USDA: California Order would Impact Entire U.S.

August 12, 2015 06:05 PM

By Fran Howard

USDA will hold a hearing late next month to consider whether to create a Federal Milk Marketing Order (FMMO) for California. According to USDA-AMS’ 45-page Preliminary Economic Impact Analysis of proposals already submitted to USDA, if California were given a Federal Order and allowed to join the system, the ripple effect would be felt throughout the country.

The four proposals were: the Cooperative Proposal, submitted by California Dairies, Inc., Dairy Farmers of America, Inc., and Land O’ Lakes, Inc.; the Ponderosa Proposal; the California Producer-Handler Association Proposal; and the Dairy Institute of California Proposal.

“As part of the hearing process, USDA’s Agricultural Marketing Service (AMS) conducted a preliminary economic impact analysis of each proposal,” notes Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill. “AMS analyzed the impact on dairy farmers across the United States, the impacts on fluid milk processors and dairy product manufacturers, and the effects on consumer retail prices and international trade.”

In its analysis, AMS notes that “while the proposed California FMMO would regulate and impact the California dairy industry primarily, the analysis predicts that a California FMMO would also have an impact on the milk supply, product demand, product prices, and milk allocation throughout the United States.”

As the nation’s number-one milk-producing state, California now accounts for more than one-fifth of annual production, notes Ledman, and the state has self regulated its dairy industry outside the federal system for several decades.

“During the past decade, there has been a growing disparity between the price of milk used to manufacture cheese and whey in California and the comparable Class III price in Federal Orders,” says Ledman. “California dairy producers refer to this as the ‘California Discount.’ ”

When the California Discount has gotten too wide during periods of farm-level economic stress, the California Department of Food and Agriculture (CDFA) has attempted to adjust California milk prices through a series of temporary increases.

“Most recently, CDFA raised the cap on the whey value in the state’s 4b (cheese/whey) price to $2.005/cwt. for one year, beginning August 1,” notes Ledman. According to CDFA, had the temporary dry whey scale been in place from April 2010 to March 2015, it would have added an average $1.01/cwt. to the California 4b price.

According to the USDA-AMS’ analysis, the Cooperatives Proposal would result in both a higher California All-Milk price and increased California milk production, boosting producer revenues in the state.

“Greater California milk production causes total U.S. milk production to increase, which leads to lower dairy product prices in all current Federal Orders as well as in non-regulated areas across the rest of the United States,” notes Ledman.

The Ponderosa and California Producer-Handler Association proposals yield similar results to the Cooperatives Proposal, according to the analysis, but the Dairy Institute of California’s proposal has mixed effects.

According to the analysis, adoption of the Dairy Institute’s proposal would lead to increases in the state’s All-Milk price, milk production, and producer revenue, but the overall U.S. All-Milk price and milk production would also rise. However, the impacts to the individual orders would vary, explains Ledman.

“It is likely that the architects of each proposal will take exception with some of USDA’s analysis,” says Ledman. “However, any significant change in milk prices in the largest milk-producing state in the nation, no doubt, will have a ripple effect across the entire country.”


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Spell Check

Andrew Novakovic
Ithaca, NY
8/14/2015 08:11 AM

  One can always debate the magnitude of effects predicted by a model or an expert's best guess, but it's hard to imagine anyone seriously believing that what happens in California stays in California. As is often mentioned, CA is ? of the US milk supply (21% in 2014). It represents about ? of the butter and powders, 21% of the cheese, and about 12% of the fluid milk (highest of any state). Significant changes in CA impact product markets as well as farm milk, and prices for the basic commodities in which CA is the leading or a major player have especially big implications for everyone's prices. It's clear that the farmers who are asking for changes in their pricing regulation aren't looking for just new letterhead on the milk price announcement. The implications for Class III prices and cheese and whey markets are potentially very significant and deserve careful thought beyond the borders of the state.

Modesto, CA
8/14/2015 11:03 AM

  A California federal order would affect all dairymen. The current system obliterates California's equity at a disapportiate level when milk prices are low. A Federal Order would level California's price with the rest of the country. During times of low prices and high prices, the pain and joy would be evened out across the whole country.


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