Changes to California whey value might be a step closer
By CAROL RYAN DUMAS
California dairy groups have petitioned state Department of Food and Agriculture Secretary Karen Ross to hold a hearing to consider implementing industry-negotiated changes to the whey value in the state's pricing of 4b milk used to manufacture cheese.
The changes, which found a consensus among California legislators, dairy producers and cheese processors, would temporarily increase the price of 4b milk by 46 cents per hundredweight and permanently increase the whey scale in the pricing formula from a cap of 75 cents per hundredweight to $1 per hundredweight.
A petition is the only route to implementing the deal struck between legislators, led by Richard Pan, D-Sacramento, and the Dairy Institute of California, which represents processors, said Michael Marsh, CEO of Western United.
The petition was filed July 19 by Western United, California Dairies Inc., Milk Producers Council, and California Dairy Campaign. Ross has 15 days to consider a hearing.
The changes would mean a one-year fix of an additional $110 million revenue for producers that will be paid by cheese processors to California's milk pool, Marsh said.
The deal came together at the July 12 Senate Agriculture Committee hearing on AB 1038, Pan's bill addressing the whey value and dairymen's financial difficulties. After the deal was struck the Committee passed AB 1038, which charges a California Dairy Future Task Force with providing economic materials and proposed structural changes to the state's milk pooling and pricing system.
Without the deal, there would have been a full-blown hearing on pricing issues that would have delayed implementing relief for the state's dairy farmers, Marsh said.
Dairy is the state's No. 1 agricultural commodity, responsible for more than half a million jobs. Yet dairymen have suffered more than $2 billion in losses in the past five years, forcing nearly 400 dairy farms out of business, he said.
Dairymen have laid the blame for losses at the doorstep of cheese processors and CDFA, contending the whey value is disconnected from real markets and is undervalued in the pricing formula.
They have consistently pointed out the wide gap between that value in California's 4b pricing and its value in the pricing of Class III milk, going into cheese vats, in federal milk marketing orders.
The petition argues that since a May 2012 CDFA hearing on the issue, the gap has been an average of $1.66 per hundredweight of milk, reaching $2.36 in December 2012 and $2.11 this June.
By CDFA's data, dairymen have suffered an average negative $2.22 per hundredweight of milk in the state's blend price relative to cost of production since January 2012, the petition states.
Processors have agreed to the negotiated short-term fix but have argued that market dynamics and regulations are different in California than in federal orders, and a substantial rise in 4b prices would put processors out of business or drive production elsewhere.
"Secretary Ross could deny the petition or disallow the changes, but the Legislature might be concerned as to why she refused to implement the deal the legislators had worked so tirelessly to hammer out," Marsh said.
The petition calls for a permanent increase in the whey scale cap and for the increase in the 4b price to be in effect Sept. 1 through Aug. 31, 2014.