Milk Producers Council
  "Serving the Dairy Industry for more than 60 Years"

 

 

From The MPC Newsletter
Friday, October 25, 2013

CDFA Announces Results from September 12th Milk Pricing Hearing
By Rob Vandenheuvel, General Manager

This week, the California Department of Food and Agriculture (CDFA) announced the results from a September 12, 2013 hearing on changes to California minimum prices for milk.  CDFA Secretary Karen Ross decided to extend a temporary price increase on all five classes of milk through June 2014 (those increases were set to expire on December 31, 2013).

Before going into the announced decision and industry reaction, let me remind our readers how we got here.

Background 2010 - Present

For several years, dairy farmers have pleaded with CDFA to make fundamental changes to the way the California Class 4b price is calculated (this is for milk sold to California’s cheese manufacturers). 

bullet

The reason is very simple: California’s Class 4b price – which makes up about 45% of the Overbase price paid to California’s dairy families – has lagged significantly below the Federal Order Class III price (the benchmark price for milk sold to cheese manufacturers around the country). 

bullet

While the Class 4b price has been at a slight discount to the Federal Order Class III price for many years ($0.45/cwt from 2003-2009), that discount has exploded since 2010 ($1.70/cwt since 2010).  This is only the case for milk sold to cheese manufacturers.  The prices for the other four classes of milk have remained in a much closer relationship with their comparable Federal Order price.

bullet

The real-dollar value of this discount in Class 4b has reached more than $1 Billion.  Yeah, that’s Billion with a “B”.

While CDFA has made changes to the Class 4b formula on a couple different occasions in the past three years, they have been far too small, relative to the discount, which still continues ($1.91/cwt in 2012 and $1.66/cwt in 2013-to-date).  With the new high-feed-cost paradigm our state’s dairy families now face, we simply cannot afford to continue this state-sponsored discount.

2012

What’s at stake is the financial future of the California dairy farming sector.  For many families around the State, this discount has been/is the difference between financial success and failure.  To that end, dairy farmers have tried to think outside-the-box in how to fix the problem.  In addition to numerous administrative hearings (with a fully unified dairy farmer position), we’ve seen protests, rallies and even asking the courts to intervene and define the Secretary’s discretion.

2013

Last year, dairy farmers took the issue to the California Legislature, hoping they would step in and provide the leadership we have not seen from CDFA.  After all, CDFA’s authority is based solely on the Legislature’s decision to given them that authority many years ago.

bullet

The position of the dairy farmers was fairly straight-forward: Continue to allow CDFA to establish prices, but create some parameters they must follow in order to make sure our prices more closely track the comparable prices paid for the same quality of milk sold around the country.

bullet

Obviously, the processor sector lobbied hard against this effort.  After several months of intense lobbying on both sides, it became clear that a long-term solution was not achievable this year.  The decision was made to seek a more modest “compromise” that both sides could agree to while the industry continued to work on a more substantive long-term solution.

July 8, 2013

That led to an offer made by the Dairy Institute of California (DIC) – on behalf of the State’s cheese manufacturers – on what they would accept as part of a CDFA hearing process.  We’ve posted this link before, but if you missed it, the DIC’s letter July 8th can be found at: http://goo.gl/CbHgx7.

bullet

The offer would have increased the Class 4b price by approximately $.65-.70/cwt. While this was significantly less than what dairy farmers were seeking (remember, the gap between Class 4b and Federal Order Class III was $1.91/cwt last year), it none-the-less represented much-needed additional revenue for the dairymen in the short term while a longer-term solution was worked on.

bullet

While Assemblyman Richard Pan (D-Lodi) was central to negotiating this agreement, it also had the blessing of several members of the Assembly and Senate Agriculture Committees who had been closely involved in this process.

July 22, 2013

Two weeks after receiving the DIC’s offer letter, a CDFA hearing was requested by dairy farmer organizations in order to implement this agreement.  The DIC was given an opportunity to co-sign the petition, but declined to do so.

September 12, 2013

CDFA held their hearing on the matter on September 12th.  True to their word, dairy farmer organizations testified in support of the agreed-upon proposal (despite several years of advocating for a much larger adjustment).  Seven members of the Assembly and State Senate also testified in support of the negotiated proposal, which they had overseen.  The DIC and their processor members, on the other hand, chose to change their tune and oppose the proposal.  That’s right, they opposed the very same proposal that THEY had put into writing on July 8th!  In fact, the DIC went a step further and had their legal counsel testify that the price was already over-inflated as it is (claiming that there should be zero value in the formula associated with the dry whey markets).

