Dairy farmers talk about legislation to affect prices

Issue Date: April 3, 2013
By Ching Lee

Dairy farmers, meeting in Sacramento amid continued financial woes for many farms, agreed the current milk pricing system is not working for them and that they need other options. As to what those options might be, farmers attending the annual convention of Western United Dairymen last week talked about the plight of California dairies and potential solutions—including two pieces of legislation.

Members of the organization generally expressed support for Assembly Bill 31, which Western United Dairymen sponsored and helped to draft. It would require the California Department of Food and Agriculture to bring the state dry whey value in Class 4b milk within 80 percent of the whey value used in the federal milk marketing order. The Assembly Agriculture Committee is scheduled to discuss the bill on April 17.

Farmers said they also like the concept of House Resolution 1396, federal legislation that would allow California dairy farmers to petition the U.S. Department of Agriculture for consideration in joining the federal milk marketing order. The petition would require approval by a two-thirds majority of California producers to move forward—a process that could take one to two years.

Some farmers, however, expressed caution about taking this route.

John Kisst, a dairy farmer from Ripon, said while he supports both pieces of legislation, "neither one necessarily is going to fix all the problems or make life beautiful for us."

He said AB 31 "won't be a salvation," but it's a "good start" to help bring California milk prices closer in line with what's in the federal order. California producers contend they are being hurt by the under-valuation of the state Class 4b whey factor, which applies to milk sold to California cheese manufacturers.

Kisst said AB 31 appears to be the "quickest" way to address the issue, but that he thinks it will have an "uphill battle" because of opposition from processors.

For this reason, Kirsten Areias, who farms in Los Banos with her husband Dennis, said she would like both pieces of legislation to be advanced at the same time so that producers have options. She said she supports the idea of joining the federal order but is concerned about the fate of the state quota system, which allows producers who "own quota" to receive a higher value for a specified portion of their milk.

"The last thing we need is to go into something that's not going to work for us," Areias said.

Western United Dairymen CEO Michael Marsh described the state quota as a billion-dollar asset for producers and if it disappears, he said, it would be "an economic disaster."

As a lender, Joe Pereira Jr. of Yosemite Farm Credit in Merced said losing the state quota system would also affect what he does, because his clients would no longer be able to use the value of that asset against their loans.

"The devil is in the detail," farmer Dennis Areias said of the federal legislation. "You have to figure out how to buy those assets so that we don't lose that."

HR 1396 attempts to address the quota issue by allowing the state "the right to reblend and distribute order receipts to recognize quota value." But Marsh said WUD legal counsel "is pretty convinced that it does not protect it." Because quota can be sold and transferred, he said, even if the state retains the program, "it would not survive" under a federal order where the quota could be bought by out-of-state producers.

Marsh said his organization is looking into whether it could recommend an amendment to better secure the state quota system and protect its asset values. He said the WUD board of directors also would like to review an economic analysis of the legislation before making a determination.

Two other dairy groups, the Milk Producers Council and California Dairy Campaign, have voiced support for the federal legislation.

As a farmer who owns quota, David Barroso of Merced said HR 1396 would "get the ball rolling," but he doesn't think "it's our best avenue at this point." He said he would like to see the state try to get AB 31 passed first while keeping the option of the federal bill open.

"Our best option is to stay with California pooling and fix the whey factor, as opposed to dumping the whole system that's worked for us until a recent point for something that we're kind of unsure of," Barroso said.

Merced County dairy farmer Susie Van Foeken said she thinks there should be one national price for all producers, but she also does not want to give up the premium she's currently earning for Class 4b milk, based on concerns that any increase in the Class 4b minimum price will take money away from premium-earning producers as those premiums are redistributed to others in the pool.

Other farmers, such as Humboldt County dairy producer Curt Holgersen, see joining the federal order as a way to boost milk prices for farmers—at least in the short term. He acknowledged that much of the current trouble is tied to the high cost of feed and that joining the federal order will not address that issue, "but you're going to get supposedly more for your milk."

Paul Pacheco, a dairy farmer from Los Banos, grows about 60 percent of his feed and said producers who can grow more of their own feed are in a better position to weather the volatility of the dairy business. But he also said buying more land to farm that feed, when there is a lack of cash or equity, remains a problem for many producers.

With current high land values, Pereira of Yosemite Farm Credit said the biggest problem dairy farmers face is having enough cash flow to make the payments on their loans, even if they still have equity.

"So would $1.50 more on the whey factor help? Absolutely," he said. "Would the feed cost dropping 15, 20 percent help? Yes."

(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.