California Extends Milk Price Relief

October 23, 2013 03:34 AM
California Extends Milk Price Relief

Smaller-than-hoped-for price adjustment disappoints dairy producers; processors say further increases were not warranted.

The California Department of Food and Agriculture (CDFA) announced yesterday it was extending minimum class price increases that bump monthly pool prices by approximately 12.5¢/cwt. The price increases are in effect through June 30, 2014.

The announcement disappointed California dairy producers, many of whom had hoped for an increase of 30¢ per cwt. The state’s dairy processors said they respected the decision made by CDFA Secretary Karen Ross.

Yesterday’s "decision once again makes it clear that the only way to restore equity to milk pricing in California is by joining the Federal Milk Marketing Order system," said producer Joe Augusto, president of the California Dairy Campaign, a grassroots organization of dairy farmers.

"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," Augusto said. "Despite the wide gap between California dairy producer prices and prices paid in other states, CDFA agreed to a minimal increase that does not come close to bringing our state prices in line with other states."

California dairy processors said further price increases were not warranted. "The data show very clearly that economic conditions for dairy farmers have improved substantially since last year," said Rachel Kaldor, executive director of the Dairy Institute of California. "[Farmers] have already collected $508 million more from processors during the first nine months of this year compared to the same period last year."

Lower feed costs will improve margins by more than $200 million over the next nine months, she added, and the extension of the emergency price relief will receive an additional $37.5 million.

Yesterday’s extension of the temporary price adjustments, in effect since July 1, continues these increases:
• about 3¢ per cwt. for the Class I (fluid products) price;
• about 5¢ per cwt. for Class 2 and 3 (yogurt, sour cream, soft products) prices;
• about 15¢ per cwt. for Class 4a and 4b (butter, powder and cheese) prices.

About 80% of the milk processed in California falls into Class 4a and 4b.

In her announcement, Ross said she believed the extended price increases would provide a consistent level of revenue to producers to ensure a stable milk supply.

"While there are positive signs in the marketplace, the fragility of the country’s economic recovery and the stability of the dairy sector compel me to make this extension," said Ross. "However, I am convinced that continued adjustments to the minimum price are inadequate to address the ongoing difficulties in the dairy industry. Our antiquated state pricing system demands structural reform."

Since 2011, CDFA has held six dairy hearings and denied five hearing requests. In the last 10 years, the department has held a total of 18 dairy hearings and denied 12.

"Recently, legislative battles have begun at the state and federal levels, creating more tension and entrenchment within the industry," Ross said yesterday. "In the midst of all this, no progress has been made to update California’s pricing system -- something that must be done."

Ross has directed CDFA staff to develop comprehensive pricing proposals –- in cooperation with industry stakeholders, experts and the California Legislature -– by Dec. 15, 2013.

"We can and must work together to implement changes to the current pricing system," she said.

Read Ross’s letter to industry stakeholders here.

Read CDFA’s hearing determination letter here.

Read CDFA’s hearing results letter here.


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