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Decision on Calif. milk pricing to come swiftly

California's pricing of milk to manufacture cheese, which has given California dairymen severe heartburn and caused industry infighting for four years, could be on the the verge of a landmark decision by California's Ag Secretary Karen Ross. 
Carol Ryan Dumas

Capital Press

Published on August 14, 2014 8:34AM

California Department of Food and Agriculture Secretary Karen Ross announced Wednesday she will make a decision on a significant change in the state’s pricing of Class 4b milk within 48 hours.

Ross has proposed bringing the regulated minimum price for Class 4b milk going into cheese vats more in line with Class III pricing in federal orders, a move California dairymen have sought for several years.

She will also decide whether to allow that milk to be marketed outside the pool, which will exempt it from the state’s regulated minimum prices.

Following a nearly four-hour meeting with nearly 45 dairymen and processors, Ross said she will decide on the final language of draft legislation she circulated last week and decide whether to introduce it to the state Legislature in an attempt to get it passed before lawmakers recess on Aug. 31, said Michael Marsh, CEO of Western United Dairymen.

Producer and processors brought suggested changes to the draft legislation to Wednesday’s meeting, and Ross did not indicate what changes she might incorporate into the proposal but sounded like she was headed toward introducing something, Marsh said.

Western United was looking for more protection for producers on the de-pooling issue, and processors were intent on the deregulation of milk, he said.

Processors “kind of” agreed to aligning the 4b price to federal orders but wanted it within $1 per hundredweight as opposed to the proposed 50 cents per hundredweight, he said.

The bigger issue turned out to be that processors wanted control over milk marketing and contracts with farmers outside the pool and outside required minimum prices. The original proposal gave that decision to producers, but processors want it to be their decision, which could force producers into agreements, he said.

“That didn’t fly well with farmers. To farmers in the room, it seemed processors wanted to have their cake and eat it, too, and the farmers were on the menu,” he said.

Western United suggested changes to the proposal that would stiffen the legislation so that under no circumstance could a processor force a farmer to enter a contract, he said.

Western United’s other suggested changes included shortening the indexing of 4b and 4a milk prices (as also proposed) to federal order prices from the secretary’s 24 months to 12 months and restricting processors’ utilization of 4b and 4a non-pooled milk to 50 percent as opposed to the phased-in 100 percent in contracts no longer than 12 months.

The organization also suggested that processors, as opposed to producers, be required to report the terms of alternative milk marketing agreements to CDFA for the Department’s intent of providing monthly reports (in aggregate) of the total amount of milk sold through those agreements and the weighted average price. But dairymen want the agreements published in their entirety, with names redacted, for transparency to give producers the opportunity to review those agreements and decide whether they want to enter into such agreements, Marsh said.

In addition, Western United suggested an independent economic analysis of the impacts of de-pooling and indexing manufactured milk to federal orders within 24 months and a producer referendum within 36 months to vote on whether producers want to continue either, he said.

The final suggestion was that the secretary maintain the intent of indexing prices of manufacturing milk to federal orders if federal orders change, as proposed by International Dairy Foods Association. That proposal would set just two classes of milk, one for Class I fluid milk and another class for all other milk. Western United is asking that the secretary maintain the relationship with what Class III and Class IV would have been in the event those classes are combined in a broader category.

The Dairy Institute of California, which represents processors, has not returned phone calls.

Ross took dairymen by surprise last week with the draft legislation after they had petitioned CDFA for four years to bring the 4b price in line with the price of Class III manufacturing milk in federal orders to no avail. Producers have contended the state’s 4b price substantially lags the federal order price, depriving them an average of almost $2 per hundredweight of milk since 2010.

The issue has been a contentious one between milk producers and processors and between producers and Ross.

Processors have contended the situation in California is vastly different than in other areas of the country, noting an oversupply of milk and transportation costs to cheese markets. They have argued that processors in federal orders can opt out of the pool, thus not required to pay the regulated minimum price, and that raising the price of 4b milk would force processors to locate elsewhere.

Producers have contended the state’s pricing mechanism gives cheese makers a hugely discounted milk supply and have pointed out that it would appear processors relocating elsewhere would be willing and able to pay the higher price of milk in other locations.

Ross has maintained that California’s antiquated pricing system needs meaningful reform as opposed to the stop-gap measures resulting from repeated petitions and hearing process.


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