The California Department of Food & Agriculture (CDFA) denied a dairy cooperative request for a hearing to consider raising manufacturing (or “make”) cost allowances on Class 4a milk.
In its petition filed June 17, California Dairies, Inc. asked CDFA Secretary Karen Ross to hold a hearing to consider a proposal to amend the Class 4a pricing formula by increasing the butter and nonfat dry milk manufacturing cost allowances to the weighted average cost for both commodities.
Make allowances are the amount of money that can be deducted from the price of milk paid to dairy farmers to cover dairy product manufacturing costs. According to Rob Vandenheuvel, general manager of California's Milk Producers Council (MPC), the proposal would have decreased the state’s monthly Class 4a price by about 23¢/cwt. With Class 4a making up about 35% of the California overbase price, the proposal would ultimately reduce the overbase price by approximately 8¢/cwt.
Vandenheuvel calls make allowances a “zero sum gain,” complicated by the fact some dairy farmers receive income from the sale of milk, as well as from their investment in manufacturing plants through their cooperative.
Under California's state milk marketing order, Class 4a milk goes into the production of butter and nonfat dry milk powder, comparable to Class IV milk under the federal milk marketing order system.
In denying the petition, CDFA said efforts are already underway to find alternative milk pricing formulas in California.
“The Secretary does not want to impede the ongoing efforts of the California Dairy Future Task Force in developing potential alternative pricing scenarios that address the issues of our state’s antiquated pricing system,” Candace Gates, chief of CDFA’s Dairy Marketing Branch, said in a June 27 letter to Dr. Eric Erba, CDI senior vice president and chief strategy officer.
CDC opposed petition
One group, the California Dairy Campaign (CDC), filed a letter opposing the petition, saying the higher make allowance would add financial hardship to the state's dairy farmers.
“Dairy producers have undergone unprecedented financial hardship in recent years and should not be required to pay higher 4a manufacturing cost allowances given the profitability of that class of milk in the domestic and international market,” said Joe Agusto, CDC president. “Increasing the manufacturing cost allowances in the 4a formula as called for in the petition would significantly increase the differential between the 4a price and the federal order Class IV milk price creating even greater inequity in our state dairy pricing system than already exists.