Sibling Revelry

Meister Cheese’s earliest days and recent history both bear a strong thread of conscientious concern for its community.

Stanley Meister, the founder’s son, found a way to turn waste whey into a viable byproduct and, in 1980, an independent company, Muscoda Protein Products. The two sister companies have supported the local economy together by sourcing raw dairy products as well as whey from nearby dairy product producers.

Scott Meister, current president of Meister Cheese and the founder’s grandson, calls this approach “logical environmentalism.” Over time, purchasing intermediate goods and services as close to the center of operations as possible and reducing waste in the manufacturing process proved highly cost-effective. 90% of the dairy that goes into the manufacturing processes of both companies travels no more than 40 miles from farms to ensure freshness.

And the sister companies found new and innovative ways to reduce costs and buy locally. In 2005, faced with rising natural gas prices, the Meister family decided to install a state-of-the-art wood-fired boiler system to generate steam for both cheese and whey manufacturing. The boiler uses 27 tons of hardwood chips and sawdust per day. Each year the $1.7 million project is saving 600,000 therms and saving the company close to $400,000 in avoided natural gas costs. The wood chips come from a nearby lumber mill, Nelson Hardwood Lumber, which employs similar technology in a wood-drying kiln. What little waste is leftover from Meister’s hyper-efficient boilers goes into fertilizer that feeds switchgrass fields which, in turn, supply additional fuel for the boilers.

Part of the impetus for constantly refining production processes comes from the need to compete with larger cheese producers for market share. Manufacturers like Meister and Muscoda navigate a narrow pass between increasing production and sales without sacrificing quality or safety.

As Meister approached its centenary, it faced a new challenge in maintaining its market share and economic stability. By 2007, demand for dairy products had steadily declined. The market itself was shrinking. Everyone—including dairies, manufacturers, and even the federal government went on the hunt for solutions.

Struggling Dairy Farms

In 2007, the total demand (households and government) for dairy products in the United States plateaued. The trend line for demand, which had steadily climbed since before 2001, suddenly dipped. Industry output soon followed the same path with a drop in 2009 which would not return to pre-recession levels for another three years.

Dairy farms all over the country were especially feeling the heat in those early days. Farmers and dairy product producers brought their economic woes directly to the United States Congress on several occasions to press the federal government for solutions.

“Though volatility in milk prices has long plagued our farmers, today we face a crisis like we’ve never seen before.” said Peter Welch, a member of Congress and representative from Vermont in a hearing in July 2009 before the U.S. House of Representatives Subcommittee on Livestock, Dairy and Poultry. “Prices have fallen to record lows even as the cost of production continues to rise, pushing scores of farms out of business. In the past five years alone, Vermont has lost over 250 dairy farms, leaving us with only 1,046 today. Thirty-two of those farms have been shuttered since the start of this year alone. The depth of this crisis cannot be understated. Vermont’s farmers, government leaders and agricultural experts agree that our state’s dairy industry is on the brink of total collapse. With dairy representing 70 percent of Vermont’s agricultural economy, we could very well see a wholesale failure of our entire agricultural infrastructure, forcing out of business feed dealers, equipment suppliers, processing plants, farm creditors and many more.”

Friction Over Federal Support Programs

But from the legislative perspective, the problem was more complicated. Layers of interwoven agriculture laws passed since the great depression dictated much of what could or could not be accomplished to aid the modern American farmer.

Some industry experts, including Jerry Kozak, president & CEO of the National Milk Producers Federation, argued for expanding existing programs that maintained level demand in the market through government purchasing of surplus products.

“The Price Support Program has been effective over the years, but there have been some situations where, for instance, cheese dropped down to $8.70 in 2003 when we had the lowest milk prices in our 25–year history and it wasn’t effective.,” Kozak explained, “So what we have done in terms of recalculating the Price Support Program is to recognize that it is a market clearing mechanism of which, when prices are extremely low and we have some surpluses, the government buys those products at a specific level. It doesn’t buy all milk products. It doesn’t buy fluid milk. It doesn’t buy yogurt, cottage cheese, et cetera. It buys those three specific products because those three specific products are the basic foundations of what we produce ultimately in this country and are tied to our over-quota tariff rates.”

But not everyone saw such programs as a sustainable solution.

