California Dairy Producer Groups Again Petition for Change in Whey Pricing Formula

November 15, 2012 06:05 AM
California Dairy Producer Groups Again Petition for Change in Whey Pricing Formula

The controversial whey factor pricing request galvanizes producer groups but is opposed by processors. State ag department will decide.

The tense “whey factor” battle between California’s dairy producers and processors continues as both sides again seek support from the California Department of Food and Agriculture (CDFA) for their stance on the state’s milk pricing formula.

Three heavy hitters in California’s dairy industry -- California Dairies, Inc. (CDI), Dairy Farmers of America Western Area (DFA) and Land O’Lakes, Inc. (LOL) filed a petition Oct. 30 with CDFA, requesting another emergency public hearing to consider a change to the Class 4b pricing formula.

This is the second producer request to change the whey factor since a July decision by CDFA. Dairy producer interests petitioned CDFA earlier this year and received a small boost in the whey pricing formula from CDFA in July. They maintain, however, that the increase was too small. CDFA denied a follow-up request in August.

Combined, CDI, DFA and LOL represent an estimated 80-85% of California’s milk production. Whey, a byproduct of cheese-making, is included in the state's 4b pricing formula.

The three producer-owned processing and marketing cooperatives are asking CDFA to consider a temporary modification to the sliding scale that translates market prices for dry whey into higher monetary contributions to the California Class 4b price. The change would remain in place for 12 months “to give our members the financial relief they desperately need,” the petition said. It would also represent the full value of whey as contained in the federal Class III pricing formula.

“California dairy families have been and continue to be under a great deal of financial stress, and the major factor in the question of California dairy farm survivability is achieving a sustainable margin,” CDI said in a Nov. 6 news release. “Feed price is a component of margin, making up nearly 70% of the cost of producing milk. The other main component to margin is milk price, and at issue in California is the method by which whey is considered as part of the milk price. Quite simply, the additional value of dry whey that is being captured by the federal order Class III pricing formula is not, for the most part, being captured by the California Class 4b pricing formula.”

The question of how to value whey appropriately “has been a galvanizing force among California dairy farmers, leading to unprecedented cooperation and agreement among the producer cooperatives and trade associations,” the cooperatives noted in their Oct. 30 petition.

The Secretary has 15 days to respond to the petition’s hearing request. If a hearing is granted, it could be held as early as Dec. 1.

The Dairy Institute of California and other processor interests have asked CDFA to deny the Class 4b petition.

“While we are cognizant of the struggles facing many California dairy farms, the solution proposed again by the co-operatives simply cannot be the answer,” the Dairy Institute of California wrote in a Nov. 7 letter to CDFA Secretary Karen Ross. The organization represents California dairy processors.

“The minimum price requirements that would result from their proposal would be devastating to numerous California cheesemakers and would poison the climate for any additional proprietary investment in the state’s cheese industry,” Rachel Kaldor, executive director of the Dairy Institute, noted. “For this reason, the cooperatives proposal should be vigorously rejected.”

In August, Ross formed a Dairy Future Task Force of dairy producers, processors and cooperatives to join in finding common ground for long-term sustainability and growth in California’s dairy sector. The Golden State leads the nation in milk production.

CDI, whose members produce 43% of California’s milk, says it commends the efforts of Secretary Ross “to identify long-term solutions to forge a foundation for a strong and viable dairy industry in the future, and understands the obligation to be engaged with the rest of the dairy industry.

“However, dairy producers need to survive in the short-term first,” CDI said. “The petition provides a reasonable method to bridge the current short-term economic situation of dairy producers to Secretary Ross’ long-term solution for the industry.”

Hilmar Cheese Company, which has plants in California and Texas, opposes the whey factor request. “Real relief must come from the marketplace, or it will not be lasting,” Hilmar’s David Ahlem, vice president of dairy procurement and policy, wrote in a Nov. 9 letter to Ross.

Hilmar Cheese and other processors have consistently paid producers premiums that are higher than the minimum regulated 4b price, Ahlem noted. He also pointed out that “the petitioners all own cheese plants, yet none of them have chosen to invest in whey processing technology in California.”

Added Ahlem: “Creating value and getting the most out of milk is not the job of the Secretary of Agriculture – it is the job of those who market milk.”

Read more here.

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Spell Check

11/20/2012 02:43 AM

  The petition has been denied based on specific wording from my understanding. The three dairy groups are working on getting the wording correct and re-submit the petition.

11/20/2012 02:43 AM

  The petition has been denied based on specific wording from my understanding. The three dairy groups are working on getting the wording correct and re-submit the petition.


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