Shortfall sours Mat Maid optimism

Aug. 31, 2007

By GREG JOHNSON/Frontiersman

PALMER - Used creamery for sale, includes all equipment and inventory. Loyal customer base with a recognizable name. Only serious inquiries, please. If interested, call the state of Alaska.

The state Board of Agriculture and Conservation is putting Matanuska Maid up for sale following 10 weeks of probing the 71-year-old state-owned dairy's operations and a surprising revelation that it was some $326,000 in the red for July.

The state will hire a dairy broker &#8220to help us solicit offers,” said Kristin Cole, a member of the Board of Agriculture and Conservation, which also serves at the state Creamery Board. In addition, a forensic audit will be conducted Mat Maid's financials.

The sale was announced Wednesday at a press conference attended by Gov. Sarah Palin, who appointed Cole and the rest of the ag board in June after the previous board decided to shut down Mat Maid.

&#8220Because of recent market forces that are beyond our control, including the soaring price of Outside milk, I agree with the board's decision to look at other options for Mat Maid,” Palin said &#8220Continuing operations through the summer has put us in a better position to attract potential buyers. Privatizing Mat Maid will provide our local farmers with options, something they didn't have three months ago.”

Prior to the new board's appointment, Mat Maid was set for closure after losing about $700,000 since 2005. Added to the $326,000 July deficit, Mat Maid has lost more than $1 million over the past two and a half years.

Much of July's shortfall is outside of Mat Maid's control, Cole said. In addition to buying locally produced milk, the dairy purchases milk from Outside to meet its demand. The price of milk in less than three months has risen 43 percent, while Mat Maid is contractually bound to its customers to give 30 days notice before raising prices.

There were also one-time costs associated with the derailed shutdown that hit in July, Cole said.

&#8220Because a letter went out that we were shutting down, a lot of our suppliers wanted cash instead of credit terms,” she said. Attorneys' fees and other costs to get the creamery back up to full production also contributed.

Before Saturday, Cole had said she expected Mat Maid to show a small profit for July. If longtime CEO Joe VanTreeck, who has resigned as of today, knew of those expenses, he didn't share them with the board, she said.

&#8220I thought we were going to break even or show a small profit,” she said. &#8220That was what I was being told [by Mat Maid staff].”

When she learned Saturday of the $326,000 shortfall, Cole was &#8220shocked; a huge shock. We were unaware until that point. … All I can tell you is we can only make decisions on the information we are given.”

Privatizing Mat Maid

Alaska bought Matanuska Maid out of bankruptcy in 1985. It had operated as a local cooperative until then. Finding a way for it to be a private entity again has always been the goal, Cole said.

The Board of Agriculture and Conservation's goal in seeking a buyer now is to preferably find one interested in keeping the creamery up and running and continuing to purchase locally produced milk.

Rep. Mark Neuman, R-Big Lake, agrees the state should not be in the dairy business, but disagrees that finding a buyer to keep Mat Maid running should be a priority.

&#8220The goal was always to try and make sure and keep the dairy up and running until it could be privatized,” he said, adding the state Legislature authorized $600,000 for that purpose. &#8220When we got that $600,000 from the Legislature, that was to make sure they had enough money to carry it over to get it into private hands.”

With at least two other announced plans to build smaller milk processing plants, Neuman said Mat Maid could simply remain in business until those other plants are ready to accept milk from state producers. Then, the state could sell off Mat Maid's assets.

&#8220This is too important to this state,” he said. &#8220We can have a good dairy. The state needs to transition this into private hands. Then, it's time to close the doors, sell the assets.”

Nervous producers

Wayne Brost has been selling milk from his Point MacKenzie dairy farm for 11 years. He's a member of the state Board of Agriculture and Conservation and concerned about the future of his and other local dairy farmers.

&#8220All the producers are very nervous, at least I am,” he said. &#8220Part of the reason is that it's not like we're in Wisconsin or Illinois or anywhere else in the lower United States.”

Because of border restrictions with Canada, there is not a viable market for dairy farmers to sell their milk or their cattle, Brost said.

&#8220We're geographically isolated. We have no market, so we'll lose about 75 percent of the value of our cattle,” he said, adding it puts producers &#8220between a rock and a hard spot.”

Finding a buyer that will continue to operate Mat Maid is realistically &#8220my only viable option,” he said. &#8220If that's not done, our last alternative is the slaughter our cattle. We're hopeful we don't have to resort to slaughtering.”

A loss of dairy in Alaska and the Mat-Su Valley would reach much farther than dairy farmers, Neuman said. There are the other agriculture concerns, like hay and feed suppliers, which would be affected.

Brost was as frustrated as his fellow board members about July's shortfall.

&#8220I was surprised, but when you look at the things we've inherited and what was dumped in our laps, I'm not surprised,” he said. Mat Maid's business model is to buy cheap Outside milk and mix it with local. &#8220This model has basically flipped upside down.”

Contact Greg Johnson at 352-2268 or greg.johnson@frontiersman.com.