October 22, 2013

This week, the process reached its conclusion, as CDFA announced they would not be accepting the negotiated agreement, but would rather be continuing a much more modest temporary price increase on all five classes.  The net impact of the Secretary’s decision is a six-month increase of approximately $.125/cwt on the Overbase price – about 40% of what the impact would have been under the negotiated agreement.

So that lays it out for you.  Obviously, California dairy families have gotten used to being disappointed by CDFA decisions.  What we have not gotten used to – nor should we have to – is negotiating a deal with a supposed industry “partner” and later watching them deny they ever made a deal in the first place (even though it was in WRITING). 

So what does the DIC have to say for themselves?  They put out a press release this week in response to the hearing decision by Secretary Ross (http://goo.gl/PzOnUh).  “The DIC, which represents California cheese makers, says it respects today’s decision by CDFA not to increase the temporary milk price relief already in place for dairy farmers, but simply to extend it through June 2014.”  The release goes on to state that “Secretary Ross was guided by the facts and we respect her decision.”  Which facts would those be?  The fact that you backed away from an agreement you had made in writing?

Then, in some sort of cruel joke to a California dairy farming sector that has seen weekly dispersal sales and  dairy closures, the press release attempts to paint a rosy picture of the industry.  “The data shows very clearly that economic conditions for dairy farmers have improved substantially since last year. In addition to significantly lower feed costs, dairy farmers are also benefiting substantially from an increased demand for cheese and other products. As a result, they’ve already collected $508 million more from processors during the first nine months of this year compared to the same period last year.”

The press release also addresses the premiums being paid above the minimum prices by manufacturers.  “While producer groups have been demanding more from CDFA, dairy processors have been paying farmers millions more in premiums.  We’ve acted in good faith and honored our promise of support.”  When the DIC is done patting themselves on the back, maybe they want to check out this chart, created BY CDFA, and publish IN CDFA’s hearing panel report.  CDFA’s own numbers show that dairy farmers have seen a profitable price in only one of the past six quarters (2nd quarter of 2013 isn’t shown on here, but it also represented a losing quarter)

So where do we go from here.  Well, a couple of thoughts:

 

For starters, the DIC has lost a lot of credibility in this process.  As they so often like to state, we are partners in this industry.  But after watching this stunt unfold, how can we really sit down and work in good faith towards a long-term solution?

But secondly, and more importantly, while it would be nice to put all the blame on the DIC (and they certainly have earned it), at its core this is a CDFA problem.  Years ago, the Legislature mandated that CDFA get involved in establishing milk prices in order to “Enable the dairy industry, with the aid of the state, to develop and maintain satisfactory marketing conditions, bring about and maintain a reasonable amount of stability and prosperity in the production of market milk, and provide means for carrying on essential educational activities” (Section 61805 of the California Food and Agricultural Code, emphasis added). 

Obviously, given the current financial state of the California dairy families (as evidenced in CDFA’s own data, as well as the barrage of bank foreclosures and dispersal sales), there is ample evidence that CDFA has failed in their task to “bring about and maintain a reasonable amount of stability and prosperity in the production of market milk.”  If this were a national crisis, we might understand.  But the rest of the country is not feeling the same pain that California’s dairy farmers are.  How is it that the California dairy industry – in the middle of 38+ million California residents and an even larger market overseas to the West – is the home of the lowest priced milk in the country?  Why are our dairies are being enticed to move to Colorado, Idaho, South Dakota, Kansas and other more rural areas?  Does no one at CDFA recognize the ridiculousness of a policy that results in California being the low-cost-leader for milk?  Everything is more expensive in California…except the milk purchased by our manufacturers.  Amazing.

The three major California cooperatives are working on a petition to submit to the U.S. Department of Agriculture that would create a Federal Milk Marketing Order in California.  This would remove CDFA from the position of establishing monthly minimum prices.  The process takes time and there are still issues that need to be dealt with, but they all have solutions.  MPC looks forward to working with these cooperatives in the coming months as this process continues.  We simply cannot continue repeating history; change must occur.

 

Send mail to office@milkproducers.org with questions or comments about this web site.
Copyright © 2007 Milk Producers Council