Next step toward federal milk order will come in 2016


Issue Date: November 25, 2015
By Ching Lee
Now that a lengthy hearing has ended to consider a proposed federal milk marketing order for California, the U.S. Department of Agriculture will review the hearing record and issue an initial recommended decision.
Photo/Kathy Coatney

After 40 days and hundreds of hours of testimony, the U.S. Department of Agriculture hearing on establishing a federal milk marketing order for California concluded last week.

Now California dairy farmers will have months, possibly up to a year, to wait for USDA to issue an initial recommended decision on the hearing. And then it'll be several more months after that before they could vote on a final USDA decision that lays out how a federal milk marketing order would operate in the state. A two-thirds majority of California producers is needed to implement the order.

California dairy farmers seek to join the federal order because they say the existing state milk pricing system underpays them, specifically on milk used to manufacture cheese, compared to prices paid under the federal order.

The next five to six months are expected to be consumed by procedural matters: USDA completing the hearing transcript and making that available; interested parties filing suggested corrections to the transcript; and hearing participants filing post-hearing briefs, including any replies to those briefs. USDA will then use the entire hearing record to make a recommended decision.

Considering the volume of information presented during the hearing, with 149 testimonies and 194 exhibits entered into the record, hearing observers say they expect it will take USDA six months or longer to issue an initial decision.

"We would love to see a final decision announced by the end of 2016, but I think that's an ambitious goal," said Rob Vandenheuvel, general manager of the Milk Producers Council.

Having followed the hearing from beginning to end and testified as a witness, Vandenheuvel described the process as "all fairly predictable." That is, California dairy farmers and their advocates testified in support of the proposal by the state's three large dairy cooperatives—California Dairies Inc., Dairy Farmers of America and Land O'Lakes—while processors sided with the proposal by the Dairy Institute of California.

"The common word was that (producers) wanted to be on a level playing field with the rest of the country. From there, they all had their unique story to tell," Annie AcMoody, director of economic analysis for Western United Dairymen, said of the more than 30 dairy farmers who testified in the hearing.

After several unsuccessful attempts to change the state's milk pricing system to be more in line with the federal order—through hearings with the California Department of Food and Agriculture and proposed legislation—AcMoody said this USDA hearing represented farmers' final effort and "getting it right was really clear on all the parties that participated."

"What came through clearly in the testimony is that we're really at a turning point here," said Lynne McBride, executive director of the California Dairy Campaign. "A lot of lifelong dairy producers are questioning what the future holds in our state, given the lack of profitability. They want to be paid a price that's fair compared to other states, and the adoption of the cooperatives' proposal would do that."

Tulare County dairy farmer Tom Barcellos, who testified during the last week of the hearing, said while he wishes more producers had participated, he felt those who did represented a "good cross-section" of California's dairy sector—from small to large dairies, those with Holstein herds versus Jersey herds, and those who own quota versus those who don't.

Barcellos focused his testimony on the importance of maintaining the current quota system, which the cooperatives' proposal does. Many farmers have said that a California federal order that does not preserve quota—with an estimated value of more than $1 billion—would be a deal-breaker and they would not vote for it.

"It's a substantial amount of money for a lot of people," Barcellos said. "It's the difference between them being profitable and not being profitable."

As a dairy farmer who also operates a processing facility, Fresno-based Producers Dairy, Richard Shehadey said he not only wants to preserve quota but also the current quota exemption given to producer-handlers for a portion of their Class 1 milk that does not have to be part of the California milk pool.

There are four producer-handlers in the state that hold this quota exemption: Producers Dairy, Foster Dairy, Rockview and Hollandia Dairy. They had their own proposal that focused on keeping the quota exemption.

"Since we as producer-handlers had created our own Class 1 sales by having a processing plant and going out and creating the sales—walking the streets, knocking on doors and gaining customers—we felt that our quota should be preserved just like all the other quota should be," Shehadey said.

He testified in support of the cooperatives' proposal with the addition of the producer-handlers' proposal. As a dairy farmer, Shehadey said he has the same concerns as others in the state who don't own a processing facility, including the high cost of feed and the challenge of doing business in California.

Leslie "Bees" Butler, a dairy economist at the University of California, Davis, said he expects USDA will render a decision that allows California to join the federal order—and one that keeps quota intact and probably pooling, although there may be slightly different rules on pooling. He said he also thinks USDA will let producer-handlers keep their quota exemption and possibly allow out-of-state dairies that ship milk to California to continue receiving the current plant-blend price for their milk—the focus of Nevada-based Ponderosa Dairy's proposal.

But Butler said he didn't think processors succeeded in asserting that there are no significant disorderly marketing conditions to warrant promulgation of a federal milk marketing order for California.

"It's hard to prove. And even if you do show it, California is still the odd man out when it comes to milk marketing orders," he said, referring to the nation's biggest dairy state not operating under the federal order while most other states do. "For that reason alone, bringing California into the federal milk marketing order system will make it a more whole system."

The biggest caveat for California producers, he said, is losing local control once they join the federal order. That includes losing the ability to conduct a local hearing to adjust the milk pricing formula in the speedy manner available from CDFA. As the federal order hearing has demonstrated, making any changes under the federal system is a much more drawn-out process, Butler noted.

(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.