California Ag Department Grants Hearing in Whey Factor Pricing

March 16, 2012 03:08 PM

The state’s dairy producers seek changes in their milk pricing system to bolster whey’s value.

In response to petitions from dairy producer groups, the California Department of Food and Agriculture (CDFA) today announced it would hold a public hearing May 31-June 1 to consider amending the whey valuation in the state’s Class 4b pricing formula.

CDFA granted the hearing after requests from Western United Dairymen and from a coalition comprised of California Dairies Inc., Dairy Farmers of America-Western Council, Land O'Lakes, Security Milk Producers Association, Milk Producers Council (MPC), California Dairy Campaign and the Alliance of Western Milk Producers. The coalition represents 1,087 of the state’s 1,700 dairies and 78% of its milk production.

Through the two petitioners, California dairy producers contend they’re losing 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’re pushing for change in the state’s Class 4b minimum price formula, which sets the price of milk used in cheese production and includes a factor for whey. They want CDFA to replace the current formula with one that more closely tracks the market direction of federal orders’ Class III whey value.

“California law doesn't address how whey should be valued in the formula,” says MPC’s Rob Vanden Heuvel. “The law simply states that the ultimate Class 4b price -- however it's determined -- shall be in a ‘reasonable and sound economic relationship’ with the national value of manufactured milk products. We look at the Federal Order Class III price as a great indicator of what the national value of milk going into cheese plants is, since Federal Orders regulate about 80% of the U.S. milk produced outside of California.”

Last month’s Class 4b price of $13.42/cwt. compares to the Federal Order Class III price of $16.06/cwt. for February, says Vanden Heuvel. “It's difficult to imagine anyone saying with a straight face that those two prices are in a 'reasonable and sound economic relationship,'” he adds.

The hearing will take place in CDFA’s auditorium in Sacramento. At the hearing, all interested parties may offer testimony to a hearing panel to present their views.

The state’s dairy processors, who oppose the hearing, say another change in the 4b formula is unneeded and would be detrimental to the industry’s competitiveness. Among those urging CDFA to deny hearing requests were Kraft Foods, Saputo, the Dairy Institute of California and Hilmar Cheese.

In 2011, CDFA addressed the 4b formula and modified its pricing calculation after a June 30 hearing. It raised the whey factor from 25 cents per cwt. to 65 cents per cwt.

Whey, a cheese-making byproduct, has become a critical part of producers’ milk checks in the last two years. Its value has risen with its growing global demand. Food manufacturers are adding increasing amounts of whey into higher-protein products such as nutritional foods and beverages. Whey is also used in animal feed.

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