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Tulare Council Sells Land For Cheese Plant

Targeting Asia Market

The Tulare City Council approved the sale of 59 plus acres this week to CaliCheese Company LLC, to build a 300,000 sf cheese plant on city-owned land next to the wastewater treatment plant.

The deal calls for just over $2 million for the land with the money changing hands between June 30, 2013 and the end of the year.

According to the company’s business plan the start-up cheese plant will to employ 220 producing both cheddar cheese and whey protein -both big sellers in the export market in Asia. They put the value of the project at $250 million and say it would produce 4 million lbs of milk a day to start.

The company plan says they expect to close financing by June 30, 2013, and begin operation in early 2015. Council was told this week that the plant was already designed and the milk supply would be secured with talks ongoing with two large milk coo-ops.

The sale of the property at 2600 W. Paige comes after a year of negotiations with the firm says a city staff report. The company expects the purchase to include “full entitlements” to the land to build a plant based the approved EIR at the same site for Western Pacific Meat packing a few years ago.  That meat packer never bought the land but the cheese project is similar enough that it can be used, it is assumed.

The city staff report asks the city council “Approve and authorize the Mayor to execute a Purchase and Sale Agreement (PSA) between the City of Tulare and Cali-Cheese LLC for 59+ acre parcel of property located adjacent to the Wastewater Treatment Plant, to be used for a cheese processing facility…”

Project Development Manager of CaliCheese Co is Jeffrery F. Lee Mr 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 Co lists Mr Lee as the former Division Counsel for a $1 billion-plus 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.  Mr. Lee also wrote the business plan that provided the foundation for Southwest Cheese Company in Clovis New Mexico founded in 2006.  He holds a BA in Economics with honors from the University of Michigan, and a Juris Doctorate from Michigan Law School.
The company lists Chief Operating Officer Daryl D. Boddicker  – a 30-year Kraft Foods veteran and recipient of the Kraft Merit Award. Mr. Boddicker had responsibility for all Kraft North American plant operations, and also for all Kraft Research & Development activities worldwide.

CaliCheese Co. mission statement says the huge project requires them to raise up to $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 KD 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 lbs of milk a day into mostly mozzarella cheese.

The CaliCheese Co(CCC) statement says their business plan calls for expansion of the 4 million lbs a day production by 50% putting its planned capacity at 6 million lbs 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%, over the past year.  CCC expects to enter into long-term contracts for the sale of a 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 lbs. 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, U.S. export volume accounted for more than 13 percent of total milk solids produced in the United States. “

Must Perform

The Tulare city agreement with CaliCheese Company 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 and grief and money as well as the jobs of several politicos.

Tulare is already home to many of the worlds’ largest diary product producers  and the largest cluster of dairy firms in the US West. They include names like Land O Lakes employing nearly 600, Saputo (now with three plants and 400 workers), Haagen Dazs(Nestle) with some 300, and Kraft employing 120. 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 – particularly the smaller ones – say it is they who are in danger of being driven out of business.

Caught in the middle is CDFA ag secretary Karen Ross who is expected to make a price adjustment upward for some dairy products later this month (by Jan 22) that could translate into higher costs for cheese manufacturers here. One other new cost – paying for greenhouse gas emissions in California now.

Welcoming More Competition

“Producers would favor a new processor” in the area says Tom Barcellos – a Porterville dairyman and president of the Western United Dairymen. ”We need more competition for our milk” he adds.

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