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CDFA floats change in California milk pricing

In a surprise move, California's Ag Secretary Karen Ross distributed draft legislation to the dairy industry last week that would bring the state's Class 4b milk prices in line with those with Class III in federal orders. The proposal would bring California's milk used for cheese manufacturing within 50 cents per hundredweight of the federal order price.
Carol Ryan Dumas

Capital Press

Published on August 12, 2014 10:55AM

The California Department of Food and Agriculture (CDFA) is proposing significant changes to the state’s milk pricing system in draft legislation sent to dairy groups for consideration last week.

CDFA Secretary Ross expressed the desire to have the legislation introduced and passed through the Legislature before lawmakers recess on Aug. 31, according to industry sources.

Among other things, the proposal would bring 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.

It would also allow that milk to be marketed outside the pool and not subject to regulated minimum prices.

While dairy organizations and CDFA-appointed committees have been working on pricing reform, the draft legislation came as somewhat of a surprise to dairymen, with a narrow window for getting legislation through the Legislature, said Michael Marsh, CEO of Western United Dairymen.

“There wasn’t much notice,” he said.

WUD received an email on Aug. 5 containing the draft legislation and a notice of a meeting the following day as well as a request to submit any suggestions by Aug. 8, he said.

While dairymen have concerns with other portions of the proposal, they are “very pleased the secretary finally realized there’s a problem with 4b pricing,” he said.

Dairymen have repeatedly petitioned Sec. Ross for hearings on the Class 4b price, which they say has lagged the federal Class III price by an average of almost $2 per hundredweight for the past three years.

The secretary has granted some hearings and denied others with little if any pricing relief. Ross has contended the state’s pricing system is antiquated and needs real reform as opposed to stop-gap measures and assembled the Dairy Future Task Force to review the issue.

There’s been a significant disparity in prices, and bringing the price to within 50 cents per hundredweight of the federal order price (as proposed in the legislation) represents a substantial amount of money — hundreds of millions of dollars over time, Marsh said.

The disparity between Class III and 4b pricing in July was $2.91 per hundredweight. The proposed change to the 4b price would have added $2.41 per hundred to producers’ milk check — a lot of money, he said.

The draft proposal is not posted on CDFA’s website, but industry organizations are reporting on the draft legislation discussed at the meeting last week with CDFA Deputy Secretary Jim Houston.

All CDFA will say at this point is that it’s having discussions with the dairy industry in the hopes that something can occur this year, said Steve Lyle, CDFA director of public affairs..

The draft legislation appears to incorporate parts of different efforts offered by producers and processors in joint meetings with CDFA’s Dairy Future Task Force and the Dairy Advisory Council, Marsh said.

The proposal would index California’s Class 4a (milk for butter and powder) and 4b prices to federal order Class IV and III prices, respectively, to be within 50 cents per hundredweight of the federal prices.

The indexing would happen through CDFA administrative hearings and be phased in over a two-year period, according to the Agricultural Council of California, which has not returned Capital Press’ phone calls.

The Dairy Institute of California, which represents processors, also has not returned Capital Press’ phone calls.

The draft legislation would also allow alternative milk marketing agreements outside of the regulated pool for 4a and 4b milk, and would be phased in over a three-year period.

The proposal would allow for 25 percent of that milk to go outside the pool in year one, 50 percent in year two and 100 percent in year three.

The proposal would require producers using alternative agreements to report the terms of the agreement to CDFA so the Department can provide monthly reports (in aggregate) of the total amount of milk sold through AMMAs and the weighted average price.

The changes would require legislation to move forward and would not become active until CDFA approves the indexing of 4a and 4b milk.


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