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Proposed legislation addresses Calif. milk pricing

Published on December 8, 2012 3:01AM

Last changed on January 5, 2013 8:30AM


Capital Press

California dairymen's concerns over milk pricing have led to proposed legislation to increase the value of dry whey in California's 4b pricing formula, which sets minimum prices for milk going into the cheese vat.

Assemblyman Richard Pan, D-Sacramento, introduced a bill, AB 31, Dec. 3 to bring the dry whey value in alignment with the value that is used in most of the country to set minimum prices for milk used to make cheese.

The proposed legislation would require California's dry whey value to be no less than 80 percent of the dry whey value in Class III milk pricing in federal milk marketing orders. California's 4b price has been about $2 per hundredweight lower than the Class III price for the last two years.

Western United Dairymen's Association drafted the bill after its board of directors voted to advance a bill in California's Legislature in October. The organization has repeatedly requested and petitioned the California Department of Food and Agriculture to raise the whey value in the formula to no avail.

The department has maintained the secretary of ag doesn't have the authority to make the modification, so Western United is taking the legislative route to make certain the secretary has that authority, said Michael Marsh, Western United's CEO.

Had the legislation been in effect in November, it would have raised the 4b price $1.32 per hundredweight and added 70 cents per hundredweight to the overbase price, he said.

"That's a pretty significant change," he said.

Had the legislation been in effect in November, it would have raised the 4b price $1.32 per hundredweight and added 70 cents per hundredweight to the overbase price, he said.

"That's a pretty significant change," he said.

Pan's bill also provides that California cheese plants can deduct a dry whey credit for up to 264,480 pounds of milk per month.

That provision addresses the secretary's concerns that raising the whey value would put California's numerous small, farmstead cheese makers out of business, harming processing capacity in the state, Marsh said.

Unlike the state's large cheese plants, small manufacturers don't run whey processing streams to produce higher-value products, such as whey protein concentrate. So they'd be paying a higher price, based on the value of whey, for the small amount of milk they process and not getting the value of the whey, he said.

The dry whey credit was put in the bill to essentially exempt those small cheese makers from the higher milk prices and take that challenging issue off the table, he said..

Chances of the bill passing both the Assembly and Senate are "spectacular," and Marsh thinks it will pass both bodies with a two-thirds majority, he said.

That super majority would make the bill veto-proof and put it into law the day after it passes. And because it was one of the first bills introduced in this legislative session, it will be one of the first heard, he said.

"Processors are not too happy with the bill. Fortunately they're not as good at the Capitol as we are," he said.

Processors are concerned with a bill that takes the issue out of the regulatory arena and puts it in the legislative arena, said Rachel Kaldor, executive director of the Dairy Institute of California, which represents processors.

It takes the expertise of the Ag Department out of the equation, she said.

Processors are concerned over dairymen's struggles with high feed costs, but they are also concerned with a mandated milk price that would make processors uncompetitive, she said.

California's market structure is long on milk production and short on processing capacity. Competition drives prices and comparing the 4b pricing with Class III in federal orders, where markets are short on milk and long on processing, isn't an apples-to-apples comparison, she said.

Dairymen have petitioned the California Ag Department for an increase in the 4b milk price for the last two years "even though we've been awash in milk," she said.

Mandating a higher price will discourage additional processing investment that would strengthen California's dairy industry and help producers, she said.

Processors are also concerned they wouldn't have the option to opt out of the milk pool.

California's processors must pay the minimum price, which goes into a pool to be shared by producers. Milk handlers in federal orders don't have to pay the minimum price if they choose, on a month to month basis, not to participate in the milk pool, she said.

"That lack of option makes it much more challenging. We won't be able to be competitive," she said.

Legislation would be needed to allow processors to opt out of the pooling system, but Western United would be able to block that pretty easily, Marsh said.

The status of the bill on the Assembly's website states the bill may be heard in committee on Jan. 3.


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