During the rulemaking process the USDA Secretary of Agriculture would be provided the authority to determine the procedures for milk de-pooling and subsequent requalification of de-pooled milk and could include provisions to reduce de-pooling incentives if sufficient evidence is provided. Provisions may include limiting the amount of de-pooled milk that may be pooled in following month(s), and multi-month or annual pool participation commitments. Similar provisions limiting the amount of producer milk eligible to participate in the pool designed to discourage de-pooling already exist in several FMMOs (e.g. FMMO 33 limits producer milk to 115% to 120% of the prior month's producer milk receipts see §1033.13 here). Including provisions to reduce de-pooling incentives would help to ensure the integrity of the pool and prevent disorderly marketing conditions.
The Agricultural Act of 2014 permits California to join the FMMO system but the new order must encompass the entire state, and the new order may (not shall) use a quota plan to determine individual producer payments. The Agricultural Marketing Service of USDA would still have to receive a formal petition from California producers and conduct a promulgation hearing to collect evidence about the market and hear testimony on desired provisions. The basic design of a FMMO is the same across all geographic orders, but there are numerous specific variations that are designed to serve the particular characteristics and needs of a marketing area. This would be an extensive and complex process.
In today's post we have presented several of the complex issues with respect to a California FMMO. Challenges with respect to milk pricing, the competitive position of California milk processing facilities under a FMMO, and the financial returns from a revenue sharing pool post quota and de-pooling are only a sample of the issues facing a California FMMO. Questions with respect to the effect of increasing milk prices on milk production, the value of fluid milk refortification, who is eligible to purchase quota, who is eligible to participate in the pool, dairy farmer ability to opt out of the pool through Grade B election, and the process for quota retirement or buyout remain.
The desire for California dairy farmers to join a FMMO comes at a time when members of the U.S. dairy industry, operating under FMMOs outside of California, are raising serious questions about the regulatory burden and market structure efficiency of FMMO provisions and are looking to simplify the pricing structure not make it more complex. Prior to formally requesting a California FMMO dairy farmers in the State should first carefully consider what the future of FMMOs may include. Draft proposals of the Farm Bill and in the USDA's Report of the Dairy Industry Advisory Committee (see here) recommended a review and potential overhaul of FMMO pooling and pricing provisions. If USDA, through a formal hearing process, alters the pricing and pooling provisions post California joining the program then the benefits from adopting a FMMO may not be as anticipated. Then again, one benefit of joining the FMMO program before price and pooling reform is California dairy producers (either through their bloc voting cooperative or individually) would have a voice through the hearing and referendum process to provide evidence and vote on any potential FMMO changes, and could terminate the order if the pricing and pooling changes were not satisfactory.
To support California dairy producers in their effort to consider a FMMO USDA recently released a working document highlighting questions and answers with respect to marketing order provisions and the rule making process see here. If a California FMMO is requested, and as the proposed regulations become known to us, we will provide more information and insight in future farmdoc daily posts.