California Ag TODAY: CALIFORNIA DAIRY PRODUCERS EXPLORE ALTERNATIVES

Dairy farmers and their representatives say they are moving forward with other efforts to bring more equity to the state's milk pricing system, including joining the federal milk marketing order, after the California Department of Food and Agriculture denied another request to further raise the price of milk used to make cheese.

In a decision announced last week, CDFA extended an overall temporary price increase of 12.5 cents per hundredweight of milk that had been in place since July and was set to expire at the end of the year. The temporary price increase will now continue through June 2014 and apply to all classes of milk, including an increase of 15 cents per cwt. for Class 4b milk, which is used to manufacture cheese.

Producers have long contended that the state's milk pricing system underpays them compared to what dairy farmers in other states earn under the federal milk marketing order. They say the main problem is the undervaluation of whey in the state milk pricing formula. Dairy organizations petitioned the department this summer to raise the 4b price up to 46 cents per cwt. and to change the sliding scale used to determine the whey value.

The groups said they petitioned the hearing thinking the proposed increases were part of a deal negotiated with processors, who later said during the September hearing that there was no agreement.

In a recent letter to dairy stakeholders, CDFA Secretary Karen Ross acknowledged her decision would bring disappointment "in light of the publicity surrounding the perceived agreement between producers and processors during the legislative session." But she said the hearing testimony "failed to provide justification for the petitioners' position that price relief be based solely on the whey factor and the 4b formula," he said.

The CDFA hearing panel recommended keeping the current temporary price increase in place until the end of the year, but Ross said she decided to extend it despite "positive signs in the marketplace" because she felt the country's economic recovery remains fragile and because she wanted to "provide a consistent level of revenue to producers to ensure a stable milk supply."

Kings County dairy farmer Dino Giacomazzi said next year's outlook for producers appears better because feed costs have come down and are expected to drop further due to the anticipated large U.S. corn crop, but he also said he doesn't think corn prices should figure into a discussion about California milk pricing.

"We're here trying to find the fair and correct way to determine milk price to producers in California. Just because our costs are coming down doesn't mean that the CDFA should sit on their hands and do nothing to solve the problem," he said.

Rob Vandenheuvel, general manager of the Milk Producers Council, said the message he got from the secretary's decision is that there's still a need for additional producer revenue, even though the department chose not to apply it "in a way that we felt was appropriate."

"They wanted to apply it across the board for all classes (of milk) and we thought that the problem was isolated to the 4b price," he said.

Ross said she simply couldn’t do what some producers have asked, "because there's not the economic data for the formulas, or there are legislative and administrative hurdles to doing what some people want us to do."

Vandenheuvel said producers have been "exploring alternatives," noting that the state's three dairy cooperatives plan to petition the U.S. Department of Agriculture to replace the current state milk marketing order with a federal order.

Lynne McBride, executive director of California Dairy Campaign, said joining the federal order is now "the only viable way to bring our state dairy producer prices in line with prices paid across the country."

But not all producers believe joining the federal order is the panacea for their current problems.

Michael Marsh, CEO of Western United Dairymen, said one concern about going this route is the risk of losing the state quota system, which he described as a billion-dollar asset for California dairy farmers. The latest CDFA decision, he said, will "continue to foster momentum towards just finding something other than CDFA."

Marsh said his organization will now go back to the state Legislature to ask for guidance, because some of its members have been sympathetic to dairy farmers' plight and had testified at the last CDFA hearing about the need for milk pricing reform.

Bill Schiek, an economist for the Dairy Institute of California, which represents the state's processors, said his group respects the secretary's decision and her desire to balance the needs of producers and processors.

"I think she understood that conditions are improving for dairymen. The secretary has been responsive, and processors and cheese makers have been responsive," he said, noting that CDFA had already granted emergency price relief twice this year and has now extended it again.

He also said the institute is "committed to the work" of the California Dairy Future Task Force, a group of producers and processors that Ross formed last year to work on reforming the state milk pricing system.

Ross said work of the task force had been pushed aside earlier this year as dairy groups introduced legislation to try to change how the state determines the whey value.

She said a group of "industry technical experts" is now working on "potential alternative pricing scenarios" that could replace the current formulas, and that the department has contracted economist Dan Sumner, Director, UC Agricultural Issues Center based at the University of California, Davis, to analyze those scenarios. She said CDFA staff is also drafting pricing proposals needed to make the changes, and she expects those proposals by Dec. 15.