After 40 days, and dare we say 40 nights, the California Federal Order hearing came to a close November 18.
Of course, this isn’t the end. It’s more like, as Winston Churchill opined on the Normandy landings in World War II, the end of the beginning.
The administrative proceedings will continue with more brief filings, issuance of a recommended decision, more comments and finally, a final decision that will then be put to a vote of California dairy farmers. With a recommended decision not expected until late next year, the entire process could take another 18 months.
Some 80 witnesses testified on the four submitted proposals, and 194 exhibits were entered into the hearing record. It’s estimated there are 10,000 pages of hearing record transcripts.
At issue is what local dairy farmers have dubbed “the California discount.” Because of it, California Dairy, Inc., estimates California producers received an estimated $520 million less in 2014 than if milk prices were regulated under the Federal Order system.
Four proposals have been submitted to USDA to include California into the Federal Order system. The two main competing proposals were submitted by dairy co-ops and dairy processors.
A USDA economic analysis shows that if the dairy co-op proposal is accepted, California milk prices could increase $1/cwt. But that would likely generate more milk production in California, and depress milk prices everywhere else. The analysis shows the processor proposal would be much more revenue neutral, increasing California prices just 10¢/cwt.
One of the big sticking points, in addition to price levels, is how California’s milk quota would be handled. It’s a thorny issue since the collective value of California quota is in excess of $1 billion. As a consequence, milk quota was debated right up until the last day of the hearings.
California’s quota is not tied to fluid milk, but the co-op’s proposal would pay quota holders first with the remainder of the order proceeds then being dispersed normally. Also at issue is if and how the quota holders could be bought out, at what rate of buyout and at what rate of return.
The other issue is that the co-op’s proposal would require mandatory pooling of cheese plants. In other Federal Orders, fluid milk plants are required to participate, but they are obvious beneficiaries in that all other orders are mainly in place to regulate fluid milk. Cheese plants can decide whether or not to participate.
If they do, they then must abide by pooling requirements and can only de-pool when those regulations allow it. That won’t be the case if USDA accepts the California co-ops’ proposal.
The mandatory pooling provision is in place to help with quota compensation. Without it, there might not be enough left in the pool to pay non-quota participants.
On the other hand, if the costs get too high for cheese plants, they might opt to simply close plants and leave the state.
In any case, Rob Vandenheuvel, says the hearing though tedious but very inclusive. Vandenheuvel is general manager of the California Milk Producers Council, and a long-time advocate of reforming California’s milk pricing regulations.
“I think it was a fair hearing, and we were able to lay out our cause. First, we were able to show why a Federal Order is needed in California, why the state order is deficient in a number of areas, and why the co-op proposal would be an improvement,” Vandenheuvel says.
Processors, on the other hand, testified that a Federal Order is not needed in the state. “California dairy cannot remain a zero sum game, where for one side to win the other side must lose,” says Rachel Kaldor, executive director of the Dairy Institute of California.
“We need to keep and build markets, and producers and processors have to build partnerships so that everyone can be on the winning side. The future of our industry depends on it,” she says.
