As with divorce, California’s attempted dissolution from its state milk marketing order is a lengthier process than first envisioned.
In 2015, California milk producers petitioned the U.S. Department of Agriculture through their cooperatives – Land O’Lakes, Dairy Farmers of America and California Dairies, Inc. – for permission to join the Federal Milk Marketing Order (FMMO) and thus leave the state-run system that governs how milk is priced.
Other proposals were presented at the same time by milk processors through the California Dairy Institute; the California Producer Handlers Association, an organization that represents four vertically-integrated dairy farms; and by Ponderosa Dairy, a Nevada-based dairy operation that ships milk into California.
In early February, the USDA published its FMMO proposal in the Federal Register, which opens another public comment process that runs until May 15.
According to Western United Dairymen, a voluntary dairy trade association representing California milk producers, some of what dairy producers sought in their formal request of USDA was tentatively agreed to by the agency. In other areas, the USDA’s proposed decision more closely mirrors the proposal put forth by the Dairy Institute of California.
The reason behind the desire by California dairymen to exit the state system stems from the lower price dairy California dairy producers receive under the state’s milk marketing order. California milk prices are set by the California Department of Food and Agriculture (CDFA).
The difference – the price between the state and federal orders – has been as high as about $2.50 per hundredweight in favor of the federal orders. Since 2010 the difference has cost California milk producers nearly $2 billion in lost revenue opportunities, according to the Milk Producers Council, a dairy trade association based in southern California.
Dairy industry experts say the difference can be attributed to how whey is factored between the federal and California formulas.
Perhaps the most important issue for California producers under the FMMO will be how California quota is handled. This is a higher price paid to California milk producers and is a commodity unto itself that can be traded for a price.
Dairymen said at the outset of the hearings, which ran for about two months in Clovis, Calif. in late 2015, that the quota system would need to remain unchanged if they were going to support any USDA proposal.
While the USDA proposal keeps the California quota system, it leaves it up to the CDFA to administer and determine all relevant details of the program. This has led to questions by dairy producer groups and others as to how this could play out.
Though quota is kept in the FMMO, Annie AcMoody, director of economic analysis for Western United Dairymen, says there are a number of questions as to how it could be administered by CDFA and, as such, is not “cut and dry.”
One of the contentions is the USDA decision to allow CDFA to deduct producer payments to manage the program. Another confusing part stems from the possibility that the CDFA may need legislative approval to manage a program that it currently already manages.
Another California-only provision in the proposed order stems from the state’s fluid milk fortification standard, which provides for higher milkfat requirement and supplements fluid milk with non-fat solids, to reach regulated total milk solids content. The USDA proposal elects to keep the California standard but provides no fortification allowances.
Federal orders have no such fortification requirement.
Rachel Kaldor, executive director of the Dairy Institute of California, likes the current USDA proposal as it aligns with recommendations the organization put forth as part of its proposal, which she says in a prepared statement is “consistent with the 10 other FMMO’s currently in operation in the United States.”
While producers sought a mandatory pooling provision in the California FMMO, the USDA recommends instead that pooling rules similar to the Upper Midwest and Southwest be implemented.
According to Kaldor, California dairy farmers asked the USDA for a unique FMMO to compel California milk processors to be fully regulated. The USDA proposal currently does not allow for that. Instead, the USDA says processors in FMMO’s choose to participate in pooling and pricing regulations and that out of Class 1 (fluid) utilization, such participation is not mandatory.
The recent proposal in the Federal Register is just that – a proposal. It comes after the public hearings in 2015 and months of follow-up submissions from the various interests as part of the public comment process.
From the testimony given at those public hearings and later responses by interested parties, the USDA came up with its proposal which now is in its own response period, meaning that interested parties can submit written exceptions to the proposed rule.
Written exceptions to the current proposed rule must be submitted before May 15.
Once this step is complete, the USDA will issue its final proposal at which time milk producers can vote up or down on the proposal. These votes can happen individually or by block vote, meaning the cooperatives vote on behalf of their members. There is no provision for producers to vote separately from their cooperatives if the cooperatives are also voting.
Comments on the current proposal should be submitted at the Federal eRulemaking portal: http://www.regulations.gov. Comments may also be filed with the Hearing Clerk, U.S. Department of Agriculture, Room 1031–S, Washington, DC 20250–9200, or send a fax to (202) 720–9976. All comments should reference the docket number and the date and page number of this issue of the Federal Register.