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California Presses Toward a Federal Order

November 26, 2013
By: Catherine Merlo, Dairy Today Western and Online Editor google + 
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A large crowd of dairy producers gathered in Tulare, Calif., earlier this year to learn more about how a California FMMO would work and to share opinions.  

The state's three major dairy co-ops plan to submit a federal order petition in early 2014.

California continues to inch closer toward a Federal Milk Marketing Order (FMMO), but the cooperatives leading the effort aren’t disclosing much about the proposal they’re drafting.

The state’s three major dairy co-ops––California Dairies Inc., Land O’Lakes and Dairy Farmers of America—"plan to meet with USDA to discuss the language and intend to have a petition ready to file with USDA by early 2014," says Marie teVelde, California Dairies spokeswoman.

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That’s just about all the co-ops will say publicly. They’re staying aligned, cautious and private as they develop the crucial FMMO petition for USDA, according to Tom Wegner, Land O’Lakes’ director of economic and dairy policy.

"We are still in the process of developing the best proposal for California’s dairy farmers," Wegner says.

Once they submit the FMMO proposal early next year, the three co-ops, who represent 80% of the Golden State’s milk production, will have to wait on USDA. The federal order process, which can take more than a year, includes a USDA administrative hearing, findings and a referendum vote. The vote would require two-thirds majority support of California’s dairy producers to implement the FMMO.

If the petition succeeds, California would jettison its state-regulated dairy pricing structure of more than 60 years and become the nation’s 11th FMMO.

As part of their research, California Dairies, Land O’Lakes and Dairy Farmers of America commissioned University of Wisconsin dairy economist Mark Stephenson and colleague Chuck Nicholson of Penn State University to conduct a comprehensive modeling study of a California FMMO last November. In June, Stephenson and Nicholson delivered the final 140-page report to the three co-ops. According to a news release California Dairies sent out in June, the study’s findings "indicate that a properly written FMMO for California would provide a regulatory structure that would potentially result in higher farm gate prices, which would benefit California dairy farm families."

Apart from that statement, none of the findings have been released publicly, although the co-ops have held member-only meetings to discuss FMMO potential.

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Producer interest in a federal order has been high at California meetings, like this one at World Ag Expo in Tulare last February. Many are frustrated with California’s state-regulated pricing structure.

Among the FMMO components under scrutiny is California’s quota system. An asset valued statewide at $1 billion, quota returns to producers who own it as much as $1.70 per cwt. of additional income. Quota has been part of California’s state milk pricing system for four decades. But how to incorporate it into California’s FMMO has raised questions, since no other federal order includes a similar quota system. Few California quota-holders are willing to relinquish it.

U.S. Congressman David Valadao (R-Calif.), who is also a dairy producer, introduced bipartisan legislation March 22 that would allow California dairy producers to petition USDA for a federal order, plus allow them to keep the state’s quota program.

Valadao’s bill is an important part of the FMMO discussion, says Wegner with Land O’Lakes. Similar language is also included in the farm bill. Rob Vandenheuvel, general manager of the California-based Milk Producers Council, says the three co-ops have made it clear they won’t proceed with an FMMO unless California’s quota system is protected.

But keeping the quota isn’t clear-cut. "There is still a great deal of uncertainty surrounding how quota would operate within an order, how it would be funded, ultimately how compatible quota is with the federal order structure and whether or not it is sustainable in the long run," says Bill Schiek of the Dairy Institute of California, which represents the state’s processors. 

Another concern is the length of time needed to adopt a California FMMO. "We need a fundamental change as soon as possible, and in the case of a FMMO, ‘possible’ is sometime in 2015," Vandenheuvel says. "So producers are urging industry leadership to move this process along as quickly as possible."

Schiek and the rest of the dairy processor community are a little more hesitant to wave the FMMO banner. "Dairymen in California need to understand that a federal order is not the same as ‘a California state order with higher prices’," Schiek says. "They operate quite differently, and those differences have implications for producers."

A California FMMO: Thumbs Up or Thumbs Down?

Like many California dairy producers, Joe Augusto believes the only way to restore equity to milk pricing in the Golden State is by joining the FMMO system.

"On average, dairy producer prices in California have been $1.05 per cwt. lower than prices paid in the federal order, causing the average-sized dairy in our state to be paid nearly $600,000 less than the same sized dairy in the federal order system since January 2011," says Augusto, president of the California Dairy Campaign, a grassroots organization of dairy farmers.

Rob Vandenheuvel of the Milk Producers Council agrees. "California dairy farmers need a milk price that at least covers their costs," he says. "It has become apparent that the California

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FEATURED IN: Dairy Today - December 2013

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