A proposed California Federal Milk Marketing Order (FMMO) contains provisions like other FMMOs, some which are similar but contain unique aspects, and others which differ significantly, according to John Newton, University of Illinois dairy economist.
Newton recently completed an information paper, Interpreting Proposed Language for the California Federal Milk Marketing Order, posted on the Program on Dairy Markets and Policy website.
In many respects, the proposal for a California FMMO mirrors California’s existing state order provisions, in that pool quota, fortification credits, mandatory pooling and transportation credits all appear, albeit modified, in the FMMO proposal.
The primary deviation from the current state order is the different regulatory pricing structure, determination of regulated minimum uniform prices, and the ability to forward contract milk in manufacturing classes, Newton wrote.
Final rules would be determined after a FMMO hearing process – if USDA decides to move forward on the proposal.
One the issues of a California FMMO is the ability to accommodate a quota. The 2014 Farm Bill specifically permits California producers to keep some form of their unique quota system if a FMMO is adopted. The quota is an asset, and provides a separate source of revenue for dairy producers in California.
Producers in the state are paid on the basis of their allocated quota, base, and over-base production at prices which generally reflect the utilization of milk in the California market. Approximately 60% of California dairy farmers own quota. Estimates based on recent California Department of Agriculture (CDFA) data indicate there are 2.2 million lbs. of solids non-fat quota with a statewide value in excess of $1 billion.
Under the California FMMO proposal, each month CDFA will report the quota value to the California FMMO. It is anticipated that CDFA will continue to monitor quota transfers and the sales price.
According to Newton, CDFA will not collect or distribute quota monies. Instead, USDA will first publicly announce the quota premiums, and then will be tasked with distributing quota premiums from the marketwide pool to producers holding quota. While CDFA will monitor quota value, through these provisions, it is possible that the state-administered quota program could become a market service benefit that will be administered by USDA, subject to payment enforcement and auditing provisions.
The next step in the process, according to Newton, belongs to USDA. Alternative proposals are being accepted until April 10. After conducting an analysis of the proposal(s), USDA will then decide if and when a hearing will be held. USDA plans to conduct a series of public outreach meetings throughout California in early May 2015.
To download the paper, click here.