By Craig W. Anderson
Feb. 14 may stand as the date when California's dairy industry began to climb out of the milk pricing doldrums: it marks the day the USDA published in the Federal Register a Recommended Decision that a California Federal Milk Marketing Order (FMMO) be established.
"The FMMO is a good idea and will help the California dairy industry," said Hank Van Exel, owner/operator of Lodi's Van Exel Dairy. "It's not a cure-all in its initial form but it's better than the current system."
The marketing area of the recommended order would incorporate all of California.
"It seems to be a viable solution," said Jack Hamm, Lodi dairyman and past SJFB president. "At a recent meeting in Clovis to discuss the order, the USDA did a good job of explaining it. It's more stable and provides better options than we have now with the current system."
The FMMO is a regulation issued by the secretary of agriculture that puts certain requirements on the handling of milk in the area it covers and it requires handlers of milk pay minimum class prices according to how the milk is used. A FMMO mandates that payments for milk be pooled and paid to individual farmers or cooperative associations of farmers on the basis of a uniform or average price.
"I have questions about pooling: Who will oversee it and what's going to happen now?" Van Exel said. "California's dairy industry definitely needs some sort of pricing relief and this proposed FMMO would help achieve that." The provisions include, but are not limited to, dairy product classification, end-product price formulas and the producer-handler definition.
More orderly process
Adoption of the California FMMO would promote more orderly marketing of milk in interstate commerce with classified milk prices reflecting national prices for manufacture products and local prices for fluid milk products, fostering greater equality for California producers and handlers in the markets where they compete. In the new order, handlers would be guaranteed a uniform cost for raw milk and dairy farmers would receive uniform payments for raw milk, regardless of its use.
Small dairy farmers and handlers shouldn't be disproportionately impacted by the transition from California State Order (CSO) to FMMO regulations.
"It's a different way to price milk, more transparent," Hamm said.
Unique market structure
The proposed order would recognize the unique market structure of the California dairy industry through tailored performance-based standards to determine eligibility for pool participation. The proposed order provides for the recognition of producer quota as administered by the CDFA.
California's milk production amounts to more than 20 percent of all U.S. milk production which is currently regulated by a state milk marketing order administered by the CDFA.
Comments on the recommended decision will be accepted for 90 days after official publication in the Federal Register, following an analysis and considering public comments, the USDA will issue a final decision.
This proposed rule provides for the recognition of producer quota as administered by the CDFA. The Agricultural Marketing Services (AMS) intent to request approval by the Office of Management and Budget (OMB) to implement the order.
"This recommended decision finds that a FMMO for California would provide more orderly marketing conditions in the marketing area," said Erin Taylor, acting director, Order Formulation and Enforcement Division. "Therefore, a California FMMO is warranted."
She pointed out that the standard for FMMO promulgation is to "…establish and maintain such orderly marketing conditions…" and this recommended decision holds that the California FMMO meets that standard.
Dairy farmers whose milk is pooled on the order would receive a pro rata share of the pool revenues through the California FMMO uniform blend price. Regulated minimum prices, especially for milk used in cheese manufacturing are likely to be higher than what handlers would pay under the current CDFA plan.
The package of provisions recommended in the decision reflect California marketing conditions while still observing fundamental FMMO principles that have historically helped to maintain orderly marketing conditions.
CDFA to run quota system
"The CDFA will continue to run the quota system in California," Hamm said. "The CDFA also has 60 days to come up with a quota plan. Quotas are definitely the elephant in the room. Beginning in May, dairy farmers will have to really pay attention."
This iteration of the quota program approval determines the California quota program is that it should remain a function of CDFA in whatever way the department feels is appropriate.
Between Feb. 15 and May 15, a comment period will be in place and when it closes the USDA will come up with a final order followed by 60 or 90 days to educate the industry. Ultimately a vote of the dairy industry will take place to approve, or not, the implementation of the FMMO.
If the FMMO is approved there will be a transition period so the process will probably extend into mid-to-late fall before the FMMO will be finalized.
Quota and pooling issues will have to be resolved and the stage may have been set for that when, Hamm said, "The USDA and the CDFA should be commended for working together on this FMMO."
He pointed out that a factor to keep in mind regarding the eventual voting: "Co-ops can vote for all their members and all their milk which makes them very powerful," Hamm said. "The vote on the FMMO can use the co-op's member producers or their milk; in this case it would be two-thirds of producers or two-thirds of total milk."
More good news
Additional good news about the proposed FMMO: record evidence indicates that implementing the proposed California FMMO would not impose a disproportionate burden on small businesses and, said the analysis, "it is expected that the proposed regulatory change will not have a significant impact on California small businesses."
Evidence does indicate, however, that while the program is likely to impose some costs on the regulated parties, those costs would be outweighed by the benefits expected to accrue to the California dairy industry.
And that's a huge industry as the facts remind us according to USDA data: more than 90 percent of California's approximately 41 billion pounds of milk for 2015 was produced in the Northern California region; 1,438 dairies were milking with 1,228 situated in Northern California; the average number of cows per dairy was 1,235 in Northern California.
"I think the California dairy industry won't vote it in," Van Exel said. "However, if it is voted in, we can make it work."