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Federal Order Controversy Brews in California’s Dairy Industry

September 21, 2012
By: Catherine Merlo, Dairy Today Western and Online Editor google + 
Fed Order mtg   Tulare 9 20 12 035
At Thursday’s meeting in Tulare, Calif., producer Cornell Kasbergen (right) tells a panel that California’s dairy sector would earn an extra $1 million per day if it were in a Federal Order.  

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State considers whether to abandon its longtime pricing system for a Federal Milk Marketing Order.

Controversy is brewing in California’s dairy industry.

An estimated 150 dairy producers and industry representatives filled the Heritage Complex Banquet Hall at the International Agri-Center in Tulare, Calif., Thursday, eager to learn more about the potential impact a Federal Milk Marketing Order (FMMO) might have on their milk checks and their industry’s future.

The meeting, sponsored by Western United Dairymen (WUD), was designed to educate local dairy producers about FMMOs and how they differ from California’s pricing system.

Dairies’ financial distress and discontent with recent efforts to change California’s pricing system have fueled interest in jettisoning the state’s marketing structure for an FMMO. Under the current system, California’s milk prices have trailed the national Federal Order average.

Thursday’s meeting saw no shortage of technical details from Bill Wise, Market Administrator for the Pacific Northwest and Arizona Federal Milk Orders. Wise presented an overview of Federal Orders, their rules and practice, the FMMO proposal request and the subsequent hearing process.

Nor was there a lack of questions or comments directed at Wise from an industry panel or the audience on how a Federal Order might work in a state that’s had its own pricing system since the 1930s.

“Our brains are scrambled,” producer Joe Machado said from a microphone in the center of the room after Wise’s presentation and the panel’s question-and-answer segment.

The industry panel consisted of Annie AcMoody, WUD’s director of economic analysis; Eric Erba, senior vice president and chief strategy officer for California Dairies, Inc.; Tom Wegner, director of economics and dairy policy for Land O’Lakes; and Bill Van Dam, CEO of the Alliance of Western Milk Producers.

They, and other attendees, asked about several aspects of Federal Orders, including pooling and de-pooling, the blended price, producer price differentials, what would happen to California’s quota price, and how long the hearing process would take. Wise frequently said he was not in a position to answer all the questions or to offer his opinion. He encouraged attendees to seek answers from USDA’s Agricultural Marketing Service and its administrators in Washington, D.C.

During the meeting, both AcMoody and Van Dam said there many “intricacies” and “qualifying aspects” – beyond simply looking at prices – in comparing California and FMMO prices.

“You can’t get an apples-to-apples comparison,” AcMoody said. “The answer is not clear-cut.”

From the floor microphone, dairy producer Cornell Kasbergen said the price difference is clear between Federal Orders’ Class III level and California’s comparable 4b class. In 2011, that difference amounted to more than $2 per cwt. This year, he said, California dairies are losing about $1 per cwt. because of the state’s pricing shortfall. Kasbergen, who has a 3,000-cow dairy near Tulare and one in Wisconsin, said California needs to get on track with prices in other parts of the nation.

“California is losing $1 million a day because somebody doesn’t want to lead,” Kasbergen said, drawing applause from the audience.

After the meeting, Kasbergen said California’s effort to adopt a Federal Order lacked leadership. “The co-ops have started the process, but they don’t want to put out actual numbers that are transparent,” he said. “It’s frustrating.”

“It was more like a courtroom here today,” Machado said following the meeting. His dairy milks 1,100 cows in nearby Hanford. “It was too technical, with things that dairy producers don’t relate too. We came here today to find out what the pros and cons of Federal Orders are, so we producers can make a rational decision about our future. We didn’t get that.”

Michael Marsh, WUD’s CEO, said his organization would continue “in a fact-finding mode” to provide information to dairy producers about Federal Orders. “Milk pricing is not easy,” said Marsh.

Federal Orders are marketing structures that regulate dairy handlers. Producers request, vote on and maintain them, but they’re paid for by handlers. USDA would oversee a Federal Order hearing and approval process, which could take a year or more to unfold.
 

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RELATED TOPICS: Dairy, Policy, Marketing, Milk, USDA

 
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