Milk Producers Council
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From The MPC Newsletter
Friday, February 6, 2015

Special Report: California's Cooperatives Submit Official Proposal to Create a California Federal Order
By Rob Vandenheuvel, General Manager

Normally around this time in the month, I would publish a brief article documenting the significant discount in California’s Class 4b price (for milk sold to California cheese plants) compared to the Federal Order Class III price that serves as a benchmark price for milk sold to cheese plants throughout the rest of the country.  In order to keep our readers up to date, I will once again include the information here.  This discount represented more than $450 million to California producers in 2014 alone, and more than $1.66 Billion since January 2010.

The “California Discount” for our
State’s Cheese Manufacturers

 

Jan ‘15

2010-Present

California Class 4b Price

$13.75

$16.24

FMMO Class III Price

$16.18

$18.08

Discount

($2.43)

($1.84)

The California Discount:
More than $1.66 Billion since January 2010.

Fortunately this month, that’s not the end of the story!  Today, it was officially announced by the U.S. Department of Agriculture (USDA) that they have received a proposal from California Dairies Inc., Dairy Farmers of America and Land O’Lakes to begin the process needed to create a Federal Milk Marketing Order in California.  This marks the first time in our history that California’s major cooperatives – who collectively represent more than 75 percent of our State’s milk production – have asked to initiate this process.  This is significant, as the ultimate approval of a Federal Order in California is subject to a referendum vote of dairy farmers (2/3 majority support is needed for approval), and USDA allows cooperatives the option of bloc voting on behalf of their members.  The cooperatives’ support for this process has been the key to getting to this point.

In the coming days/weeks/months, there will undoubtedly be articles – both in this newsletter and other publications around the industry – taking a closer look at how Federal Orders operate in general, how the cooperatives’ specific proposal is similar/different to other Federal Orders around the country, and what the process is going forward.  But in the meantime, here are some of the highlights:

Under the proposed Federal Order language submitted by CDI, DFA and LOL:

bullet

California would have the same pricing formulas/system as all the other Federal Orders for all our classes of milk (no more “California discount”).

bullet

The California quota program would continue as it is today, providing a monthly payment above the blend price to the owners of quota.

bullet

The transportation and fortification subsidy programs – both currently part of the California system – would continue under the proposed California Federal Order.

bullet

All California plants purchasing milk from California grade A dairy producers would be pool plants.  Voluntary depooling of any class of milk will not be permitted. (There will undoubtedly be a lot more discussion in future articles about how pooling works and what this proposal means for producers and processors.)

bullet

All dairy producers throughout California would receive the same blend price (notwithstanding the quota payments received by quota-holders), just as all California producers currently receive the same Overbase price.

There are obviously many more things we could talk about with regard to Federal Milk Marketing Orders, and specifically this proposal from CDI, DFA and LOL.  And in future articles, we will begin to delve more deeply into some of those issues.  But in the meantime, if you’d like to read more, you can find the actual proposal at: http://www.ams.usda.gov/AMSv1.0/CAOrder.  Included in the links on that page are:

  1. A 16-page cover letter, summarizing the proposal.

  2. The 53-page proposal, with the actual regulatory language being proposed.

I would also refer you to a Q&A document published by USDA several months ago with answers to many of the questions about the process: http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5106626.

As noted on USDA’s website, between now and April 10th, they will be accepting any additional proposals regarding a potential Federal Order in California.  They also plan to conduct a series of “public outreach meetings” in early May.  Assuming that USDA does schedule a hearing on this issue, it will be a lengthy process that includes many day or weeks of hearings, and won’t likely conclude until sometime in 2016.  While that feels like a very long time away, producers should none-the-less be very encouraged that this process is underway, and that we will finally have a chance to consider a much-needed alternative to the California state system that may have worked well for many years, but has refused to make the changes needed to provide a fair price for the milk you produce

Producers will never get the $1.66 Billion back we have lost due to the California Discount, but this week marks the first step towards an alternative that can finally put an end to it.  So stay tuned…

 

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