October 24, 2013

4B Cheese Price Adjustment

Rejected by CDFA

By Patrick Cavanaugh

In a decision that has angered California dairymen and women, California Department of Food & Agriculture (CDFA) Secretary Karen Ross on Tuesday rejected the 4b cheese milk price adjustment requested in a petition from dairy producers and the subject of a public hearing on Sept. 12.

“Dairy farmers are furious,” said Michael Marsh, Chief Executive Officer with the Modesto-based Western United Dairymen. “A milk producer was in my office today stating that we have to get rid of CDFA and go to the Federal Marketing Order,” noted Marsh. “And even though there are real problems with the Federal Marketing Order for California, there is more stability with the Federal government that you cannot get with the state government.

Ross' Decision is Sure to Close more California Dairies.
Marsh said he would not be surprised if the milk co-ops in California were already petitioning USDA to consider a Federal Milk Marketing Order for California. “But the Federal Order is not all-around better for California because certain cheese makers are not required to pay the regulated minimum price and instead pay whatever they want.

“Also, the hearing process is quick (about 60 days) in California, but much longer in the Federal Order, which may require more than two years and hundreds of attorneys to prepare for a hearing. It’s good for the cheese makers if they to not have pay a regulated price, and, again, bad for dairy producers,” noted Marsh.

“There needs to be a lot of education for dairy producers before they sign on to the Federal Marketing Order,” Marsh said.

Ross extended the current temporary price relief across all classes of milk. The overall price increase, estimated at about 12.5¢/cwt. set to expire on Dec. 31, 2013, is now extended through June 30, 2014.

“The temporary price relief is not at all helping the milk co-ops," said Marsh. “It just takes the price from the right pocket and puts it into the left pocket. It hurts the coops who want to expand to take advantage of the global marketplace.” 

“The rejection of the adjusted factor in the 4b cheese milk formula is devastating to dairy producers already hurting, with many going out of business,” said Marsh. “And the dairy industry is not happy with cheese makers as they renege on their early agreement,” noted March. “They came to the hearing and said: “What Deal?”

“Early on, all cheese makers were in full support of the changes due to economic conditions affecting the dairy industry," Marsh said. “Apparently some cheese makers were negotiating in good faith and others were not.” 

The requested 4b adjustment was part of AB 1038, authored by Dr. Richard Pan(D-Sacramento). The adjustment was unanimously approved by the Senate Ag Committee on a 3-0 vote, with Chair Cathleen Galliano, (D-Livingston) and her republican colleagues, Tom Berryhill (R-Twain Harte) and Anthony Cannella, (R-Ceres). The committee agreed to move the bill after being informed that a deal had been struck between the cheese makers and dairy producers. The deal was negotiated on behalf of the California dairy families, represented by Pan, and the cheese makers.

The deal was both to adjust the whey factor in the 4b cheese milk formula by raising the cap from 75 cents per hundredweight (CWT) to $1 per CWT, and to provide an additional surcharge on milk going into cheese-making of 46 cents per CWT during the next year. 

According to Marsh, “The value of whey is capped at 75 cents per CWT, which is ridiculous, as we have seen whey values as high as $4 per CWT in other states back when we were getting 25 cents per CWT as our cap.”

"The entire deal was intended to reconnect our cheese price as best we could back to the marketplace," Marsh noted.

“Unfortunately, CDFA Secretary A.G. Kawamura, at the request of California cheese makers in 2007, disconnected the cheese milk price from the marketplace, and we have been struggling ever since to reconnect it. It is unfortunate that Kawamura agreed to transfer wealth from the famers to the cheese makers, especially given everything else that hit California dairy farmers beginning in 2008,” said Marsh.

“Essentially, wwere asking Secretary Ross to fix the blunder that A.G. Kawamura created in favor of the cheese makers,” Marsh said.

“Since the disconnection change, there has been a transfer of very close to $1 billion dollars from the dairy farmers to the cheese makers. It was just another nail in the coffin for so many dairies that have since gone out of business,” said Marsh. “The decision by the secretary is sure to put more dairies out of business,” he added.

“The rejected increase would have added an additional $110 million to the pool of California dairy farmers. At the same time, it would not have cost consumers a penny as it would simply redistribute assets from cheese makers back to the farmers,” said Marsh.

In her decision announcement, Ross said the extension was warranted; however, she remained convinced that continued adjustments to the minimum price would be  inadequate to address the ongoing difficulties in the state’s dairy industry, and the state’s “antiquated state pricing system demands structural reform.” 

“I understand there will be disappointment with this decision in light of the publicity surrounding the perceived agreement between producers and processors during the legislative session,” Ross wrote. “However, the Department was not jointly petitioned by producers and processors – only some producers – and when questioned by the hearing panel, processors responded that there was no agreement.” 

CDFA Secretary Again Sides with the Cheese Industry
Ross said hearing testimony failed to provide justification for the petitioners’ position that price relief be based on the whey factor and the 4b formula. 

“In fact, the testimony supports the Department's position that the manufactured milk pricing formulas need to be changed to equitably return value to producers and recognize that only a few processors are realizing the full value of whey,” Ross said. 

“California’s 1960’s system of regulated milk pricing is outdated and impairs the ability of the dairy industry to meet 21st century challenges and opportunities in national and international markets,” she continued. “These markets have changed dramatically, as have product distribution, costs, and feed and production patterns.

Marsh emphasized, "The only thing that will help the dairy industry right now, would be an increased consumer demand for California milk products. The public should purchase more California milk, ice cream, yogurt, cream cheese, sour cream, cottage cheese, and more. This would help."

More California Ag News

BIG WATER RALLY SCHEDULED FOR JAN. 16! Thousands Needed To Participate In Big Water Rally on Jan. 16  
Solano County 4-H Clubs Win Big at Skills Day When Life Gives you Lemons, Make Lemon Curd! Showmanship winner Tyler Scott of the Wolfskill 4-H Club DIXON--Tyler Scott of the...
California Ag News UC To Help Ranchers UC to Help Ranchers Survive Winter 2013-14 The first agricultural operations to feel the impact of a drought are dryland ranchers, many of whom r...
MONTEREY FARM BUREAU WARNS CPUC ON WATER ISSUES Desalination Plant Could Jeopardize Groundwater Supply California American Water could threaten the ground water supply of the Salinas Valley where u...