California milk cap.
October 29, 2019

California Quota Meetings To Show Sobering Impacts

 |  By: Jim Dickrell

Meetings this week and next will layout the seriousness of eliminating California quota for that state’s dairy farmers.

Meetings are scheduled for Oct. 30 in Chino, Oct. 31 in Tulare, Nov. 1 in Turlock and Nov. 4 online.

Termination of quotas will not only have tax implications, but they could affect a farm’s ability to borrow capital—or even stay in business.

If the quotas were terminated suddenly, California milk production could decline as much as 4.2%, according to analysis by Marin Bozic, a University of Minnesota dairy economist and Matt Gould, a private dairy analyst. Both have been contracted to study the impact of quota transition and termination.

Northern and southern California dairy regions, which hold the most quota, would be impacted the most. California’s central valley—Fresno, Kings and Tulare counties—could actually see milk production increases.  

Uncertainty over the future of quotas has pushed quota value down. The lower quota equity value for quota owners is decreasing their business solvency (debt-to-asset ratio), say the analysts.

Quick termination of quota would create a shock to a quota owner’s asset value and solvency metrics. That could affect how much revolving credit a lender is willing to offer and a farm’s ability to carry long-term debt. Some might be forced from the business.

Various options are currently being discussed. Some include a 10-year sunset of the program, or some variation, to allow quota owners to adjust to the new business model.

For more on the California dairy issue, click here.