California Producer Review Board Creates Stand-Alone Quota Program Framework

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 appeared in the MPC newsletter dated July 28 and is used here with permission.

The CDFA has announced the Producer Review Board meeting will be held Wednesday, Aug. 2 beginning at 9:00 a.m. at the Modesto Centre Plaza at the Double Tree Hotel in Modesto, Calif.

 On August 2, 2017, the Producer Review Board (PRB) will hold its next meeting to review the actual language of a Stand-Alone Quota Implementation Plan drafted by CDFA staff. The language, which can be viewed here, for the most part mimics the relevant parts of the current pooling plan and uses words to describe and implement the policy decisions made by the PRB at their May and June meetings. For example, there is a section dedicated to describing how quota would be allocated to new producers. However, the parts of the current pooling plan that describe how new quota is created through an increase in Class 1 sales is not in the new plan. Consequently, there will be no new quota issued and the only quota available for allocation to new entry producers will be quota returned to the pool due to a hardship.

In the proposed Stand-Alone Quota plan, there is no provision for producer-handler exempt quota, thereby implementing the PRB decision that current exempt quota be treated like all other quota that exists. The quota transfer provisions are nearly identical to those in the current pooling plan. Handler reports and obligations are what you would expect using the current pooling plan as a model. The Regional Quota Adjusters (RQA) are in place and identical to the RQA used in the current pooling plan.

The way the draft language handles the computation of the Quota Revenue Assessment is interesting. It establishes that the assessment rate will be adjusted every three months. The rate will be computed by dividing the quota premium paid to producers, net of the RQA, for the most recent three-month period by the pounds of assessable solids-not-fat produced in those three months.

It then sets the initial assessment rate at $0.045 per pound of solids-not-fat (SNF) produced which equates to of 5 $0.3915 per cwt. of 8.7% SNF standardized milk. Current estimates indicate that it would take an assessment of about $0.37 to fund the Stand-Alone Quota program, so CDFA is starting a bit high with the initial assessment. Remember the assessment will change after three months if it proves to be too high. But the language goes on to say: The continuance of the Plan shall be subject to approval by Producer referendum any time the computed rate reaches a new threshold level of $0.0050 per pound of solids not fat above the initial rate. What this means is that if the assessment necessary to fund the Quota Premium reaches $0.05 per pound of SNF (or $0.435 per cwt.) a new referendum will be necessary to continue the program. This provision was never discussed by the PRB and will no doubt be the subject of some discussion on August 2.

Another provision in the language likely to spark discussion is Section 1100 which states: the continuation of this Plan is subject to a producer survey every five years. The survey shall be conducted by an independent party selected by the Producer Review Board. The survey shall evaluate the effectiveness of the Plan, and the desire of producers to continue the operation of the Plan. The results of the review will be provided to the Producer Review Board for their consideration, and recommendation to the Secretary.

Section 1101 states: Substantive, or significant amendments to this Plan require producer referendum to be held in the same manner as the referendum approving this plan.

Section 1103 states: Upon receipt of a petition signed by at least 25 percent of market milk producers regarding the amendment or termination of this Plan, the Secretary shall convene the Producer Review Board to review the merits of the petition and make a recommendation to the Secretary.

If the Secretary finds that the Plan no longer tends to effectuate the purpose intended, termination shall be submitted for referendum in the same manner as provided for its initial approval.

These are significant items which the PRB will be discussing on August 2. CDFA has also invited written comments on the Plan which must be received by 4 p.m. on August 23, 2017. The PRB will meet again on September 12, 2017 to review the public comments and adopt a formal recommendation for the Secretary. These opportunities for input from the public are intended to enable CDFA to meet the public hearing requirements of the law which are required when a major change is being considered. CDFA anticipates that upon approval by the Secretary, the Plan will be mailed to all eligible producers for a referendum vote. The referendum period will remain open for 60 days and is expected to be concluded by early December.

Remember, this Stand-Alone Quota Plan only goes into effect IF California producers adopt a Federal Milk Marketing Order for California.