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June 18, 2018

Here's Why California Joined the Federal Order

 |  By: Jim Dickrell

See also "Will the California Federal Order Cut Your Milk Price?"

 

California dairy farmers have labored with the burden of what they dubbed “The California Discount”—milk prices that lagged other states and regions by $1/cwt or more month after month, year after year.

              

It’s a burden California dairy farmers tacitly agreed to, and even prospered under, in the decades of the 1990s and 2000s. The bargain was this: They agreed to a California State Order that offered lower milk prices to farmers but higher, some would argue lucrative, make allowance to dairy processors.

              

The logic was simple. California farmers enjoyed a cost of production advantage due to lower capital building costs, economies of scale and cheap feed. But in order to grow, farmers needed processing. And they only way to achieve that was to incentivize processors to build cheese factories and powder plants.

              

But times change, and paradigms shift. Ethanol-powered grain prices, doubling and more, meant California’s imported grain railed in from the Midwest was no longer cheap. And as California herds expanded from 500- and 1,000-cow dairies in Los Angeles area to 2,000-, 3,000- and larger sized herds in the Central Valley, low-cost open lot dairies were no longer viable. Fan-ventilated, freestall-housing became a necessity because it rains, even in California.

              

Plus, the rest of the country changed as well. Freestalls in the Midwest and Northeast became common. Tunnel-ventilated barns on the Great Plains and Midwest, often surpassing California’s large herds, meant the Golden State no longer had a lock on economies of scale. A switch to a U.S. dairy economy dependent on exports and world prices and the failure to enact even minimalist supply management in the 2014 Farm Bill meant California was, like the rest of the country, in survival-of-the-fittest mode.  In the end, the California Discount became a burden to great to bear.

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