San Joaquin Farm Bureau Federation

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By Craig W. Anderson

On  Feb. 17, the United States Department of Agriculture's released a recommended decision that a California Federal Milk Marketing Order (FMMO) be established, which was published in the Federal Register.

"The Big Decision in the dairy industry is the creation of a federal marketing order," said Jack Hamm, Lodi dairy farmer and past SJFB president. "Dairy is trying to become better as an industry and the federal order is the best way to do that."

However, whether or not the plan will prove to be a viable solution acceptable to all in California's dairy industry remains to be seen. "The devil's in the details," said Henry Van de Pol, Escalon dairy farmer. "It's still a work in progress."

He added that the state's dairy industry "cannot continue to be the low-cost leader. This has to be done to level the playing field with the rest of the country."

Lengthy ongoing process

The move to institute a California federal milk marketing order began in 2013 when three major dairy cooperatives – Land O'Lakes, Dairy Farmers of America and California Dairies Inc. - began the process of drafting the order. The goal was to ensure California milk prices would be competitive nationwide.

"It seems to be a viable solution," said Hamm. "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.

"A FMMO for California would provide more orderly marketing conditions in the marketing area," said Erin Taylor, acting director, USDA 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.

However, any new federal order must have one item in place, according to California's dairy farmers: a quota system wherein all Grade A milk in the state would be assessed to fund California's quota program.

The USDA's recommended decision released in February for a federal order that would shift milk-pricing management from the CDFA to the USDA allows California to retain quota as a stand-alone program with the CDFA determining how the funds for quota will be collected, distributed and enforced.

Quota non-negotiable

"Keeping quota in the federal order will be a challenge," said John Vander Schaaf, an Escalon dairy farmer. "We need the money from all milk to be included, not just the pooled milk. It's the political will of dairy farmers that the quota be kept."

Created in 1969, dairy farmers who own quota received additional revenue for their milk – as much as 19.5 cents per pound more on solids-not-fat, or approximately $1.70 per hundredweight over the overbase price. Quota can be purchased, sold or transferred.

In the current state system almost all Grade A milk is pooled and assessed for quota. CDFA sets aside about $12 million to $13 million on a monthly basis from the pool, distributing the money to dairy farmers who own quota.

Initial pool proposal sinks

However, the USDA proposal initially said only Class 1 fluid milk would be mandated for pooling, as it is in other federal orders. Dairy farmers pointed out that with just 13 percent of California's milk used in fluid-milk production, the proposed quota system would collapse due to insufficient milk in the pool to fund quota.

CDFA does right thing

Evidently the CDFA took the dairy farmers strong quota recommendations seriously as, in May, the department said it will sponsor legislation to establish a stand-alone, producer-funded quota program that would function within the federal order. 

The USDA and California milk producers told the CDFA that the dairy industry wanted the quota program in the federal order, which was no surprise as the statewide quota is valued at $1.2 billion and approximately 58 percent of the state's dairy farmers own quota.

How FMMO will be developed

The Legislation ensures that authority lies with the CDFA, that a Producer Review Board will be convened, that the necessary details for a stand-alone program will be developed and that a producer referendum on the board's recommendations will be held.

If the federal order is approved, the CDFA strongly recommended the USDA use the expertise of existing CDFA dairy experts on the Producer Review Board. And that's what happened as the review board has been formed, members appointed and has been charged with developing a recommendation outlining the criteria for a stand-alone, producer-funded quota program. 

"We believe this will lead to a more efficient administration of the program for all parties," CDFA Secretary Karen Ross said in a letter to the USDA.

Pricing in growing market

Annie AcMoody, director of economic analysis for Western United Dairymen said, "A report from Rabobank predicted that global demand for dairy products will rise three percent per year until 2020."

This is good news because, she said, "California's product of milk last year declined by almost 3 percent, while Wisconsin's production rose by 2 percent. If this trend continues, Wisconsin will catch up with No. 1 California in six years."

The California FMMO will help milk products – fluid milk, whey, ice cream, butter and cheese – reach a more balanced marketplace where California will be on a reasonably level playing field with other dairy producing states. That is, after all, the goal for the state and San Joaquin County dairy farmers who, even in another challenging year, produced milk products valued at $372 million, second in the county's Top Ten crops.

Dairy big industry

San Joaquin County dairy farmers contributed to California's status as the top dairy state in the nation, part of a huge dairy juggernaut: 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; and the average number of cows per dairy was 1,235 in Northern California. Forty days of hearings were held regarding the FMMO before the USDA issued its draft recommendations and after final comment the USDA is expected to issue a final proposal in the fall. A two-thirds vote by producers will be needed to put the marketing system into place.

Challenges abound for the industry but the implementation of the California Federal Milk Marketing Order in the future should go a long way toward conquering those challenges.