Many California dairy farmers have expressed the opinion that the current state milk pricing system has not worked well for them in the recent past, and have said they support the idea of exploring alternatives, specifically whether to switch to a federal milk marketing order.
Last month, the state’s three largest dairy cooperatives submitted a proposal to petition the U.S. Department of Agriculture to consider establishing a federal milk marketing order for California, but farmers continue to have questions about the proposal’s nuts and bolts and what the upcoming process entails.
To help members of the California Farm Bureau Federation Dairy Advisory Committee sort through some of these questions, the committee invited Tom Wegner, director of economics and dairy policy for Land O’Lakes, to its meeting last week to discuss what’s in the proposal. Land O’Lakes, along with California Dairies Inc. and Dairy Farmers of America, drafted the federal order proposal that will be the subject of a public hearing before USDA, expected to occur sometime this fall.
For California dairy farmers, one of the biggest questions about adopting a federal order is whether they would be able to keep the state’s unique quota system intact. Wegner made clear that the cooperatives’ proposal calls for a continuation of the quota program as it operates today, with the only change being that USDA and the California Department of Food and Agriculture would jointly administer the program. He also said the three cooperatives would not support a final proposal that does not include the quota system, valued statewide at $1 billion.
Wegner further noted the cooperatives would not have submitted the proposal if they didn’t believe they could retain some of the features of the current California system that are important to the state’s dairy farmers.
Dave Van Ommering, who represents San Diego County on the committee, said keeping quota and its value in the federal order is critical for producers who currently hold quota, but questions remain about its long-term viability. He asked Wegner about the idea of gradually phasing it out, perhaps during a 10-year period, to avoid rapid and disruptive price adjustments.
"Quota has always been brought up as an issue that we have to eventually get rid of to synchronize with the rest of the federal order," Van Ommering said. "The problem is, how do you value something like that? Because once you mess with it, it changes its value."
Although Wegner stressed that quota is not an issue that the cooperatives will tackle at this time, as it would complicate the federal order process, Van Ommering said he thinks "the quota system is something that has to be dealt with eventually."
"It’s a system that worked OK, but it influences price and it creates confusion as far as the pricing of milk in the state," he said.
As an organic dairy farmer in Sonoma County, Doug Beretta said having a state or federal milk pricing system wouldn’t affect him as much as it would conventional dairy farmers, as he earns a premium above the regulated minimum base price. But he does own quota, and he said one of his biggest concerns is making sure that producers are compensated for its value.
"I think that’s my biggest hold-back: trying to figure out how that quota system fits into the federal marketing order," he said.
Another question is about the federal order hearing process and the length of time it will take before California dairy farmers could vote on a final proposal, said Kurt Hoekstra, a Stanislaus County dairy farmer and chairman of the committee. Two-thirds majority support is needed for approval.
Wegner indicated the process could be as short as 14 months if the federal order is simply being amended—but in this case, it is expected to take 18 to 24 months from the February submission of the petition.
Hoekstra said he thinks it may drag on even longer than that, as there will be alternate proposals being made, all of which must be received by USDA by April 10.
"A bigger concern is, what will (the final proposal) look like once USDA goes through it?" he said. "We see what the co-ops’ proposal looks like now, but that’s not what we’re guaranteed to see when it’s time to vote on it."
Wegner said it is expected there will be changes by USDA to the cooperatives’ proposal, noting that the co-ops would still support a final proposal that stays very close to the original, but would vote it down if the changes are significant.
Case van Steyn, who represents Sacramento County on the CFBF committee, said he expects there will be some modifications to the original proposal, "but I don’t believe they’re going to be extreme, because USDA knows that if they do extreme changes, we’ll vote against it."
Riverside County dairy farmer Brad Scott said while the cooperatives’ proposal "is not a done deal," what’s important is that all three cooperatives are behind this one proposal and the state’s dairy organizations also have come out in support.
"When you have the industry coming together, you see a lot more momentum and support," he said. "Maybe it’s not the right option, but we will find that out later. But at least the industry as a whole is working together and discussing their options, which is positive regardless."
Beretta said another concern about going to a federal order system is the longer turnaround time for making any pricing changes, which could take a year or more compared to the more speedy process of a few months under California’s current system.
But Rob Vandenheuvel, general manager of the Milk Producers Council, who serves as a liaison for the committee, pointed out that under the current state system, "stability is compromised" when the price can change in a matter of 60 days, and that is not positive for dairy farmers or milk buyers, particularly those who want to invest in a dairy or manufacturing infrastructure.
"That’s why investment in manufacturing has occurred in federal-order areas in recent years but not in California, even though our milk prices are so much lower," Vandenheuvel said. "We don’t have the stability to know that those prices will be at that level for a long time, because we have a very quick hearing process. So something that’s supposed to be a benefit actually does some detriment."
USDA has said it plans to hold a series of public outreach meetings in California in May to provide interested parties with background on the federal order hearing process and give those who have submitted proposals the opportunity to explain their intent.
(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)