San Joaquin Farm Bureau Federation

By Craig W. Anderson

California's dairy farmers are voting on adopting a Federal Milk Marketing Order (FMMO) and the decision is close to being completed, according to dairy industry experts.

"The process is ongoing and it takes time," said Jack Hamm, Lodi dairyman and SJFB board member. "Currently, the vote for the stand-alone quota program is an ongoing 60-day process that should be completed early in December."

Every dairy entity – producer – gets one vote and, said Hamm, "If the quota doesn't pass it will be the end of the FMMO." However, he said that "most of the people I've spoken to think it will pass."

Step One
The current vote is Step One, he said. "When this vote approves the quota, the process goes back into the USDA's hands and we'll have Step Two, another vote in the spring to approve the FMMO. By June, we'll know the outcome."

This is, he said, the biggest decision in California's dairy industry in "about 50 years. The FMMO is the best way to better the industry. It's a viable solution that's more stable and provides better options than we have now with the current system."

How it works
The FMMO regulation is issued by the secretary of agriculture that places certain requirements on the handling of milk and it requires handlers of milk pay minimum class prices according to how the milk is used. The 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.

If California adopts an FMMO it would "level the playing field so we'd be competitive with the rest of the country," said Henry Van De Pol, Escalon dairy farmer. "California cannot continue to be the low cost leader."

Orderly conditions ahead
According to Erin Taylor, of the USDA Order Formulation and Enforcement Division, "An FMMO for California would provide more orderly marketing conditions" because, she said, "That's what it's supposed to do" and the USDA's decision to formulate a federal order supports the California order meets the conditions.

Quota system or bust
There is, however, one aspect of California's FMMO that the dairy industry has been adamant about: the new order must have a quota system in place wherein all Grade A milk in the state would be assessed to fund the quota program.

In February, the USDA recommended a federal order that would shift milk-pricing management from the California Department of Food and Agriculture to the USDA while allowing California to retain quota as a stand-along program with the CDFA determining how the funds for quota will be collected, distributed and enforced. "Without this, the federal order's dead," Hamm said.

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

In the current California 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.

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 for hundredweight above the overbase price. Quota can be purchased, sold or transferred.

Evidently, the USDA didn't understand the importance of quota to California's dairy farmers as the initial proposal said only Class 1 fluid milk would be used for pooling as it is in other federal orders. California dairy farmers made it known to the USDA 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. "The quota assessment must apply to all Grade A milk because that's the only viable way to have the federal order and maintain the quota program," said Geoff Vanden Heuvel, Milk Producers Council representative.

"The quota ensures there will be enough fluid milk for the state," said John Vander Schaaf. "It is an integral part of the FMMO that's been in the works for at least three years. The California system should have been responsive to dairy's needs but it was not well administered by CDFA. The industry asked for help from the CDFA and received none which led directly to disbanding California's system and installing a federal order."

CDFA does the right thing
Having seen the light, the CDFA sponsored legislation that established a stand-alone, producer-funded quota program that will function within the federal order.

And if there was any doubt about the efficacy of a quota, USDA and California milk producers pointed out that the statewide quota is valued at $1.2 billion and approximately 58 percent of the state's dairy farmers own quota, all of which clarified why the industry must have it as part of the FMMO.

Dairy second in county's Top Ten crops
"The dairy industry's done a good job dealing with regulations in a difficult regulatory climate," Van dePol said. Despite a shaky pricing structure, an unbalanced competitive marketplace, a years-long drought and escalating feed prices contributing to a down year in 2016. Dairy/milk still ranked second among San Joaquin County crops according to the Agricultural Commissioner's annual crop report with a value of $362 million.

Rabobank says upswing is on the way
The California FMMO will aid milk products reach a more balanced marketplace where California will be on a reasonably level playing field with other dairy producing states, which is good because a report from Rabobank predicted that global demand for dairy products will rise 3 percent per year until 2020.

"The dairy industry needed some upheaval to get people pulling together again," Hamm said. "There's been a call for us to go to a federal order for about 20 years. When this is approved, California will have the same system as the rest of the country and we'll be on that level playing field. We won't be giving money away any longer."