Hearing on milk prices highlights lack of agreement

Issue Date: May 22, 2013
By Ching Lee

Dairy farmer organizations and processors have not yet reached an agreement on how to update the state's milk pricing formula and, more specifically, on how to establish a whey value that would be satisfactory to both sides.

During a hearing held by the California Department of Food and Agriculture in Sacramento Monday, dairy farmer groups and dairy cooperatives stuck by a proposal they have introduced through Assembly Bill 31, to establish a milk pricing formula for dry whey that would bring California prices closer in line with what's paid to dairy farmers under the federal milk marketing order.

CDFA called the hearing to consider temporary changes to all classes of milk, after receiving a request from leaders of the Assembly Agriculture Committee, which held a hearing earlier this month to consider AB 31.

Dairy farmers have long held that there has been a huge disparity between the whey value in California's Class 4b price—what cheese manufacturers pay for milk—and the federal order's whey value.

Not ready to make the sweeping changes in AB 31, the Assembly Agriculture Committee amended the bill but kept it alive to give producers and processors time to work out a compromise. At the same time, they asked CDFA Secretary Karen Ross to hold a hearing to find a short-term solution.

Producer groups and cooperatives were united in asking CDFA to raise the Class 4b price by $0.138 per pound, or about $1.20 per hundredweight. Their proposal mirrors the Class 4b pricing formula adjustment found in AB 31 and would result in an increase of roughly 50 cents to the overbase price, or basic pool price, that producers earn.

"The temporary increase proposed for Class 4b is to get to what the producer side of the industry has been advocating for almost three years: a fair pool value from cheesemaking revenues," Michael Marsh, CEO of Western United Dairymen, said in his testimony.

Groups that testified in support of the WUD proposal included the Milk Producers Council, California Dairy Campaign, California Dairies Inc., Dairy Farmers of America-Western Area, Land O'Lakes and Agricultural Council of California. Tulare County dairy farmer Tom Barcellos also testified in support of the proposal.

Processors were unified in asking CDFA to extend the same temporary price increases the department had set back in February but that are scheduled to expire at the end of this month. Those price adjustments were made as a result of a hearing in December 2012 and amounted to an increase of about 25 cents per cwt. in producers' average monthly pool price. Under the processors' proposal, the current price increases would be in effect from July through the end of the year.

At the same time, processors expressed their support for efforts of the Dairy Future Task Force, a group of producers and processors formed by Secretary Ross last year to work on a long-term overhaul of the state's milk pricing system.

"Based on what we have observed over the past few years, neither processors nor producers are fully satisfied with our regulated pricing system as it currently exists," said William Schiek, an economist for the Dairy Institute of California, which represents the majority of processors.

Noting that producers tend to believe the current system "does not deliver enough revenue" to them while processors feel it "distorts markets and creates disincentives to investment in plants, processing technology, new products and new markets," Schiek said the institute's proposal to continue the existing price increases is "an effort to give our industry the time it needs to address the longer-term pricing issues" so that the task force can continue to work on a successful solution for both sides.

Rob Vandenheuvel, general manager of the Milk Producers Council, acknowledged the efforts that are currently underway to make longer-term, structural changes to the state milk pricing system, including discussions about crafting a federal milk marketing order for California and the work being done by the CDFA task force. But he stressed that "dairy families are in need of this price adjustment immediately."

"The problem has been and continues to be specific to the way we price milk sold to California cheese manufacturers and the significant discount our current Class 4b pricing formula provides," he told the CDFA hearing panel.

The California Dairy Campaign had previously asked CDFA to increase prices on all classes of milk so that they align with federal order prices. But Executive Director Lynne McBride said this time, the group chose to unify with other dairy producer organizations and cooperatives in calling for 80 percent of the federal order price of $1.20 per cwt.

"We continue to believe that alignment with the federal order is the only way to end the inequity in our state pricing system," McBride said in her testimony. "As a compromise for this hearing, we are instead focused in changes to the 4b price only, where the greatest gap between the federal order class prices and the California class prices continues to exist."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.