“Keeping a program that encourages people, encourages the producers of products that aren’t in demand in the market, just so they can sell them to the government and maybe make a few cents’ profit, is not going to help dairy farmers. It is going to maybe keep that company in business who wants to crank out non-fat dry milk instead of upgrading their facility,” argued Connie Tipton, International Dairy Foods Association, “but I think we should encourage people to upgrade their facilities and go for these higher-value dairy markets that are going to actually drive prices to a better level for our farmers.”

For Muscoda Protein Products, adopting the plan to upgrade its facilities would prove truly effective. But they would need help to do it.

Taking Action

Meister wasn’t a stranger to public funding programs, having been awarded a Section 9006 Grant of $420,322 in 2006 to help install their advanced boiler system. Also, Muscoda Protein Products already had the good business track record and community support to qualify as a candidate project for lenders to potentially invest. They had the chops and they knew the game, now they just needed help telling their story in numbers to help secure funding.

They worked with Baker Tilly, a nationally recognized, full-service accounting and advisory firm. Baker Tilly is ranked as one of the 15 largest accounting and advisory firms in the U.S. The firm had a strong track record of helping businesses across the country find funding and demonstrate the return on investment over time for public and private projects.

Baker Tilly analyzed the potential sources of capital to fund this major expansion and determined that New Markets Tax Credits (NMTC) would provide significant funding benefit to the project. The application process would involve no shortage of paperwork. Among the required documentation needed to apply for the program is an economic impact analysis which would account for the effects on the economy at large as a result of the investment.¹

The companies estimated the project would increase local milk purchases by $12 million, increase purchases of whey from other nearby cheese producers, retain and create new jobs, and reduce the amount of waste that would need to be disposed of. Baker Tilly performed financial modeling for the transaction, solicited NMTC allocations from Community Development Entities, assisted with the NMTC application, and advised throughout the closing process.

“Our business at Muscoda Protein Products has grown rapidly over the past few years and we needed to expand our facility and purchase new equipment to keep pace with customer orders,” said Meister, “We were familiar with NMTCs, having received a previous allocation. With Baker Tilly Capital’s assistance, we were able to secure another allocation, which provided a key source of capital that will allow us to complete the expansion.”

1. www.bakertilly.com/insights/muscoda-protein-products-secures-new-mrkets-tax-credit-and-debt-financing

The Solution

Under Baker Tilly’s direction, Muscoda pursued funding with CDEs connected with the NMTC program (among other previously awarded grants which Meister had secured) for the best fit.

The program’s goals were aligned with existing local economic development plans for the area to reduce the percentage of people in Muscoda and surrounding counties who live below the poverty level. The types of specialized manufacturing jobs which Muscoda Protein Products would create to maintain the newer, more advanced equipment would also positively affect the median household income in their census, which, as of the last census, was 24% below the median income for the country.

How it works

The NMTC program was created in 1994, renewed in 2000, and consistently reauthorized since 2006 to incentivize community development and economic growth through the use of tax credits that attract private investment to distressed communities.

The NMTC Program is jointly administered by the CDFI Fund and the Internal Revenue Service (IRS). The program’s mission is to expand economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers. The CDFI Fund achieves this mission by directly investing in and supporting Community Development Financial Institutions (CDFIs), Community Development Entities (CDEs), and other financial institutions through a handful of programs and initiatives which include the NMTC program.

Those institutions which receive investments from the CDFI Fund reinvest in qualifying projects across the country to lift economically distressed census tracts. Qualified tracts are those in which the income is lower than 80% of the area median income (relative to the greater region whether state or metropolitan statistical area), or has a poverty level of 20 percent or greater. And, since its federal funds are at stake, the allocation process for CDEs and other lending institutions which participate in the program is heavily regulated. So regulated, in fact, that since 2002 no more than 30% on average of the CDEs which apply for allocations received them. And of those allocations awarded, no more than 50% of developers or project managers who apply for funding have been approved since the program’s inception.

Naturally, CDEs and other investment organizations which receive NMTC allocations tend to be very judicious about which projects they fund at the risk of losing their qualifying status with the CDFI. Some CDEs don’t even accept applications for funding, opting rather to scout projects on their own which match the sort of financial management with which the CDE’s have a successful history.