California Dairies, Inc., petitioned the California Department of Food & Agriculture (CDFA), requesting a public hearing to consider adjustments to the state's Class 4a manufacturing (or make) allowance formulas. The petition, filed on June 17, is posted on the CDFA Dairy Marketing & Milk Pooling hearing matrix at http://www.cdfa.ca.gov/dairy/uploader/postings/petitions/
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.
In its petition request, CDI noted manufacturing cost allowances for butter and powder and the butter f.o.b. price adjuster were last changed on Sept. 1, 2011. Manufacturing cost data published by CDFA since then indicates “the trend is toward high costs, and further adjustments to the butter and powder manufacturing costs allowances are both warranted and justified,” CDI senior vice president and chief strategy officer Dr. Eric Erba said in a letter to CDFA Secretary Karen Ross.
CDI, represented on the California Dairy Future Task Force which is examining California's milk pricing and regulatory system, requested the Class 4a adjustment be made even as the task force continues its work toward milk pricing and marketing solutions.
“As the largest butter and milk powder manufacturer in the state, we cannot simply ignore the fact our processing costs are higher than the manufacturing cost allowances in the Class 4a pricing formula might suggest,” Erba wrote. “We also cannot overlook the implications that static manufacturing cost allowances have on all California Class 4a and 4b operations.”
CDI’s proposal amends the Class 4a pricing formula by increasing the butter and nonfat dry milk manufacturing cost allowances to the weighted average cost for both commodities.
CDI cited CDFA’s November 2013 manufacturing cost estimates, indicating the average cost to manufacture butter was 16.88¢/lb., 0.53¢/lb. more than the current butter manufacturing cost allowance. Similarly, the November 2013 estimate showed the cost to produce nonfat dry milk was 19.99¢/lb., 2.36¢/lb. more than the current manufacturing cost allowance for nonfat dry milk.
In addition to task force deliberations, a new round of cost studies is underway, but results are not expected to be published for another five months, CDI said.
“We do not feel we can wait until November to address the shortfalls in the manufacturing cost allowances,” Erba wrote. “We ask that our petition be granted and that a hearing date be chosen as soon as possible.”
CDI is the No. 1 dairy processing cooperative in California. The member-owned milk marketing and processing cooperative is co-owned by 430 California dairy farmers, covering an area from San Diego County in the south to Sacramento County in the north. CDI members produce about 18 billion lbs. of milk annually (43% of California's total), and manufacture fluid milk products, butter and milk powders, with annual sales of more than $3 billion.
While the CDI petition covers Class 4a, Class 4b milk prices remain a sore spot for many California dairy farmers, especially in relationship to prices paid for Class III milk under the federal milk marketing order system. Both classes of milk are used in cheese production.
According to Rob Vandenheuvel, general manager of the California Milk Producers Council, the May 2014 California Class 4b price was $19.34/cwt., $3.03/cwt. less than the comparable federal order Class III price. For the period of 2010 through May 2014, the Class 4b has averaged $15.90/cwt., while the federal order /Class III price averaged $17.61/cwt. a difference -$1.71/cwt.
That difference has been one of the main points of contention in the potential formation of a California order within the federal milk marketing order system.