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August 6, 2013 Page 2 of 7 Dairy production in California Milk and associated dairy products (cheese, dry milk powder, butter, ice cream, etc.) are California's top grossing agricultural products. Based on a study commissioned by the California Milk Advisory Board, California's dairy industry supported 450,000 jobs and generated $63 billion in economic impact statewide in 2008. Nationally, California's production is significant: in 2012, California led the nation in milk production, producing 21%of the U.S.'s milk supply. In recent years, milk price volatility has become a part of dairy operators' reality.The large variation in estimated margins over the past five years is a clear illustration of that. 2009 was especially negative as dairy operators in California were faced with historically low prices for milk and unusually high cost of production. Costs of production have remained high, fueled notably by high feed costs that remain supported by the government's ethanol policies.The margins outlined in this document do not include the cost of compliance with environmental regulations, which are becoming an increasingly larger part of the cost of producing milk in California. Each year, dairies have been forced out of business.The net loss of dairy operations over the past five years totaled 387 farms.This data does not include the number of farmers forced out of business and whose dairies were acquired by another dairy operation that managed to stay in business. California dairies are complex and advanced operations. Nearly all California dairies are family run, and the farmers strive for production efficiencies through the use of advanced technologies in genetics, nutrition, reproduction, animal housing, and animal welfare. Data 1) Cosbf production To calculate the impact of retrofitting dairy lagoons, data from the CDFA Cost of production studies were used.Those studies are conducted quarterly. CDFA staff goes to dairies and gather actual financial information. A sample representing approximately 10%of the dairy farms in California is analyzed each year to provide a representative picture of the financial health of the state's dairy operations (cost of production studies can be found at: http://cdfa.ca.gov/dairy/dairycop_annual.html). In this financial impact study, data from that sample was analyzed. More specifically, dairies representative of the sizes used in the P&P study were studied (300 cows, 750 cows, 1,500 cows and 3,000 cows). CDFA releases a cost of production that includes allowances (return on investment and return on management). Because the return on investment is an allowance that can be foregone if the dairy operation is in a dire situation, it was not included in the cost of production number for the purpose of this analysis. The cost of retrofitting dairy lagoons was analyzed under four different scenarios. Because the "new location" without assuming a wet clean-up cost was the cheaper option, it was used for a low end estimate. Utilization of both single and double liners was analyzed.The "new location" with wet clean- up cost is the most expensive option; therefore it was used as the most expensive end of the range for analysis purposes. Both single and double liners were also analyzed. From these four scenarios, specific yearly costs to the dairy were calculated using financing assumptions (repayment estimates included in Appendix A).