By CAROL RYAN DUMAS
California's producers and processors have found some middle ground when it comes to the state's pricing of milk used to manufacture cheese.
They have agreed to a process that would ask the California Department of Food and Agriculture for a temporary 46 cent per hundredweight increase in the price of 4b milk and an increase in the cap on the whey value scale from 75 cents per hundredweight of milk to $1 per hundredweight.
Western United Dairymen expects the 4b increase would generate an additional $110 million in California's milk pool.
The development on 4b pricing came last week as the Senate Agriculture Committee held a special hearing on AB 1038, addressing 4b pricing, authored by Assemblyman Richard Pan, D-Sacramento, said Michael Marsh, CEO of Western United Dairymen.
Pan's staff has been negotiating with producers and processors to find middle ground on the contentious issue since his earlier milk-pricing bill, AB 31, stalled in the Assembly Appropriations Committee.
Milk producers contend the whey value in the state's pricing of 4b does not reflect true market value and lags the price in milk for cheese in federal marketing orders. The discrepancy in those values has cost dairy producers an average of about $2 per hundredweight of milk for at least the past two years, Marsh said.
Processors argue market dynamics and regulations are different in California, and a substantial rise in 4b prices would put processors out of business or drive production elsewhere.
With price relief sorely needed, Western United supports the negotiated changes, Marsh said.
California Dairies Inc., the state's largest milk cooperative, also supports the changes.
The outcome is not what CDI originally intended, but it's a positive step forward, said Andrei Mikhalevsky, CDI president and CEO.
Processors actually offered those milk-pricing changes before the Ag Department's last emergency hearing in late May, said Bill Schiek, economist with Dairy Institute of California.
In considering AB 31, which would require the state Ag Department to set the whey value at no less than 80 percent of its value in federal orders, Assembly Ag Committee leaders watered the bill down to legislative intent to establish a dry whey value factor. They also admonished producers and processors to find a compromise and directed Ag Secretary Karen Ross to schedule a hearing on milk pricing.
Processors agreed to Pan's language for a short-term fix and offered the now agreed-upon changes in 4b pricing to Pan's staff, who were negotiating a compromise. Processors had hoped its compromise would allow the industry to be unified in its proposal to Ross, but producers wouldn't accept it, Schiek said.
Instead, processors proposed reinstating the temporary adjustment Ross put in place after a December hearing. Those adjustments increased the pooled price to producers by about 25 cents per hundredweight of milk from Feb 1 to May 31.
Producers proposed adding a temporary $1.25 surcharge to the price of Class 4b, and making no changes to minimum pricing for the other classes.
Ross's decision was to temporarily increase the price of all classes for an average increase of 12.5 cents per hundredweight to the milk pool, half of the previous increase.
"We weren't together, and we got what we got," Schiek said.
The earlier offering from processors is news to Western United and CDI.
"I am unaware of any offer being made. If they made an offer, it never got to me," Marsh said.
That's not the proposal processors took to the hearing, he said.
"This is the first time we've seen this offer presented this way," CDI's Mikhalevsky said.
Now it is up to Ross to determine whether economic circumstances justify a hearing. Feed costs are still high and the milk price is still not covering the cost of production, Marsh said.
"We would think that would easily meet the standard to call a hearing, he said.
And hopefully with producers and processors in agreement, the negotiated changes will be made, he said.
The Senate Ag Committee's passing of AB 1038 last week might also help, as it declares the Legislature's intent to encourage CDFA to hold a hearing to amend its recent emergency price relief decision and a hearing to address changes to the whey scale factor.