Dana Hamilton Coale deputy administrator for the USDA39s dairy programs explains the FMMO hearing process to dairy producers during a series of meetings held throughout California

Dana Hamilton Coale, deputy administrator for the USDA's dairy programs, explains the FMMO hearing process to dairy producers during a series of meetings held throughout California.

California dairymen seek divorce from state order

California milk pricing regulated by state order Three large dairy cooperatives file petition to join federal order Hearings begin Sept. 22 in Clovis, Calif.

After years of trying to encourage the California Department of Food and Agriculture (CDFA) to bring parity to farm milk prices in California, some dairy producers want out of the state milk marketing order.

Three large milk cooperatives representing about 80 percent of the milk produced in California – California Dairies, Inc.; Land O Lakes, Inc.; and, Dairy Farmers of America, Inc. – filed a petition with the U.S. Department of Agriculture earlier this year.

The motion paves the way for lengthy hearings and an even longer process should dairy producers elect to join the federal milk marketing order (FMMO) system.

Additional proposals addressing smaller and specific issues were filed with the USDA by Dairy Institute of California, the California Producer Handlers Association and Ponderosa Dairy.

The hearing process will commence Sept. 22 at 9 a.m. at the Clovis Veterans Memorial District Building, 808 4th Street, Clovis, Calif. Hearings could last more than a month and the decision process could take well over a year.

Hearings are open to the public. Those interested in testifying should notify the USDA upon arrival at the hearing.

Copies of the hearing notice and additional information are available at www.ams.usda.gov/CAOrder.

The formal hearing process is required if California dairy producers want to leave the state order and join the FMMO. Dairy producer meetings took place over the past several years to inform producers about the process.

The FMMO hearing will be overseen by an administrative law judge.

Background

California produces about one-fifth of the nation’s milk. The 2014 Farm Bill allows for a California order that recognizes certain state-specific aspects, including its quota system.

The petition for the FMMO comes after several years of dairymen watching their milk checks trail federal order prices and failed attempts to secure favorable pricing decisions by the CDFA and legislative relief in Sacramento. At the heart of the matter is how the state factors whey into its complicated formula of milk pricing.

The FMMO system has four classes of milk. California has five. At the heart of the matter is how California pays for its Class 4b (cheese) milk versus the federal order Class III price (the same cheese milk).

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In 2014, California dairymen received an average of $19.93 per hundredweight (cwt) for their 4b milk. Dairymen on federal orders averaged $22.34 for their Class III milk, a difference of $2.41 in favor of the federal order price.

According to the Milk Producers Council, a dairy trade association based in southern California, the cumulative effect is about $1.8 billion dollars in lost revenue to California dairy producers since 2010 because of the price difference.

This difference mainly has to do with how whey is factored into state pricing formulas versus how the FMMO assesses the cheese-making component.

Why now?

Rob Vandenheuvel, general manager of the Ontario-based Milk Producers Council (MPC), says California dairy producers fought a long battle with California Secretary of Food and Agriculture Secretary Karen Ross over how she adjusts the various pricing components under the state order. The industry even sued Ross several years ago over how she regulates milk pricing. The industry lost the suit in court.

Between the lawsuit and failed legislative attempts to address how milk is priced in California, Vandenheuvel says the only option remaining for the state’s dairy industry to be profitable is to leave the state system and join the federal order.

With an estimated 1.7 million dairy cows in the state, this a big deal, Vandenheuvel says.

“We greatly appreciate the leadership of the state’s three major dairy cooperatives in submitting their proposal for a California Federal Milk Marketing Order,” said Vandenheuvel in a prepared statement.

News of the upcoming hearings also pleased Frank Mendonsa, a Tulare County dairy producer and chairman of the Modesto, Calif.-based dairy trade association Western United Dairymen.

“As an organization we are excited to finally have these hearings under way and to be able to present our case,” Mendonsa said.

According to Mendonsa, aside from the whey “discount” that California cheese plants receive for milk under the California system, California dairy producers will also ask the USDA to protect the California quota system which the federal marketing order has.

“This is a big deal for California dairymen,” Mendonsa said. “If we’re going to have a federal order in California, they need to include our quota system.”

California quota, which is part of the state’s milk marketing order system established in 1969, is an asset estimated to be worth about $1 billion to California dairymen and accounts for the first $12 million paid from the California pool each month. It effectively provides California dairy producers with about $1.70 per cwt in extra income in milk checks each month.

Quota not negotiable

According to Vandenheuvel, California’s quota system is not open for debate or negotiations: dairymen will not accept a federal order without the current quota system included.

Mendonsa agreed.

According to Vendenheuvel, language written into the 2014 Farm Bill to recognize California’s quota system allows the state to join the FMMO and keep its quota.

For California dairy producers to establish a new federal milk order, a referendum vote must take place. This happens after the USDA issues its decision and the dairy industry knows what the federal order would look like.

For those in a cooperative, the vote will either be by bloc – the cooperative voting for its membership – or allow all individual members to vote separately. The cooperatives can choose which the preferred voting method. There is no “modified bloc vote” under the FMMO, meaning the cooperative votes by bloc, but allows some of its members to vote separately.

Of those participating in a referendum, either two-thirds of the dairy farmers voting, or producers representing two-thirds of the milk that would have been pooled during a designated month, must approve the new federal order in order to join the FMMO. Refer to 7 CFR §§ 900.300-311 for more information.

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