Posted: Thursday, February 07, 2013 12:00 PM
Dairymen: Milk price increase not enough to delay bankruptcies
A 25 cent per hundredweight temporary increase to California's blend price on farm milk isn't enough to keep more producers from going out of business, dairymen contend.
The California Department of Food and Agriculture fell far short last week when it increased Class 1, 2, 3, 4a and 4b prices for a combined total of 25 cents, they say.
Dairymen were asking for a 70 cent to $1 per hundredweight increase.
To say dairymen appreciate the increase would be a little too generous. It was more necessary than appreciated, said Tom Barcellos, president of Western United Dairymen and a Porterville producer.
A few bankruptcies were filed and auctions scheduled immediately following the disappointing announcement of inadequate increases, he said.
"If it was more substantial, it might have delayed those," he said.
It appears there was some inkling of hope that a meaningful increase could have helped some dairies hang on, he said.
The increases will bring producer pay prices up to $16.40 to $16.75 per hundredweight, but prices need to be in the $19 range for people to pay their bills, he said.
"It's just not going to cut it for people who have to pay for all their feed or who don't have favorable contracts," he said.
Favorable feed contracts have not been available for six months, and the price of cheese and butter has been falling for the last month. Western United testified in support of an increase of 80 cents per hundredweight, he said.
Dairymen appreciate the recognition that increased milk prices are warranted, but the increases fall significantly short of what producers hoped for, said Rob Vandenheuvel, manager of California's Milk Producers Council.
Milk Producers Council testified in support of a combined increase of at least $1 per hundredweight in Class 1 (fluid), 2 (soft product), 3 (frozen) product, and 4b (cheese) and leaving the Class 4a (butter and powder) formula unchanged.
Class 4a processing plants are almost exclusively owned by dairy farmers through their cooperatives. Increases to that price would not represent additional revenue for farmers, he said.
Dairymen have been pushing for a substantial change in Class 4b, milk used to manufacture cheese, calling on California Ag Secretary Karen Ross to increase the dry whey value in that formula for three years, he said.
California's 4b price has lagged the Class III price in federal orders by an average of almost $2 per hundredweight for the last two years, he said.
California's dairymen have lost $700 million in what Vandenheuvel calls "state-sponsored discounted" milk, he said.
It's easy to be disappointed, but the important thing is what the industry has learned from its attempts to get relief from the Ag Department, he said
"It's a pretty clear indication, between the last couple of hearings and our (unsuccessful) lawsuit, the secretary is not going to fix anything," he said.
Changes will have to come through legislation or by forming a federal milk marketing order, he said.
Western United likewise sees little hope of change in the Ag Department's pricing formulas, and drafted a bill to bring the 4b dry whey value into alignment with federal orders, which was introduced by Assemblyman Richard Pan of Sacramento in December.
The Ag Department's small, temporary increase will bring on a big push for a federal order in California, but passage of Pan's bill could fill the gap while the industry educates producers on the need for a federal order, Barcellos said.
The temporary price increases are in effect Feb. 1 through May 31 and are the outcome of a Dec. 21 hearing called by Ross.
The increases by class are: approximately 5 cents per hundredweight for Class 1; approximately 10 cents per hundredweight for Class 2 and 3; and approximately 30 cents per hundredweight for Class 4a and 4b.