Federal Milk Marketing Order in California in Effect Nov. 1
September 23, 2018
Questions Arise Regarding Milk Quota
Edited by Patrick Cavanaugh
Dairymen and women throughout California are working hard to provide milk and other dairy products for consumers in California and the world. Because the industry has struggled over the past decade with price swings that have often landed dairies in red, many dairies have gone out of business. Still, other operations relocated to others states where regulations are a fraction of what they are in California.
In June 2018, California dairy producers voted to establish a new Federal Milk Marketing Order (FMMO) for the state. The vote was a paramount step in a long process that would culminate with the new order taking effect on November 1. The order will adopt the same dairy product classification and pricing provisions currently used throughout the FMMO system.
California accounts for more than 18 percent of U.S. milk production and is currently regulated by a state milk marketing order administered by the California Department of Agriculture (CDFA). Once this new FMMO takes effect, more than 80 percent of the U.S. milk supply will fall under the FMMO regulatory framework.
Western United Dairymen is a trade association based in Modesto. Annie AcMoody is the Director of Economic Analysis. She explained that there have been questions from the industry regarding the upcoming FMMO.
Among the often asked question revolves around when the state switches to FMMO in November, what will happen to their quota if a dairy ships milk out of state?
Annie AcMoody: When our California state system goes away to make way for the Federal Milk Marketing Order (FMMO) in November, the Quota Implementation Plan (QIP) will be the language in place to ensure the quota system’s smooth transition into the FMMO system.
When we enter that new world, all market milk received from California producers at a California plant will be assessed for quota. By “received”, the language defines “to convey milk physically into a milk plant where it is utilized within the plant, or stored within such milk plant and transferred to another plant for utilization.” This means that a milk truck driver cannot drive by a plant, wave hello to an operator, and keep on going out of state and still call this milk received in California. Basically, if your California milk leaves the state, you will not be assessed for quota.
But you also will not be paid for it. But, if your milk is 60% quota and only 40% of your milk goes out of state, you will be assessed on 60% of your milk and get paid quota on that same 60%. If your quota covers 100% of your milk and 40% of your milk goes out of state you will be assessed on 60% of your milk and get paid quota on that same 60%. In this instance, one could wonder if it makes much sense to keep your quota.
While it may not make much economic sense to hold on to quota you are not paid for, some reasons may validate that decision (perhaps it is expected milk will be shipped to a California plant in the near future). If you were to decide to hold on to that quota, it is important to keep in mind that “if quota is not made active by shipments of market milk to a California plant or cooperative association or is not transferred within the 60-day period, such quota shall revert to the Department”.
This excerpt from the QIP means that if your quota milk is not paid on for over 60 days, you will lose it, so you better sell it. This is likely going to be an issue if you ship to a proprietary plant and all your milk goes out of state. If you ship milk to a cooperative, there is more flexibility because that coop has the ability to combine quotas assigned to it by its members.
So as long as the quota total within the coop is not larger than the total amount of market milk produced and received in California, then there should be no issue for you as a quota holder.
What is defined as market milk?
Answer: Grade A milk.
If your milk is Grade B, you cannot have quota now and will not be able to under the QIP. You will not be assessed for it either. Currently, only around 3% of the milk in California is Grade B. WUD will keep an eye out on this topic to ensure that percentage does not deviate significantly. As a reassurance, this is not something that could grow from 3% to 50% in a month since fluid milk is not allowed to take in Grade B milk and the three largest coops in the state (CDI, DFA and LOL) committed to not taking in any more Grade B milk after the transition to the FMMO.