California dairy co-ops and milk producers have a lot to evaluate in USDA’s recommended proposal for establishing a federal milk marketing order for the state, which has long operated under a state order.
The biggest difference in the two is that California’s order regulates all milk prices, and all processors must pay those minimum prices established for different utilizations. In federal orders — and the proposed order for California — only Class I, milk for fluid consumption, is regulated and manufacturers of dairy products can choose whether to participate in the pool and pay minimum prices.
Participation in the pool results in a blend price to producers based on minimum prices and utilization. Co-ops and producers wanted mandatory pooling to be a part of the federal order.
A number of things in the co-ops’ original proposal were included in USDA’s proposal, such as product price formulas in line with the rest of the country and the retention of quota value — $1.70 per hundredweight above blend price paid to producers holding quota certificates.
But mandatory pooling was not, and that’s probably the piece that’s going to be the most difficult to work around as far as producer acceptance, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison.
“I think it’s a big deal — this is going to get down to asking if you’re going to have a lot of plants opting out of the pool,” wherein they’re not subject to minimum pricing, he said.
Federal orders are all about an orderly market for Class 1 fluid milk, making sure fluid plants get milk when they need it. They contribute money to the pool, and manufacturing processors draw from that pool when they provide milk.
But California’s Class I utilization is low — “it’s not going to be an issue at all; there’s plenty of milk in California,” he said.
Contributions to the pool are likely to be very small, with a lot of unregulated plants, and that’s the balancing question in producer support, he said.
“Do I think I’m going to be better off with a federal order when a lot of plants are opting out of regulated pricing,” he said.
The push to join the federal order system was to realize more equitable prices compared with the rest of the country, particularly for milk to manufacture cheese.
But the price of milk going to cheese could go down under a federal order if cheese processors opt out of the pool. If it isn’t regulated, it’s not Class III milk – it’s just milk, Stephenson said.
On the other hand, processors will pay what they need to get milk in the door. At the end of the day, cheese plants want to make money and if they pay too little, farms will fail.
Coops and producers are the ones who will vote on a federal order, and the question will be whether they’re better off with the state order they have or with the recommended federal order.
“It’s a complex decision, no doubt about that,” he said.