CA: USDA Announces the Formation of the California Federal Milk Marketing Order: Now the Work Begins

Geoff Vanden Heuvel Director of Regulatory and Economic Affairs Milk Producers Council of California

On June 7, the United States Department of Agriculture made an official announcement that the producer referendum held in April passed. As they had told us when they came out to California to conduct meetings about the proposed order, they did not say by what margin the vote passed, or what the voting participation was. The three major cooperatives operating in California had issued a press release in May after the voting period closed announcing that all three of them had voted yes on behalf of their membership. So, it is likely that the vote in favor was significant.

 

As a practical matter, there is a lot of transition work that needs to be done between now and late October when USDA will be publishing for the first time advanced pricing and pricing factors that will apply to pooled milk processed in California starting on November 1, 2018.

First, USDA needs to get their office up and running in the state. Cary Hunter, the current Market Administrator for the Southwest Order based in Dallas, will be the acting market administrator for the California FMMO. He was one of the team members from USDA that came out in April and conducted producer meetings around the state. He is a very skilled administrator and a very approachable guy and will lead the effort to get the FMMO apparatus up and running in California.

 

On the processor side, the cooperatives will have quite a task evaluating milk movement logistics. Since the early 1980s, the California state order has had in place a producer funded transportation subsidy program to help pay for the hauling of milk to the urban class 1, 2 and 3 handlers. That system expires with the state order and who pays the extra costs of hauling farm milk to the urban plants will be the topic of conversation between our cooperatives and those urban buyers.

Furthermore, because the FMMO calculates the pool prices for milk based on where it is received, cooperatives in particular will have some decisions to make about how to equitably pay their members for their milk. The experience in other FMMO’s is that if producers stick together with their cooperatives, very positive terms can be negotiated to extract the needed extra money to cover the transportation costs out of the market. So, sticking together with our cooperatives is pretty important to get a favorable outcome to this transition.

Also, on the processor side, the FMMO will announce prices for class III (milk for cheese) and class IV (milk used to make butter and powder) that will be higher than the comparable state order prices. But as we have often discussed, the requirement to pay those prices depends on whether or not that milk is pooled and the pooling decision is up to the handler.

Here again it is very important for producers to stick together with their cooperatives to have the best opportunity to get the buyers to pay at least those regulated minimums. When Dr. Novakovic and Dr. Stephenson came out to California in April to share their knowledge with us about the FMMO system, they explained the history of the program. One thing they said that struck me is that the FMMO program is primarily designed to assist the cooperatives in helping producers. You can see that this is true in the primary role that cooperatives must play in giving producers leverage in the marketplace to get a favorable outcome. Having the cooperatives work together has always been important, but it is now critical in making the most of the opportunity the FMMO presents for us.

On a personal note, you may have noticed that my title has changed. After nearly 39 years in the dairy business my wife and I sold the cows in May and retired from dairying. I have always dairied in the Chino Valley and urbanization has taken its toll. The dairy I leased was located next to the Chino Airport and owned by the County of San Bernardino. They sold it back in 2014 for a large truck distribution center. The project has been working its way through the planning process and I was informed a year ago that I would have to get off the property this year.

We have four children who are all married and happily engaged in their own chosen careers, none of whom want to be dairy farmers. So, with no next generation to take over the dairy and facing the prospect of a significant cost in time, energy and money to relocate the dairy out of the Chino Valley, my wife and I decided to sell the cows and relocate to Tulare to live where we have two children and a number of grandchildren.

Fortunately for me, the Board of Milk Producers Council has agreed to hire me to assist General Manager Kevin Abernathy and our members by continuing to provide consulting services on milk pricing and economic issues along with helping our members cope with the myriad water related regulatory challenges facing the industry. Hence my new title and responsibility.

This article is adapted with permission from the June 8 newsletter of the Milk Producers Council.