Vandenheuvel Justifies FMMO in California

By Charmayne Hefley, Associate Editor

This Federal Milk Marketing Order (FMMO) hearing in Clovis, now in its seventh week, still has more ground to cover before it wraps up. Rob Vandenheuvel, general manager of the Milk Producers Council (MPC), reflected on the current California Marketing Order, “We’ve been operating under a separate system for many, many years. And while that may have worked for a good chunk of that time, in recent years, we’ve seen that the California system has not kept up with prices paid for milk in other parts of the country. So we’re trying to get on an even playing field.”

Vandenheuvel said resistance to the FMMO has come mainly from those who currently purchase California milk. “They’re not interested in a system that would require them to pay more for their milk,” he said. “They’ve had a pretty good deal in California, so they’re trying to protect it.”

He said some minor resistance comes from non-California dairymen concerned their prices could decrease should California join the FMMO. “There was talk earlier in this hearing that if dairy farmers in California were put on an even playing field and had more money paid for their milk, would they increase production? What impact might that have on the overall market?”

“When you look at California and the competition for land from pistachios and almonds,” Vandenheuvel said, “dairy is not the only agricultural interest here. So competition for land and competition for water are really going to put a lid on future growth—no matter what the dairymen get paid.”

Significant Losses

Vandenheuvel said the state’s current system has caused a significant profit loss for dairymen in California. “Our milk going to cheese plants is the largest class of milk sold in the state, but it’s still 45 percent of the total milk production. So, the state cheese price is less than the Federal price on that 45 percent of milk. The difference is a shortfall of nearly $2 billion since 2010 for the California producer.”

Vandenheuvel said when all dairies in the United States slumped in 2009, those outside of California were better able to recover under the FMMO than those inside under the CSMO. “When you look at the peaks and valleys that the dairy industry has gone through, we’ve had years like 2009, which was the worst ever,” Vandenheuvel said, “and 2012 was probably the second worst ever due to high feed costs. Most of the rest of the country recovered in the months and years following 2009 and then again 2012.

“California is still reeling. If we had sold off assets, we really haven’t recovered to where we were before 2009. So that $2 billion divided by the 2,000 dairymen that existed at that time in California was the difference between catching up and netting a profit. But actually happened, is that the industry has never recovered the losses, even after a few good years,” he noted.

Out-of-State Dairies Object to Federal Order

Vandenheuvel said that many California dairymen are looking to become part of the FMMO to get on a level playing field with the rest of the country’s milk producers. “If you buy into the theory that California dairymen got a fair price for milk will increase milk production and that would have a negative impact on the rest of the country,” Vandenheuvel said. “The best thing to happen to the rest of the country would be for California to go completely broke and shut down our entire dairy industry because they would be better off because we’d have twenty percent less milk in the whole country. That’s why I don’t think that those concerns are really strong. This hearing is more about the sellers of milk getting a fair shake and the buyers of milk not wanting to pay that fair shake.”

Vandenheuvel said that the way the dairy industry works—with milk spoiling each day—the government had to get involved in order to prevent buyers from refusing to buy one dairy’s milk and significantly devaluing the price of milk. “Cows don’t produce Monday through Friday only; there is no on or off spigot,” Vandenheuvel said. “So when you have a product that is being produced and piled up every day and has to be sold every day to a group of buyers who don’t have to buy every day –and they don’t have to buy from you—you’re at a huge disadvantage negotiating a fair price for that product.

“Imagine going to a car dealership where they had to sell a certain amount of cars that day or the vehicles would literally spoil, go bad and be worthless,” he noted. “You would have a great position to buy a car. That’s where we are, and that’s why the government got involved, said milk is important and we know dairymen are at a disadvantage. So we’re going to play referee between the two parties. Our problem in California is that that referee has been much more on the side of the processors keeping a low price in California.”

Two Main Proposals

Vandenheuvel said that two major proposals have been submitted to the USDA—one from the dairy-farmer-owned cooperatives and the other from the manufacturers. He said the USDA would decide upon the final proposal that will be voted on by producers.

“Manufacturers do not vote on Federal orders,” Vandenheuvel said, “It’s a producer vote. So it really comes down to the USDA. We think we’ve put together—as a producer coalition—a very sound, comprehensive approach of going to a FMMO while still respecting some of California’s issues—like our quota program; our transportation program.”

Vandenheuvel explained that it was very difficult to get the USDA to hold a hearing on the Milk Marketing Order. “We had to basically exhaust every alternative option in the state system,” he noted. “We tried a dozen hearings over the last ten years. We’ve tried legislation in California. We’ve tried suing the Secretary of Agriculture in California. We’ve tried protests and rallies on the steps of the capitol in front of CDFA, and at the end of the day last year our milk prices, compared to the rest of the country, had a bigger gap than we’ve seen in the last ten years.”

Vandenheuvel said the CDFA could have easily addressed many of the issues that caused milk producers to fight for a FMMO. Nevertheless, one issue, the CDFA could not have regulated for producers is interstate commerce. “That’s big for a state like California,” Vandenheuvel said. “We’ve got 35-40 million people here who drink milk and we’ve had situations in the past and currently in which milk is moving into California just to take advantage of the fact that California can’t do anything about it. Only a FMMO can regulate interstate commerce because of the way the constitution is drafted.”

Vandenheuvel said he hopes to see a recommended decision on the order by the middle of next year.