California Producer Board Begins Quota Decision Making

By Geoff Vanden Heuvel

Editor’s note: The author, a dairyman in Chino, Calif., is a board member and economics consultant for the Milk Producers Council. This piece originally appeared in the MPC newsletter dated June 2 and is used here with permission.

On Tuesday, May 30, 2017 at 9 a.m., 13 members of newly expanded Producer Review Board (PRB) met in Modesto to begin the process of designing a new Stand-Alone Quota Program if California producers vote to join the Federal Milk Marketing Order (FMMO) system.

Prior to the meeting, California Department of Food and Agriculture (CDFA) staff prepared an extensive presentation, which included an overview of the current California system as well as the requirements for transitioning to a Stand-Alone Quota system, where the pricing and pooling of California milk would be the responsibility of the FMMO. You can view those handouts here.

The PRB, as it is now constituted, consists of 15 members, 13 of whom were in attendance. Existing PRB members Wes Bylsma, Craig Gordon, Rodney Kamper, George te Velde and Case Van Steyn were there as well as newly appointed members, Chuck Ahlem, Jarrid Bordessa, Arie De Jong, Fred Douma, Joey Fernandes, Scott Magneson, John Moons and Mike Gallo. Members Ron Koetsier and Ted De Groot were absent. Rodney Kamper who had been chairman was re-elected chairman and George te Velde was elected Vice-chairman.

The first part of the meeting was dedicated to an oral presentation of the materials previously provided as handouts. CDFA staff identified six specific areas where decisions need to be made to construct a Stand-Alone Quota program. By 11 a.m. the group was ready to tackle those issues.

The reason this is described as a Stand-Alone Quota program is that if California enters the FMMO program, then the actual minimum price regulation and the establishment and supervision of the “pool” which will collect and distribute the money generated by the sale of milk that participates in the regulated system, will be done by the federal government, and not the State of California. What the State of California will supervise will be the quota program.

So, what is quota? Essentially, it is the right to a price or money in excess of the price or money due to non-quota milk. In the current system, the money to pay the quota price comes from the “pool” of dollars generated by the sale of virtually all the Grade A milk in California. Because it is taken out of the “pool” before the overbase price is established, the deduction of money to pay the quota price is not visible. For a Stand-Alone Quota Program to work, the money to fund the quota price needs to come from somewhere and the PRB was asked “who should be assessed to fund the quota payment?” This question was debated by the PRB and a motion was made, supported, and ultimately passed that all California produced milk, both Grade A and Grade B, as well as milk produced in California and processed outside of California would be assessed.

The second issue to be decided was how the quota payment should be calculated? Currently, the law requires that the quota price is established as $0.195 per pound of solids-not-fat ($1.70 per cwt.), adjusted by a Regional Quota Adjuster (RQA). Again, there was a robust discussion, particularly about RQAs and whether it was time to change them, but eventually a motion was made, supported, and passed to leave the current RQA deductions in place.

The third issue is how should Producer-Handler Exempt quota be administered in a Stand-Alone Quota Program. Again, there was robust discussion on this issue. There remain four Producer-Handlers in the State of California who have the equivalent of about 700,000 pounds of milk per day of exempt quota. What the exemption means is that these four producers, in their fluid processing plants, do not have to pay the California pool for these pounds of Class 1 sales. The assumption is that the benefit this Exempt Quota gives these four producers is the difference between the price that regular quota earns and the Class 1 price, which is on average higher. There was a motion made and supported to convert the Exempt Quota in the Stand-Alone Program to regular quota, essentially on a one-for-one basis. After significant debate this motion was tabled to be decided later.

The fourth issue concerned how CDFA would obtain the data necessary to run the Stand-Alone Program. The group decided to require handlers to report the information necessary to run the program directly to CDFA.

The fifth issue is how the quota payment should be dispersed. The group decided that CDFA should use a settlement fund approach similar to what is currently used for the whole pool. Handlers who pay dairy farmers will calculate what they deduct from producers in quota assessments, less what those producers are owed for quota payments and then will true it up with the settlement fund, either receiving money or sending money depending on the situation. The quota assessment and the quota payments would show up on the producer’s settlement statements.

The sixth issue is how to fund CDFA program costs to administer the program. The group decided to use existing authority under which the Milk Pooling Branch currently assesses a small per cwt. charge to producers to run the pooling program.

So, the PRB reached a conclusion on five of the six identified issues to come before them. There is a tabled motion regarding the Producer-Handlers Exemption that needs to be resolved. There is also a question about the legality of assessing a state quota fee on milk produced in California but shipped out of state for processing, since that is interstate commerce which a state cannot regulate. There is also a question about the legality of assessing Grade B milk for a Grade A quota program that Grade B milk is ineligible to participate in. So, it is likely that there will be further discussion about what milk gets assessed to fund a Stand-Alone Quota program.

Overall, it was a very productive first meeting of the PRB. The next meeting is June 15, 2017 also in Modesto. It starts at 9 a.m. and is open to the public. Check out the CDFA Dairy Programs website for more information at here.

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