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h 1315 K STREET 41 jjl MODESTO, CALIFORNIA 95354-0917 TELEPHONE (209) 527-6453 FAX(209) 527-0630 MEMORANDUM To: Theresa A. Dunham; Somach, Simmons& Dunn From: Annie AcMoody Subject: Financial Impact to Retrofit Dairies that Do Not Have Tier 1 or Tier 2 Lagoons Date: August 6, 2013 This memo estimates the financial impact to retrofit existing dairies that do not have Tier 1 or Tier 2 lagoons for a range of dairy sizes. Scope/methodology No two California dairies are exactly alike; dairy operators have different resources and production facilities. Therefore,this report provides a range of financial impacts.The estimated costs to retrofit dairy lagoons were based on an analysis provided by Provost and Pritchard (P&P). See memorandum from P&P dated August 5, 2013. Specific farm financial information was compiled using California Department of Food and Agriculture (CDFA) data.The Cost of Production Unit,within the Dairy Marketing Branch of the CDFA, compiles cost of producing milk on a quarterly basis and publishes yearly averages for each of the production regions in California. More specifically for this analysis, a sample of dairies within California's Central Valley was used for each of the size categories analyzed by P&P. Assumptions regarding the financing of the projects were made after interviewing personnel from three different lending institutions. Due to market place volatility, it is extremely difficult to forecast dairy margins with any accuracy. One more reliable way is to look at past recent market conditions.The last five years presented an array of market conditions and provide insight on the financial situation faced by California dairy farmers.Assuming upcoming years are filled with similar extremely variable conditions, allows for an analysis of different scenarios. Qualifications Annie AcMoody graduated from Universite Laval, Quebec, Canada with a B.S in Agricultural Economics and Management. She also holds an M.S. in Agricultural Economics from Purdue University, West Lafayette, Indiana. Mrs.AcMoody has been the director of economic analysis for Western United Dairymen (WUD) since 2010. She has been an agricultural economist focusing on dairy economics issues in the state of California since 2007. More specifically, prior to working at WUD, she was an economist at the California Department of Food and Agriculture's Dairy Marketing Branch. In that role, she frequently analyzed the financial health of the California dairy industry, both from the dairy producers' and manufacturers' perspectives.