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February 13, 2017

Proposed Federal Order Not What California Farmers Wanted

 |  By: Jim Dickrell

The United States Department of Agriculture’s recommended decision on a Federal Milk Marketing Order for California isn’t what farmers in the Golden State likely wanted.


USDA says switching to a Federal Order in California would raise milk prices. The recommended decision also mirrors rules in the other 10 Federal Orders, and, like the other Federal Orders, it does not include mandatory pooling of manufacturing plants.


For their part, California cooperative officials were still studying the 213-page recommended decision as we went to press in mid-February. California dairy co-ops petitioned USDA to include the state in the Federal Milk Marketing Order (FMMO) system last year.


A public hearing was held from Sept. 22 through Nov 18, with 98 witnesses testifying. At that 40-day hearing, a cooperative witness testified that between August 2012 and May 2015, California dairy farmers received on average of $1.85/cwt less than producers pooled on the Upper Midwest order.


The biggest factor is how whey is valued. Historically, California and Midwest milk prices were more in alignment. But California capped whey value’s contribution to the pricing formulas in 2007, and that’s where the milk price gaps started appearing. Going with Federal Order formulas would correct that disparity.


However, only 13% of California milk is classified as fluid milk. So that already limits how much extra value can be shared. Requiring all manufacturing plants to pool milk would have helped pay for higher blend prices. But it also would have sent shock waves through the rest of the system nationwide, and would likely have spurred petitions to amend other orders to include that provision.


“Pooling is the big issue,” says Mark Stephenson, a dairy economist with the University of Wisconsin. “Without mandatory pooling, I’m not sure the California co-ops can vote for it.”


The Farm Bill also requires that California’s quota program be continued if the state joins the Federal Order System. About 58% of state dairy farmers hold quota on about 21% of the state’s milk volume. It’s valued at about $1.70/cwt. In order to pay for that, all California farmers receive about 37¢/cwt less on their milk checks each month. 


Here are selected passages from the recommended decision that speak to some of the major issues:


• Pooling.  “Regulated minimum prices, especially for milk used in cheese manufacturing, are likely to be higher than what handlers would pay under the [California State Order]. However, pooling regulations under the proposed FMMO would allow handlers to elect not to pool milk used in manufacturing.”


• Quota. “Under the recommended FMMO, regulated handlers would be allowed to deduct monies, in an amount determined and announced by California Department of Food and Agriculture (CDFA), from blend prices paid to California dairy farmers for pooled milk and send those monies to CDFA to administer the quota program.” Note: Those not participating in the FMMO pool would also have money deducted to pay for the quota based on state regulations.


• Out-of-state milk.  “If California handlers elect to continue processing out-of-state milk into Class I products under the FMMO, they would be required to pay the order’s classified minimum price for that milk.”


USDA will take comments until May 15. The recommend decision can be read here.