San Joaquin Farm Bureau Federation

By Craig W. Anderson

After decades of wildly fluctuating milk prices, California dairy farmers will finally be able to compete in the nation's dairy market when the state's Federal Milk Marketing Order (FMMO) takes effect in November.

"It's not perfect but the positives outweigh the negatives and the FMMO will put California's dairy on the same playing field as the rest of the U.S.," said Lodi dairyman Jack Hamm. He also said the order would help determine what the right mix is of product that will provide a maximum return to producers.

"Ultimately, the question to be answered is: does the FMMO help dairy farmers more effectively than the current system?" said SJFB Executive Director Bruce Blodgett. "In this case, yes, because with the FMMO they'll be catching a break from the government."
U.S. Rep. David Valadao (R-Hanford) – a dairyman himself – who played an important role in the process, said, "California dairy producers are at a serious disadvantage in comparison to producers throughout the United States. Under the current pricing system, dairies throughout California have closed down."

Dairies closing
According to the USDA, 61 dairies went out of business in the state in 2017, leaving 1,331 still operating. Nationwide, more than 6,900 dairy operations went out of business over the past decade.

Why has the dairy industry had such a tough time of it? In a letter to USDA Secretary Sonny Purdue from the California Dairy Campaign, Milk Producers Council and Western United Dairymen, the group wrote: "During the past three years, margins on California dairy operations have been negative. Current federal safety net programs have failed to protect California Dairy farm families as intended. A clear result of difficult financial situations is that the number of dairies in the state continues to shrink. And not due to consolidation: milk production in California has been declining year-over-year for 33 of the last 37 months."

USDA final decision
The final stage of bringing the benefits of a FMMO was reached when the US Department of Agriculture (USDA) published its final decision in the Federal Register regarding an FMMO that would encompass the entire state.

According to the USDA, California represents more than 18 percent of all U.S. milk production and, until the FMMO takes effect, is regulated by a state milk marketing order administered by the California Department of Food and Agriculture.

The USDA has issued its final decision to establish a federal order for California, which would then join the federal milk marketing order system. The final USDA decision put a referendum among dairy producers in place to determine their support for the proposed FMMO via a mailed ballot and subsequent response from all known eligible dairy producers providing milk to the proposed marketing area.

FMMOs defined
"FMMOs are legal instruments that regulate the sale of milk between dairy farmers and the first buyer," the USDA said in a release. "Where appropriate, the proposed California FMMO adopts the uniform order provision contained in the 10 current FMMOs in the national system."

The provisions include, but aren't limited to, dairy product classification, end product price formulas, and the producer-handler definition. Perhaps most importantly, the order recognizes "the unique market structure of the California dairy industry through tailored, performance-based standards to determine eligibility for pool participation." The FMMO uniquely provides for the recognition of producer quota as administered by the CDFA.

Two-thirds of milk producers and processors voted in favor of the FMMO as proposed by the USDA which will retain California's quota system that will remain under the CDFA's jurisdiction. This was a crucial element that engendered critical support from milk producers and co-operatives.

Quota remains
"I'm glad we got to keep our quota," said SJFB's Raymond Quaresma. "It's a pillar of strength for dairymen. Now our milk will be on the same playing field as the rest of the nation."

The process was stalled for months when the appointment of two administrative law judges by the USDA raised legal questions about using these judges by federal agencies and whether their appointment violated the appointments clause of the Constitution.

Dangerous delay
Because an administrative law judge presided over the federal milk order hearing in 2015, the USDA said the rulemaking process would be vulnerable to legal challenge and would likely be vacated if a court determined administrative law judges were improperly appointed. Rather than risk a legal challenge, U.S. Agriculture Secretary Sonny Perdue appointed Judicial Officer William Jenson to conduct an independent review of the hearing record, which "put to rest any Appointment Clause challenge to this proceeding," Jenson said in his order ratifying the FMMO hearing record and clearing the way for the FMMO process to move forward.

Fundamental questions
The fundamental question California dairy producers had to consider was: given where they were as an industry, and "what we know of the history of the California state order and the history of the federal orders, which system is likely to provide the best opportunity for a prosperous future?" asked Geoffrey Vanden Heuvel, an economic consultant for the Milk Producers Council.

What the FMMO will do
A review of the final USDA document shows the following:
• Adopt federal order Class I, II, III and IV prices in the California Federal Order;
• Quota to remain under CDFA's jurisdiction. USDA authorizes deduction for quota program on producers' milk check;
• Adopt federal order classification of products in Class I, II, III and IV;
• Depooling allowed. Include repooling rules and traditional FMMO shipping percentages;
• Producers receive a blend price with varies depending where milk is shipped. The highest prices being in Southern California and the lower prices being in the Central Valley;
• Use the Federal Order definition which includes a three million pound per month "hard cap" on Class I sales for a producer-handler to be exempt from pooling requirements;
• No transportation allowance. Adopt location pricing to facilitate movement of milk to deficit area;
• Each producer must qualify for the pool by delivery of at least one day's production to a pool plant;
• No fortification allowance; the system of pricing milk solids for Class I products in the federal order system should be adopted in California. This does not change the enhanced fluid milk standards in California.
• Incorporate a producer price differential (PPD) in producer payments. This value varies according to the location of delivery of the milk and may be negative depending on the milk in the pool and the relationship of class prices to the pool blend price.
A new day will be dawning for California's dairy industry in November, a day long in arriving.