California Denies Price-Change Request from Dairy Cooperatives

New hearing set for Dec. 21 will consider short-term price adjustments to all classes of milk.

The California Department of Food and Agriculture (CDFA) has denied a Dec. 3 request from three major California dairy cooperatives seeking a hearing on a controversial change to the state’s Class 4b pricing formula.

In a Dec. 6 response, Kevin Masuhara, director of CDFA’s Division of Marketing Services, said, “The Department denies the petition because the proposed modification does not effectuate the purposes of the Stabilization and Marketing Plans.”

Californa Dairies Inc., (CDI), Dairy Farmers of America-Western Area Council (DFA) and Land O’Lakes (LOL) had petitioned CDFA for a public hearing to consider modifications to the sliding scale that translates market prices for dry whey into higher monetary contributions to the California Class 4b price. The group had requested that the change remain in place for six months “to give our members the milk price relief they desperately need.”

Masuhara noted that CDFA had determined that modifying one component of one class of milk – the dry whey factor – “is an inappropriate mechanism to address the financial challenges of California dairy producers for a couple of reasons.

“First, it cannot be justified due to a lack of reliable economic data that can be used to calculate this value in relation to the market,” he wrote. “Second, there is no inequity embedded within the factor because not all cheese plants transform dry whey into a marketable dry whey product.”

CDI said it “is very disappointed in the decision by CDFA to deny its petition to consider a temporary change to the Class 4b pricing formula.”

In a statement to Dairy Today, CDI said, “In the short-term, as petitioned, adjusting the whey factor makes the most sense for California dairy producers. CDI will continue to support efforts and discussions to find long-term solutions that address industry concerns.”

Combined, CDI, DFA and LOL represent an estimated 80-85% of California’s milk production.

Processors continue to oppose the 4b change. “When the 4b price increases, our producers who receive premiums see their pay prices decrease as their premiums are redistributed to producers around the state via the pool,” says David Ahlem, vice president of procurement and policy for Hilmar Cheese. “Almost all of our producers made less money in 2012 as a result of the last two 4b increases. The co-ops who have not invested in cheese and whey technology are asking us to take the money we pay our dairymen today and send it to producers all around the state.”

California's dairy pricing issue won't end with CDFA's latest denial. CDFA Secretary Karen Ross has called a Dec. 21 hearing to consider whether market conditions support short-term price adjustments to all five classes of milk. Those are Classes 1, 2, 3, 4a and 4b. The hearing will take place at the CDFA Auditorium in Sacramento. It will begin at 7 a.m. and continue until all testimony has been received.

For months, California dairy producer groups have been asking CDFA to amend the state’s 4b pricing formula. They contend that California’s dairy producers are losing hundreds of millions of dollars each year because the whey factor in the state’s milk pricing system is under-valued compared to federal order levels. They want CDFA to replace the 4b formula with one that more closely tracks the market direction of federal orders’ Class III whey value.

California’s 4b price is the minimum price that handlers must pay for cheese and whey production. Handlers are not prevented from paying more for 4b milk nor are co-ops precluded from asking for a higher price.

The CDFA Secretary sets minimum prices for the state’s five classes of milk. Whey, a byproduct of cheese-making, is included in the state's 4b pricing formula.