By now, most of you have probably heard that there were serious efforts by the California Department of Food and Agriculture (CDFA) and members of the California Legislature to craft a California bill that would make changes to the way we regulate our Class 4a/4b milk (which is milk sold to California’s cheese, whey, butter and nonfat dry milk manufacturers). At the end of the day, while a bill was introduced in the California State Senate, it was never considered or voted on, and CDFA announced this week that they were ceasing their efforts to promote it.
Before getting into the details of the proposal, what it might have meant to the industry, and where we go from here, it’s important to briefly go over some of the recent history that led to these developments.
Our biggest issues started in 2007, when then-Secretary A.G. Kawamura modified our Class 4b formula and opened the door to huge potential differences between California’s Class 4b price and the Federal Order Class III price (the benchmark price for milk sold to cheese manufacturers around the country). While we could get into the specific change that was made (which many folks are already well versed in, the “whey factor”), the practical impact was that the gap between our Class 4b price and the Federal Order Class III price, which had been relatively steady for many years at an average of $0.45-$0.55 per cwt, was now able to be significantly higher. And as we in this chart here, that’s exactly what happened, starting in 2010 and continuing to this day.
Over the course of the next five years, producers and their organizations/cooperatives tried many different efforts to bring that gap back to the previous levels. Those included numerous hearing requests, legal action, protests/rallies, and an attempt at legislation in 2013 (and of course, a monthly accounting of the real-dollar impacts of the state-sponsored discount in this newsletter, just in case folks had forgotten). None of those efforts brought any meaningful results, as the average gap in 2014 has been $2.18/cwt.
All told, since 2010, the discount has equated to a real-dollar impact of more than $1.4 billion, or more than $830,000 for an average 1,000-cow dairy.
While all those other attempts at restoring a fair California milk price were unsuccessful, there have been two remaining efforts ongoing. Within CDFA, a “Dairy Future Task Force” was established by Secretary Karen Ross, made up of a hand-picked group of producers, processors and cooperative staff, with hopes of finding some sort of middle ground on either short- or long-term changes to the California pricing system. At the same time, the three major California cooperatives (California Dairies Inc., Dairy Farmers of America and Land O’Lakes) began working collaboratively in 2012 towards exploring a potential Federal Milk Marketing Order (FMMO) in California.