By Craig W Anderson
Milk price relief to producers could be on the way soon following a Dec. 21 meeting with milk producers and processors explaining their positions on the matter to California Department of Food and Agriculture Secretary Karen Ross.
According to the California Department of Food and Agriculture (CDFA) notice, the hearing would “consider proposed amendments to the Class 1, 2, 3, 4a and 4b prices for a period not to exceed six months” with the new, temporary prices set by Ross who must respond within 62 days of the hearing.
Although Ross hasn’t responded yet, Marsh said he expects her to make a decision around the middle of January and that she “may look to six months to bring stability to the industry. She also wants to see price constancy and with the appointment of the task force the secretary understands the challenges ahead and the need for a long-term solution.”
Ross created a task force in 2012 to look into all issues associated with the dairy industry and to report their results to her early in 2013.
Major issue, says Hamm
“In my view this is a major issue for California’s dairy industry,” said Jack Hamm, SJFB first vice president and dairy farmer. “Producers need to get on the same page and while this could lead to a big overhaul in pricing, at this point this is a band aid.”
Immediate action needed
Michael Marsh, CEO of Western United Dairymen said escalating feed prices and regulatory pressures in California are key factors in rising costs and “the CDFA needs to take immediate action on the price formulas.”“The secretary is interested in making some changes in milk prices to benefit producers,” noted Marsh. “Many petitions urging this adjustment were submitted last year.”
He also said food for fuel, such as corn for ethanol production, is causing feed price problems for dairy farmers and livestock producers.
Various dairy interests represented
The December meeting found a wide cross-section of dairy organizations, cooperatives and processors presenting a variety of temporary amendments to the state milk pricing formula, all intended to provide a temporary boost in revenue to struggling dairy farmers.
For example, Western United Dairymen’s (WUD) suggestions seemed typical of those presented: Class 1: raise milk fat 1.05 cents per pound; milk solids-not-fat 8.93 cents/lb.; raise the milk fluid carrier 0.26 cents/lb.; Class 2 and 3: raise milk fat and milk solids – not-fat 8.2 cents/lb.; Class 4b: raise milk solids-not-fat 11.5 cents/lb.
The California Dairy Campaign also submitted its own proposal; Milk Producers Council backed WUD’s plan and cooperatives California Dairies Inc., Land O’Lakes and Dairy Farmers of America also presented their own proposals.
Every proposed six-month price-adjusting plan raised milk prices to producers; for example, California Dairies Inc. (CDI) suggested increasing producer pool prices 31 cents per hundredweight and Dairy Farmers of America (DFA) urged an 86 cent per cwt. increase in the pool price.
The price increases are needed to stem increasing dairy sellouts triggered by the financial crisis and ballooning feed costs along with an ever-more restrictive regulatory environment.
Dairies out of business
According to WUD figures, 50 dairy sellouts by the organizations members took place over the last eight months and Land O’Lakes director of economics and dairy policy Tom Wegner said, “43 of our dairy farmer members have discontinued milking this year, in large part due to financial distress.”
And the situation promises to become worse, said Marsh, based on his conversations with “a few” dairy producers looking for bankruptcy protection. He discovered that bankruptcy attorneys “can’t keep up with the demand from dairy farmers. It’s obvious there’s an issue if that’s occurring.”
“Dairy farmers are facing a grim reality,” said Lynne McBride, executive director of the California Dairy Campaign. “It’s widely estimated that more than a hundred dairies will have shut their doors in 2012.”
“California milk producers are at a competitive disadvantage domestically and in the global marketplace,” Marsh said. “Current and proposed environmental regulations have caused and will continue to cause added costs, something farmers in other states don’t have to deal with.”
He also said, “Dairy producers continue to face tough economic pressures and if they’re to survive these difficult times, immediate price relief is needed.”
Dairy farmer pleas
Barbara Martin, a third-generation dairy farmer in the Central Valley testified, “We’ve been receiving nearly $2 less per hundredweight than the rest of the United States for far too long. We’ve been pleading and petitioning for a year, all to be denied and delayed, all while many dairy families have lost or are losing their generational farms.”
She said processors insist dairy farmers “need to become more efficient but I guarantee you this: the dairy farmers that are in business today have become efficient or else they wouldn’t be in business today.”
Why milk production falls
Those testifying pointed out that financial pressures on dairy farmers are partly responsible for the state’s decreased milk production and that this creates problems in following the assorted dairy and milk product marketing plans.
Processors differing point of view
On the other hand, dairy processors were nearly unanimous in insisting milk pricing formulas don’t need to be changed, that any relief for dairy farmers must be found in the marketplace, not via increases in regulated prices by the CDFA.
“In this debate it’s a good idea to remember that the biggest expense for processors is milk and they want to keep it cheap,” Hamm said.
A proposal for a “modest and temporary increase to the state’s regulated prices without too much market disruption” would be acceptable to the Dairy Institute of California which represents the majority of California’s processors, according to the institute’s economist, William Scheik. The institute submitted a proposal that would raise Class 4a and 4b milk prices 10 cents per cwt. for three months beginning in February.
Rob Vandenheuvel, the Milk Producers Council’s general manager said his organization “supports the WUD proposal” because it significantly increases the price for Class 4b milk - what cheese manufacturers pay for milk – but leaves the Class 4a price as is.
Industry experts feel reasonably confident that Ross will approve price increases but exactly how much and for which classes won’t be known until, hopefully, mid January.