California FMMO: Keeping our eyes on the ball

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Staff from the three major California cooperatives – California Dairies Inc., Dairy Farmers of America and Land O’Lakes – continue their work towards finalizing language to be submitted to the U.S. Department of Agriculture (USDA) that would establish a Federal Milk Marketing Order (FMMO) in California. There are 10 FMMOs around the country (a map can be found at: http://goo.gl/DTvyVf), and while there are some things that are the same in all 10 of those Orders (such as the Class II, III and IV prices), there are other things that are unique to each order. While USDA ultimately decides what to include in the final Order language, the three cooperatives are looking closely at those unique aspects of a potential California FMMO as they put together their draft language to be submitted to USDA.

In the meantime, just because there are many details “T.B.D.,” that hasn’t stopped some from analyzing and pontificating about what could possibly be in the final draft, and how that could impact both producers and  processors in California. One such analysis was published by a trio of dairy economists: John Newton from the Univiersity of Illinois, Cameron Thraen from The Ohio State University and Andrew Novakovic from Cornell University. Their full publication can be read at: http://farmdocdaily.illinois.edu/pdf/fdd270314.pdf.

Much of the five-page report was factual in nature, and certainly highlights some of the issues that will be debated at length in a USDA hearing process. However, there was a recurring theme that really caught my attention, and will undoubtedly be repeated many times throughout this process. The report stated, “What’s commonly overlooked in the debate of the milk price divergence are the implications of imposing higher FMMO classified prices on California’s competitive position in the dairy processing sector.”

Let me rephrase: Apparently, the California dairy producers are failing to consider whether California’s cheese manufacturers can survive if they have to pay a price for their milk that is in line with what their out-of-state competition has to pay.

California dairymen face some of the highest feed costs in the country. Our environmental and labor regulations (and their associated costs) are second-to-none. Our taxes are high, our fees are obscene, and every year, the State Legislature seems to find new ways to make doing business in California more difficult. And yet, according to this line of thinking – and this is not the first, nor will it be the last time we see this – one additional major consideration should be how we can provide the lowest cost milk in the country to our manufacturers. Really?!?

Sure, we’re a long ways from U.S. population centers of the East Coast. Wisconsin’s got us beat on that. But we have a pretty optimal geographic advantage in selling to Mexico or our overseas markets to the West. How is it that cheese manufacturers in Washington, Oregon, or Arizona are able to operate in FMMOs, subject to those pricing regulations? What is it about our California manufacturers that make them so vulnerable that they need a huge “State-sponsored discount” on the milk they buy, or else they could be forced to close up shop and move somewhere else? (And of course, what price do we think they would be paying for their milk somewhere else?)

Through all the analysis that we will undoubtedly hear in the months to come, remember this key reality: In order for the California dairy industry to have a sustainable future, our dairymen need to receive a price for their milk that is: (1) profitable; and (2) in reasonable alignment with what our out-of-state competition receives for the comparable milk they produce. California’s Department of Food and Agriculture (CDFA) is capable of facilitating these needs – in fact, they are directed by law to do so. But as we have unfortunately seen, they have been unwilling to make the necessary changes, resulting in this critical effort to develop a California FMMO.

We must never lose sight of these realities.


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