California Legislators to Consider Changes to State’s Milk Pooling Plan

June 21, 2009 07:00 PM
 

A controversial bill to amend California's Gonsalves Milk Pooling Act has moved to the State Assembly for consideration.

 

The legislative proposal, known as SB 362, would amend the state's milk pooling plan, which allows for dairy producers to share revenues generated by milk sales in California. 

 

All processing plants, or pool handlers, now pay the minimum prices for their milk purchases from dairy producers into a statewide revenue pool. The pool is then equitably shared among all dairy producers that ship their milk to the pool handlers.


The current plan permits a dairy producer-handler who elects to operate outside the pool to make deductions to its Class 1 (fluid milk) sales, excluding sales to a handler, before being required to account to the pool.

SB 362 would allow the state's five dairy producer-handlers, also known as Producer Distributors (PDs), to exempt all the milk they produce on their own dairies from pool obligations, notes Rob Vandenheuvel with the Milk Producers Council (MPC), based in Chino, Calif.

 

"If signed into law, this bill would give these five producer-handlers a huge competitive advantage over all the fluid milk processors that operate in the California pool,” Vandenheuvel says in MPC's June 5 newsletter. (/files/060509.pdf). 


SB 362 would also exempt raw-milk producers from the pool.
 

Producer groups oppose the bill

 

"This is a bad bill that would not only be very expensive for producers both now and each year into the future, but it would also dramatically shift the competitive dynamic of the Class 1 market in favor of the producer handlers and against the fully regulated handlers,” says Bill Van Dam of the Alliance of Western Milk Producers. "There is far more at stake here than the proponents of this measure are willing to admit.”

 

Western United Dairymen (WUD) says the bill's impact would be large. "California producers would bear the cost of these exemptions, as the milk associated with the five producer-handlers would no longer be pooled,” WUD reports in its June 19 Weekly Update. (http://westernuniteddairymen.com/component/option,com_docman/task,doc_download/gid,156/Itemid,45/)

 

If the producer-handler exemption is expanded to cover all current PD production as allowed for in SB 362, says WUD, the cost to each individual dairy would rise to an average of $8,600 per dairy per year from about $2,200.


Producer-handlers' perspective

 

The California Producer-Handler Association says its members' exemption represents a small portion of and small cost to the pool. Even so, "it is key to their survival,” the group writes in MPC's June 12 newsletter (/files/061209.pdf). 

 

A March 2009 exemption would have amounted to just 1.2% of the pool, note the producer-handlers. That would have cost the pool about $.0069/cwt., or roughly 15 cents per cow for the month. "This is dramatically less than the cost of out-of-state milk and transportation allowances that other milk processors are enjoying at the expense of the pool,” the group writes. "Further, it keeps the milk, jobs and money in California.

 

Dairy processors disagree

 

In reality, the five producer handlers are a significant share of the market in which they compete and increasing the size of their exemption would be devastating for the industry, says Bill Schiek with the Dairy Institute of California. The Sacramento-based non-profit association represents milk and dairy processors on legislative and regulatory matters.

 

"PDs do not need any additional pooling exemption in order to compete with out-of-state packaged milk or with out-of-state bulk milk, of which they currently import a major share,” Schiek writes in MPC's June 19 newsletter. (/files/061909.pdf)

"What SB 362 will do is give a big advantage to PDs at the expense of producers and fully regulated Class 1 processors," says Schiek. "It will allow them to increase their share of the market and cannibalize the Class 1 revenues that all producers were meant to share. Dairymen, their families, and their employees will lose money and market access."

 

Back in the Legislature

 

By Assembly rules, SB 362 must move out of committee by the middle of July, according to Van Dam, who adds that it is scheduled for hearing on July 1. 

 

The California Senate approved the measure with a 24-12 vote earlier this month. Sen. Dean Florez (D-Shafter) introduced the bill in February

 

The Agricultural Council of California, California Dairy Campaign and California Farmers Union also oppose the bill.

 

The Gonsalves Milk Pooling Act was implemented in 1967 to eliminate unfair, unjust, and destructive trade practices that had become commonplace in the dairy industry.

 

Catherine Merlo is Western editor for Dairy Today. You can reach her at cmerlo@farmjournal.com.

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