TILLAMOOK – Close to 50 local jobs will be lost as the Tillamook County Creamery Association (TCCA) looks to streamline its packaging and transportation systems, while expanding its market reach.

TCCA board president Joe Rocha said the layoffs were one of the hardest decisions he has had to make as a board member.

At the same time, he said, “I wouldn’t want to be sitting here, if I was sitting here because that creamery failed. Then, I would feel like I failed.

“It’s a small-town business, but it has to be a real business at the end of the day. It is a big business and it’s easy for big businesses to fail.”

The layoffs will affect 47 of the approximately 110 employees in the Tillamook-based packaging department.

The news was announced Jan. 5.

The cuts had been approved by a vote of TCCA’s nine-member farmer board – evenly representing dairies in the north, central and south areas of Tillamook County – the prior day.

Some of the packaging operations currently handled in Tillamook will be outsourced to two packaging companies, Marathon Cheese in Idaho and Great Lakes Cheese in Utah.

Tillamook Cheese CEO Harold Strunk said the move would save millions of dollars.

“We’re now well over a $500-million company and there are different expectations when you’re this size company,” Strunk said. “These are the kinds of things that our customers are demanding of us to be more user-friendly.

“One of the things this provides is back-haul opportunity. Customers love to be driving right past your manufacturing facility, drop off their load at one of their stores and pick up your product on the way back to their warehouse.

“They don’t do that in Tillamook, Oregon. Mile-marker zero’ on the West Coast is probably the most difficult place to distribute to the entire U.S.

“We still make ice cream here,” said Strunk, “we still make cheese here. It’s still going to be home to Tillamook Cheese and the visitors center. We’ll still be running the packaging line for visitors through the weekend.

“The only thing that changes is, we’ll be scaling back the amount of production that goes through this facility.”

On the other hand, if online comments are an indicator of public sentiment, a number of Tillamook County residents do think TCCA is changing – to the extent of forgetting its small-town roots. In the days following the announcement, a Facebook page, “I used to buy Tillamook Cheese when it was made in Tillamook,” had 68 likes; “Boycott TCCA” had 10.

And Tillamook Cheese’s Facebook page of 191,000 fans was flooded with complaints about the company’s decision. That’s not counting the hundreds of negative comments on local news media websites.

“It was not an easy decision,” said TCCA board vice president Shannon Lourenzo. “It was extremely tough. But we have to continue to do this to keep those other 450 jobs and keep these farms alive. We have to.”

Why it happened

Both Rocha and Lourenzo said fuel costs were a major factor in the layoffs.

“Because it’s people that we live with in the same community that we care about, we just would always say look around, let’s find other things first,” said Rocha. “Well, all of a sudden transportation costs are the number-one out-of-line cost we’re dealing with.

“We’re forced to deal with it. We can’t ignore the cost of fuel anymore. We continued to hope that fuel would come down. It hasn’t happened.”

In 2000, TCCA added a facility in Boardman, Ore. Large blocks of cheese are made there, although the packaging has been done in Tillamook.

“When we decided it was OK to continue to package here, fuel was probably less than half of what it is now,” Rocha said. “Now, anything they can make up by being efficient here at the plant, it gets sucked up double-some in trucking it back and forth.

“And it really isn’t about anything else except in the long term, we’re never going to be able to afford to bring all the cheese to be packaged here and moved out.”

The Tillamook plant packages only block cheese, which are marketed as “loaves.”

TCCA currently uses the Marathon plant in Mountain Home, Idaho, to shred and slice all of its cheeses. Now, Marathon also will take on the packaging of block cheese to be distributed regionally around Idaho.

TCCA will work with a new vendor – Great Lakes Cheese in Fillmore, Utah – to package all the types of cheese destined for the Southwest.

Unlike in Tillamook, neither Marathon nor Great Lakes uses union labor in the packaging departments, a TCCA spokesperson confirmed.

The Tillamook plant will remain the distribution center for Oregon, Washington and Northern California, but no longer will be packaging the block cheese destined for the Idaho and Utah distribution centers.

