Producers want cheese makers to pay their fair share into pool
By CAROL RYAN DUMAS
Dairy producers wanting the California Department of Food and Agriculture to raise minimum prices for milk going to cheese makers took a different tack in their argument at a CDFA hearing on Monday.
Agriculture Secretary Karen Ross called the hearing to consider extending emergency price relief on all classes of milk put into effect after a Dec. 21 hearing.
Producers have been largely unsuccessful in petitioning CDFA for the past three years to increase the value of dry whey in the Class 4b pricing formula, contending the 4b price has lagged the Class III price for milk going into cheese vats in federal orders by as much as $2 per hundredweight.
Changes to the dry whey value were outside the scope of Monday's hearing, but producer groups addressed 4b pricing from a different angle, claiming cheese makers are not paying their fair share to California's milk pool.
Processors that use Class 1 (fluid milk), 2 (soft products), 3 (frozen products) and 4a (butter and powder) are all paying 100 percent of the value of the product they process into the pool, which is then shared among producers, said Michael Marsh, CEO of Western United Dairymen.
Cheese processors, however, are not, due to the disconnect between the whey value in California's 4b milk prices and the market value of that whey. The whey value in the state's 4b pricing is capped at 75 cents per hundredweight of milk, yet its current market value is about $2 per hundredweight, he said.
The concept of pooling was created to allow the sharing of revenue so producers shipping to different plants for different uses get the same price for the same commodity. In any given month, some plants pay more into the pool than the blend price producers receive and some pay less, he said.
"By not including a fair whey value in the Class 4b formula, Class 4b plants are not sharing into the pool like other classes are," he said.
The result is that the processors of other dairy products have been heavily subsidizing cheese processors, said Rob Vandenheuvel, manager of Milk Producers Council.
Since January of 2010, the 4b price has averaged $15.05 per hundredweight of milk. The blended pool price has averaged $15.76 per hundredweight. Cheese processors have collectively received more than $410 million from the California pool to pay their producers the blend price, he said.
In contrast, processors of butter and powder have not only paid their producers the blend price but have collectively contributed more than $323 million to the California pool, he said.
Western United, Milk Producers Council, California Dairies Inc., Dairy Farmers of America, Land O'Lakes, and the California Dairy Campaign proposed a temporary 4b price increase of $1.20 per hundredweight of milk, Marsh said.
That would bring California's 4b whey value within 80 percent of the whey value in Class III in federal orders, and would increase California's blend price by 50 cents per hundredweight, he said.
Processors proposed continuing the temporary price increases that resulted from the December hearing for no more than six additional months, said Steve Lyle, CDFA's director of public affairs.
Those increases per hundredweight are: 5 cents for Class 1, 10 cents for Classes 2 and 3, and 30 cents for Classes 4a and 4b.