 4550)

6/15/06 Rule 4570 6/15/06 Rule 4570 regulating CAFO VOC’s regulating CAFO VOC’s passed by districtpassed by district

AIR/CRPE v. SJVAPCD AIR/CRPE v. SJVAPCD (Rule 4570)(Rule 4570)

AB 32AB 32

How do we connect the dots?How do we connect the dots?

Sustainability

Land Water Air Markets

Western United DairymenWestern United Dairymen

www.westernuniteddairymen.comwww.westernuniteddairymen.com

209-527-6453209-527-6453

Thank You!