Dairy farmers file new petition on milk price formula

Issue Date: July 24, 2013
By Ching Lee
A petition filed by groups representing California dairy farmers asks the state Department of Food and Agriculture to hold a new hearing on the state milk pricing formula.

Several California dairy groups have filed a petition asking the California Department of Food and Agriculture to hold a hearing to once again consider changing the state milk pricing formula—this time to create $110 million in new revenue for temporary price relief to help struggling dairy farmers.

The petition, filed Monday by Western United Dairymen, Milk Producers Council, California Dairy Campaign and the cooperative California Dairies Inc., asks the department for an increase of up to 46 cents per hundredweight to the price of Class 4b milk, which is used to manufacture cheese.

The groups also seek to change the sliding scale used to determine a value for dry whey, which dairy farmers contend is too low compared to what producers in other states earn under the federal milk marketing order. The petition asks the department to raise the whey sliding scale from its existing cap of 75 cents per cwt. to $1. Specifically, the proposed sliding scale would range from 25 cents per cwt., when the average monthly dry whey price is less than 25 cents per pound, up to $1 per cwt., when the dry whey price is more than 60 cents per pound.

In combination, the proposed changes are designed to generate $110 million in additional revenue that cheese processors will pay into the state milk pool to be shared by dairy farmers, said Michael Marsh, CEO of Western United Dairymen.

If CDFA implements the proposed changes, he said, the 46 cents per cwt. surcharge in the 4b price would take effect starting in September and last for one year, perhaps longer, depending on how long it takes to achieve the $110 million in additional revenue.

The revisions to the sliding scale would be permanent under the proposal, he added.

"The proposed formula modifications are based on economic factors that statutorily must be considered in establishing California's minimum prices," the petition said, citing the "wide gap" between the state Class 4b price and the federal regulated price.

Petitioners also cited the difference between the state's milk price and dairy farmers' cost of production, which has averaged a negative $2.22 per cwt. since January 2012.

The petition came more than a week after the state Senate Agriculture Committee approved Assembly Bill 1038, which would formalize a task force, established last fall by CDFA Secretary Karen Ross, to propose changes to the state milk pooling and pricing system.

During the last several months, dairy producer groups and processors have been in discussions about finding a long-term solution to the current state milk pricing system, which the two sides agree is antiquated and needs reform.

AB 1038 originally contained language encouraging CDFA to hold a hearing to amend the department's recent milk pricing decision that dairy farmers said fell short of what they had requested.

Dairy groups also had sought the support of processors in the milk pricing request for which they have now petitioned CDFA. Western United Dairymen reported earlier that the two sides had reached an agreement on "a process" that would ask CDFA to raise the 4b price and expand the whey scale.

Rachel Kaldor, executive director of the Dairy Institute of California, which represents dairy processors, said her group did agree to support the pricing levels and the changes farmers proposed—but only "to the extent that economic conditions warrant." What producers wanted, she said, was for CDFA to hold a hearing to implement those changes.

"Nobody had agreed to that," she said. "I think what is fair to say is that our disagreement relates to how to implement those kinds of proposals."

For now, AB 1038 would provide a framework and vehicle for agreements between producer groups and processors as they continue to work toward a solution to the state's milk pricing system, observers said.

California dairy farmers have tried to address the 4b pricing issue through a number of hearings before CDFA and with an earlier bill, AB 31, which stalled in the Assembly in May.

Subsequently, Assembly Agriculture Committee leaders asked CDFA to hold a hearing to consider the need for additional price relief. That hearing led CDFA to raise producers' monthly pool prices starting this month by about 12.5 cents per cwt. for the next six months.

The dairy groups that filed the new petition this week said the California dairy sector has suffered more than $2 billion in losses during the past five years, forcing nearly 400 dairy farms out of business.

"The remaining 1,500 dairies are fighting for survival," the petitioners said.

(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.