Two 'Deal-Breakers' Could Derail California's Proposed Federal Milk Marketing Order

Without these two provisions, California dairy producers are not likely to approve the Federal Order, says a key architect of the historic petition.

California’s quest for a Federal Milk Marketing Order (FMMO) could reach a dead end if USDA rejects two key components of the proposal, according to one of the historic petition’s architects.

Eric Erba, senior vice president and chief strategy officer for California Dairies Inc. (CDI), said a significant departure from the FMMO provisions to retain California’s quota program and to prohibit voluntary de-pooling of any class of milk could be “deal-breakers.”

Erba, who helped craft the FMMO proposal, made his comments March 19 at Western United Dairymen’s (WUD) annual convention in Yosemite, Calif.  He offered his “deal-breaker” remarks in response to an inquiry from a producer in the audience during the question-and-answer portion of Erba’s presentation.

CDI is one of three joint petitioners seeking a hearing from USDA to consider a Federal Order pricing system in California. The others are Land O’Lakes and Dairy Farmers of America.

California dairy producers’ insistence on retaining  the California quota program is why a Federal Order effort had never progressed in the state, Erba said. None of the nation’s 10 FMMOs includes quota. But the current Farm Bill grants California the authority to promulgate an FMMO and to address quota preservation, he added.

California’s milk pool quota is an asset that brings its owners a higher milk price. Valued statewide at $1 billion, quota has been part of California’s milk pricing system since 1969. Last month, 58% of the state’s dairies owned quota. California dairy producers can only obtain quota by purchasing it or receiving it by transfer. A unit of quota entitles the owner to a higher solids-not-fat price. That now amounts to 19.5¢ per lb. per day. The actual price a dairy producer receives depends on the dairy's location. 

Under the co-ops’ FMMO proposal, the California Department of Food and Agriculture (CDFA) would continue to administer a quota program.

No De-Pooling “Is a Big Ask of USDA”

The other crucial FMMO component calls for prohibiting voluntary de-pooling of any class of milk, which has been referred to as “inclusive pooling.” All California plants purchasing milk from California Grade A dairy producers would be required to pay the regulated minimum price, similar to current California regulations.

“That’s a significant departure from historic FMMO administration,” Erba said. “Inclusive pooling is a big ask of USDA. No other FMMO has anything like inclusive pooling.”

Eric Erba

“De-pooling” is when milk normally associated with a market is not pooled during a particular month, according to USDA. Currently in all Federal Orders, only Class I milk is required to be pooled. Handlers may opt to not pool Class II, III or IV milk when manufacturing class-use values are higher than the uniform price.

Possible Timeline for California FMMO Process

Submitted to USDA on Feb. 4, 2015, California’s Federal Order petition had been 20 months in the making. “We didn’t understand how complicated this would be,” Erba said.

He said the three co-ops wrestled with the details and complexities of reconciling California statues with Federal Order objectives, data-sharing between USDA and CDFA, “what if?” scenarios and precise definitions for words such as “plant” and “producer.”

He also laid out a possible timeline for California’s FMMO petition process, underscoring that the schedule has not been sanctioned by USDA. If USDA agrees to an FMMO hearing, that series of meetings could take place in California from September to December of this year, Erba surmised. USDA could then deliberate the merits of the hearing from January through the fall of 2016. Allowing for required post-hearing briefs, commenting periods and review, USDA could issue a final decision on the California FMMO proposal in May 2017. A producer referendum would then follow in July 2017.

USDA will accept additional proposals from dairy interests regarding a California FMMO until April 10, 2015. California’s dairy processors, who are opposed to the FMMO, will submit at least one rebuttal proposal, said Dana Coale, USDA deputy administrator of dairy programs, who also spoke at last week’s WUD meeting. It’s likely USDA will also receive a producer-handler proposal, she added.

Open to the public, USDA’s FMMO hearings will record everything provided by witnesses testifying both for and against the petition.  The process will also include “attorneys, attorneys, attorneys,” Erba said.

Coale said California’s FMMO proposal “won’t be a slam dunk.”

“This is a huge, important process,” Coale said. “[Implementing new] FMMOs [doesn’t] happen very often.”

“It’s important for producers to participate in the hearings,” she added. “It will be an opportunity for you to learn what the proposals are intended to do.”

CDI, Land O’Lakes and Dairy Farmers of America represent more than 75% of the milk produced in California. Combined, the three dairy co-ops operate 12 plants and market milk to a significant majority of the state’s milk buyers. The three co-ops are significant manufacturers of butter, cheese, milk powders, cream and condensed milk.

Read California’s FMMO proposal and learn more about the process here.