CDFA, USDA costs of milk production differ widely
By CAROL RYAN DUMAS
There's no denying that California dairymen had a tough time in 2012, but how tough differs greatly when calculating losses using milk production costs from two different government agencies.
California dairymen lost a staggering $882 million using numbers from California Department of Food and Agriculture but an incapacitating $2.7 billion using estimates from USDA's Economic Research Service.
That's a spread of a little over $1.8 billion.
The reality is somewhere in between but closer to CDFA numbers, said Tom Barcellos, a Porterville dairyman and president of Western United Dairymen.
CDFA's negative revenue number of $2.11 per hundredweight of milk sounds about right, while ERS' lost revenue of $6.49 per hundredweight for the whole year is a stretch, he said.
"People wouldn't survive with that kind of loss," he said.
Fellow dairyman and Western United past president Ray Souza of Turlock said he has more confidence in CDFA's numbers.
CDFA is closer to home, does on-farm audits and looks at the books. USDA relies more on surveys, he said.
Barcellos agrees, saying CDFA sits down with dairymen and looks at their records. ERS numbers are based on someone filling out a form.
ERS estimates were based on the 77 California farmers interviewed in the 2010 Agricultural Resource Management Survey for dairies and are weighted to represent the state's milk producers, said Bill McBride, an ag economist with ERS.
"This is usually a major reason why our numbers differ from those of other sources that are based on only a few farms," he said.
CDFA's estimates are based on quarterly audits, and the agency collected cost studies from 147 dairies of different sizes and different geographic locations in 2012. The samples are weighted based on milk production by area, said Mike Francesconi, supervising auditor with CDFA's Dairy Branch.
CDFA collects actual costs. The agency's estimates are made strictly on an accrual accounting basis whereas ERS estimates are based on an economic mode, he said.
Another difference is ERS estimates include the opportunity cost of unpaid labor (owners and family members), capital recovery of machinery and equipment and the opportunity cost of land (rental rates). CDFA estimates do not.
CDFA estimates the average total cost to produce milk in California in 2012 was $19.03 per hundredweight. ERS estimates that cost at $25.50.
One stark difference in the agencies' costs data is the feed cost. CDFA's value for total feed costs is $11.48 per hundredweight of milk, and ERS' is $17.45.
The ERS cost estimates include feed costs for all dairy animals, including milk cows, dry cows, replacement heifers, and bulls, McBride said.
CDFA's estimates include only feed for cows, Francesconi said.
In addition, ERS' feed cost was based on 2010 feed costs and adjusted for rising prices, but it's possible some operations would substitute cheaper feeds as feed costs increased, McBride said.
That's a certainty, Barcellos said. Anyone still in business changed their rations.