“In its worst form, because our distribution network was here, we would literally make blocks in Boardman, ship them back to Tillamook to age, ship them out to Mountain Home, Idaho, to be shredded and sliced, ship them back to Tillamook to be distributed, then sometimes back to Idaho to customers,” Strunk said.

“So you can understand the inefficiencies that was creating … You start doing the math, at more than $5 a gallon for diesel.”

Today, production of Tillamook Cheese is split roughly 50:50 between Tillamook and Boardman. All of the ice cream is made in Tillamook.

Other Tillamook brand products, such as yogurt, butter and sour cream, are licensed products produced by other companies.

All local milk is processed in Tillamook, Rocha said.

Shredded and sliced cheese destined for Oregon-area markets will continue to be shipped to Idaho for packaging, then returned to Tillamook for regional distribution.

“One of the things we are now looking at is, can we bring shredding and slicing equipment here?” Strunk said.

“That’s a longer-term view, that’s not immediate, and we don’t know how many people that will bring back when we get to that point. But we have it on the drawing board. We’ll see if it comes to fruition.”

Rocha said future plans also call for construction of a whey processing facility in Boardman, modeled after the existing facility in Tillamook.

That would create a handful of jobs in Boardman, but it wouldn’t replace the 50 lost in Tillamook.

As for employees

On Jan. 27, TCCA announced a severance package, which was agreed to by Teamsters Local 58, which represents the packaging department’s employees.

The package will be made available to the 47 affected employees.

TCCA has arranged with WorkSource Oregon to provide training such as resume writing, computer skills and interview skills. On-site visits with pension and medical plan administrators are being scheduled for impacted employees to discuss their pension and health insurance options. Additionally, TCCA is partnering with the Tillamook Bay Community College to offer classes for affected employees.

Union spokesperson Walter LaChapelle said the average job affected pays about $16 per hour.

“The severance package offerings and transition services were arrived at and mutually agreed upon in an efficient, structured and professional manner,” said Walter LaChapelle, Teamsters Local 58 business representative. “The designed structure of this transitional plan will help our affected members who experience displacement from this process.”

Struck added that layoffs were not anticipated for TCCA’s drivers, although their routes and work schedules may change.

Expansion project

The layoffs come at a time when TCCA is spending roughly $15 million to upgrade and expand the Tillamook plant.

Strunk said the main purpose of the renovations was to replace aging equipment and was “absolutely mandatory.”

The renovations will bring new offices, a central lunchroom and locker rooms.

Strunk said the project is required to keep the facility within SQF (Safe Quality Foods) compliance, which is similar to an ISO rating for a manufacturing business.

Many of TCCA’s customers require the plant to have a Safe Quality Foods certification.

“Those locker rooms were added for SQF certification purposes because we had no place for employees to change from street clothes into their work clothes to go into the production environment,” Strunk said.

“This gives us certification that our customers are looking for, to signify that we make safe, quality products for their consumers.”

Rocha said the upgrades show that TCCA is committed to staying here in Tillamook.

“We’re spending money here for quality reasons and for safety reasons, and this really is about updating the plant and keeping it,” he said.

The Tillamook brand

If Tillamook Cheese weren’t farmer-owned, Rocha said, there probably wouldn’t even be a Tillamook manufacturing plant.

Board VP Lourenzo cited the dairies farther south on the Oregon coast – Myrtle Point, Coquille – that couldn’t stay competitive with the dairies closer to I-5.

“It was a huge dairy area; now, there’s 16 farms left,” he said.

“They just cannot compete. But we’ve been fortunate enough to have Tillamook.”

He was talking, specifically about the brand. Both Rocha and Lourenzo said Tillamook Cheese has been able to survive “only because of the brand, one hundred percent.”

And that’s why so much money has been poured into marketing.

Last year, Tillamook Cheese took on an aggressive advertising campaign that included TV, social media, print ads and a strong PR presence.

