California Announces Temporary Increase in Minimum Milk Prices

Dairy producers are disappointed with the 12.5-cent price hike.

California dairy producers are reacting with disappointment to a decision by the California Department of Food and Agriculture (CDFA) to grant them a modest, six-month price hike.

The price adjustment applies to all classes of milk and has a net effect, or average increase, of 12.5 cents per cwt., effective July 1. It expires at the end of the year.

"It’s a joke," says Tom Barcellos, a dairy producer from Porterville, Calif., who serves as president of Western United Dairymen.

Barcellos believes CDFA has sided with processors and is working to alleviate their production costs at the expense of dairy producers. "If plants need help on their expenses, they should request an increase in their make allowance," Barcellos says.

"We’ve been asking for a reasonable price fix," adds Barcellos. "The processor community has offered us absolutely nothing."

CDFA Secretary Karen Ross explained her decision in a June 24 letter to California’s dairy stakeholders. 

"I’ve taken this action despite the fact that I believe, and have stated, the Department cannot address ongoing difficulties within the dairy industry through increases in the minimum price," Ross wrote.

In her letter, Ross called California’s system of regulated milk pricing "an antiquated one that impairs the ability of the dairy industry to rise" to the challenge of meeting global dairy demands.

At least one processor agrees. "We respect Secretary Ross’ difficult position and her attempt to balance producer, processor and consumer needs, but the Secretary cannot address ongoing difficulties within the dairy industry through increases in the regulated minimum price," says David Ahlem, vice president and general manager with Hilmar Cheese Co.

Hilmar Cheese owns and operates a dairy processing plant in Hilmar, Calif., and one in Dalhart, Texas.

"The only sustainable way to increase the size of everyone’s share of the pie is to grow the entire industry through innovation and investment in market-based products," Ahlem adds. "I think we can all agree the current system does not work in today’s global market. We fully support the Secretary’s focus on the California Dairy Future Task Force to develop a long-term price system which encourages competition for milk, innovation and rewards those who invest."

Bill Schiek, economist with Dairy Institute of California, which represents processors, says his organziation has made multiple attempts -- without success -- to reach agreement with dairy producers on an emergency price relief proposal that would be acceptable to all. Further, California's current pricing system "is unsustainable because it was created for a marketplace that existed in the 1960s and is ill-suited for the global marketplace we operate in today," Schiek adds.

"The decision announced by the Secretary took account of the generally higher milk prices in California seen this spring compared to last year and currently moderating feed prices," notes Schiek. "These economic factors led to the Secretary's decision to make a modest increase in regulated minimum milk prices. We find little to argue with in her reasoning." 

Milk prices in California have been regulated under a state system since the 1960s. The state’s dairy producers, hit hard by high feed costs and a system they say doesn’t pay them adequately for their milk, have struggled to change California's pricing mechanism. In particular, California producer interests have attempted to change the formula for the whey factor in the Class 4b price.

Earlier this year, CDFA announced a temporary increase in minimum prices. That adjustment, which averaged about 25 cents per cwt., lasted from February through May 31.

CDFA also called a May 20 hearing to consider further temporary changes to the state’s minimum milk prices. According to Rob Vandenheuvel, executive vice president of the California-based Milk Producers Council, all eight processor witnesses at the May 20 hearing supported a six-month continuation of the February-May price increases. The producer position was also unified, he adds, with all eight producer witnesses supporting a $1.20 per cwt. increase to the Class 4b price only.

"We’re disappointed [with Ross's decision]," says Vandenheuvel. "Eight processors testified that they support a six-month price increase equal to the previous price relief, and we ended up with half."

Frustrated with efforts to change California's pricing policy, some of the state’s dairy producers have pushed to abandon the status-quo system and instead adopt a Federal Milk Marketing Order. The findings of a five-month-long study, released last week, indicate that a properly written federal order for California would provide a regulatory structure that would potentially result in higher farm gate prices, which would benefit the state's dairies.

The study was commissioned by California Dairies, Inc., Dairy Farmers of America, Inc., and Land O’Lakes, Inc. The three cooperatives have agreed to work toward a change in the regulatory structure and to draft federal order language to initiate the process.

"Given . . . . CDFA’s current attitude toward California dairy families, that process cannot happen fast enough," Vandenheuvel says.