California Processors Say Proposed Pricing Change Agreement with State’s Dairy Producers Hinged on Economy

"If economic conditions warrant" was key part of agreement, processors say.

Editor’s note: As California’s dairy industry awaits a decision from the California Department of Food and Agriculture (CDFA) on whether or not to increase the state’s Class 4b dairy price, the tension between dairy producers and processors continues. At issue between the two groups is a deal that was struck in July over proposed pricing changes that would yield the state’s dairies $110 million in increased revenues. The deal helped CDFA Secretary agree to a Sept. 12 hearing to listen to testimony about the proposed changes. At that hearing, however, processor interests spoke out against the proposal. Below, the Dairy Institute of California, which represents processors, explains why it opposes the pricing changes. CDFA is expected to announce its decision by mid-October.

Source: Dairy Institute of California

SACRAMENTO — The Dairy Institute of California says it agreed to milk price hearings by the California Department of Food and Agriculture (CDFA) "if economic conditions warrant."

"This has been our position from the start," says Rachel Kaldor, executive director of the California Dairy Institute, which represents the state’s leading cheese makers. "Economic conditions serve as the foundation of the milk pricing system in California. It is important to the dairy industry and consumers in California that we respect factual economic data as we address milk pricing."

Kaldor said the Institute’s position was spelled out in a letter from their legislative advocate to Assembly Member Richard Pan on July 8, 2013, in which the legislative advocate said the industry supported the addition of language to Pan’s milk pricing bill, saying hearings by CDFA should be held "if economic conditions warrant."

The July 10 version of Pan’s legislation states, "It is the intent of the Legislature to encourage the Department of Food and Agriculture, to the extent that economic conditions warrant, to hold the following hearings regarding milk pricing."

"This language was a very important part of the agreement, which resulted in the bill appearing in print on July 10. Unfortunately, the dairy producers chose to oppose the amendments contained in the July 10 version of AB 1038," said Kaldor. "Their decision to oppose this important part of the agreement reached on the bill on July 10 resulted in the language seeking the CDFA hearing being removed from the bill."

"After the language was removed from the legislation and then passed by the Senate Committee," Kaldor continued, "we reached out to a representative of the producers’ associations, suggesting that we work together to find a way to implement the agreement that was embodied in the legislation on July 10. Rather than work collaboratively with us to develop a consensus approach to implement the agreement contained in the legislation, the producers’ associations instead chose to petition CDFA for a hearing on their own."

Kaldor said the Department reported later in July that dairy processors had paid over $420 million more to producers for the first six months of 2013 than for the same period in 2012. This increase paid by processors means that the average dairy received approximately $290,000 more in milk payments during the first six months of this year that during the same period last year. In addition, prices for feed commodities have moderated since earlier this year, further improving margins for producers.

At a hearing held by CDFA [Sept. 12], representatives from the Dairy Institute submitted sworn testimony, based upon CDFA data, showing how milk prices paid to dairy farmers have increased this year, coupled with decreasing prices for corn and other dairy cow feed commodities.

"It is important to note, however, that simply because economic conditions are improving for dairy farmers that does not mean any of us in the dairy industry can neglect the immediate need to work together to help both dairy farmers and processors to improve our ability to grow the market for California’s dairy products around the world," Kaldor said. "We must realize that rather than pursuing unilateral actions that simply put one part of the industry at odds with another, we can do much more to help improve the industry’s conditions by working together."