A May 2011 New York Times article said TCCA had planned to spend $12 million in marketing last year – the largest amount in the co-op’s history.

Despite that marketing effort, Lourenzo said, sales of Tillamook products have been flat for the past three years.

“Since the recession hit, our numbers have actually been flat,” Rocha said. “Is that the new up? Probably.”

If there is growth, it probably won’t lead to more jobs in Tillamook. For effective distribution purposes, growth will translate to warehouses and plants in more-central points.

As an example, TCCA thinks it might well find a greater market for ice cream. But what gives ice cream its creamy texture is tiny pockets of air – ice cream doesn’t travel well over high-altitude mountain ranges.

“No, we’re not going to grow this facility here,” said Lourenzo. “One, we don’t have the milk supply. And two, everything’s got to be trucked in and trucked out.”

“This cheese factory was set up to continue to serve the farmers here,” said Rocha. “If the farmers go away from here, there isn’t going to be a plant here anymore, because it’s the most inefficient place to have dairy processing because of location. It’s just expensive.”

The company’s health

Meantime, the layoffs also have led to questions about the overall financial health of TCCA.

“This move is to make us more viable,” acknowledged Strunk. “We are very viable; this makes us more viable.”

Over the last decade or so, Strunk said, TCCA has lost about 75 dairy producers. And yet, the amount of milk production remains relatively steady. That’s because a tough economy has made it difficult for smaller operations to stay in business.

“There’s economies of scale that need to be met and some people just either retire or just economically don’t think it’s viable anymore,” he said.

In December 2010, there were 24,315 milking cows in Tillamook County and 108 producers. Last month, those numbers dropped slightly to 24,140 cows and 105 producers.

“For the majority of dairy farmers, it’s probably been the toughest times,” said Rocha.

“You can make a living, but as a rule, I think the margins have been the skinniest the last few years.

Farmers think, “If 40 percent of my milk check is going to pay for what my animals are eating, I can live.” Some farms are now spending 70 percent of their milk check on feed alone, he said.

Yet the company itself is profitable. Without giving specific numbers, Strunk said, “You or I?would love to own this company.”

Compared to other artisan cheese makers, TCCA is huge. At any one time, Lourenzo said, TCCA is sitting on 10 percent of the nation’s cheese inventory.

But compared to, say, Kraft products (not all of which are classified as “cheese,” by the way), TCCA is a tiny competitor.

“We are a tweener for sure. Any way you try to cut it, that’s where our company is stuck and it’s unfortunate,” Rocha said.

Job-loss impact

Asked if other local employers could absorb TCCA’s 50 lost jobs, Rocha said, “I’m afraid that they can’t. And that was the hardest thing about making this decision.”

The Tillamook Cheese Factory currently employs 483 people, making it one of the largest employers in the area.

While the community has other food manufacturing employers – the Tillamook Smoker, Pelican Brewery, Pacific Seafood and other seafood processors – Shawna Sykes, an analyst with WorkSource Oregon, said she doubted existing businesses could employ another 40 to 50 people.

“I think the folks that are in those positions are going to need to look at other opportunities in different industries, because there’s really no substitution for those specific jobs in the Tillamook area,” Sykes said.

“They’re going to have to look beyond what they’ve been doing and look at re-training opportunities.”

Tillamook County’s unemployment rate in November 2011 (the last date for which numbers are available) was 7.6 percent.

That’s lower than the state average of 9.1 percent and lower than the county’s November 2010 rate of 10.1 percent.

The county’s unemployment figures for January won’t be released until March 12.

Still, Sykes said of the layoffs, “I don’t think it’s going to change (unemployment rates) a lot.”

She added that, “The Tillamook unemployment rate has kind of edged up in the last few years, so that’s kind of concerning.

“But it’s typically below the statewide rate on a regular basis, which is great. Not a lot of rural counties can say that.”

So will there be more layoffs at Tillamook County’s iconic cheese factory?

“I hope not,” said Rocha. “But I’m also going to tell you that we’re going to have to continue to do everything we can, be as efficient as we can.”