Posted: Monday, November 19, 2012 2:51 PM
The California Department of Food and Agriculture has denied a petition by three of the state's largest dairy co-ops seeking an emergency hearing on modifications to the minimum pricing formula for milk used to make cheese.
California Dairy Inc., Dairy Farmers of America and Land O'Lakes on Oct. 30 filed the petition for a hearing to consider modifications to the sliding scale that determines the dry whey value in the Class 4b formula.
Their proposed changes would mean a higher value in the formula and higher milk prices. They requested the modifications for a period of 12 months to "give our members the financial relief they desperately need," they stated in a letter to Secretary Karen Ross.
CDFA replied to the petition on Nov. 13, saying the petition fails to set forth the secretary's authority to take the action requested.
"In the absence of such a statement, it cannot be determined if petitioners are proceeding under the discretionary hearing procedure ... or the mandatory one ... ," Kevin Masuhara, CDF's director of marketing services, said in the letter.
Land O'Lakes plans to resubmit the petition, said Pete Janzen, DFA general counsel and chief administrative officer.
Calls to DFA and CDI on Monday have not yet been returned.
The co-ops have long taken issue with California's pricing system.
"We don't believe the California milk-pricing system actually reflects the value of milk for California dairy producers," California Dairy Inc. CEO Andrei Mikhalevsky said when the petition was filed.
The value of whey is the primary factor in that discrepancy, he said. The co-ops' proposal mirrors the value in federal orders and would put California producers on a level playing field with other dairymen across the country, he said.
California dairy families are under a great deal of financial stress. Half of the equation of sustainable margins is high feed costs and the other half is the milk price, the co-ops' request stated.
California's 4b formula does not capture the additional whey value being captured in federal order Class III formulas, they said.
"This phenomenon ... can be remedied easily by adopting the suggested changes included in this petition," the letter stated.
Some California processors reject the idea of raising the whey value, contending it would harm the state's processors and lead to additional oversupply of milk that would harm dairymen.
The contention that there is too much milk production in the state is somewhat of a myth, Mikhalevsky said.
The state does produce more milk than its population consumes, but it also produces milk and dairy products for out-of-state deficit areas and exports. The problem isn't too much milk, it's not enough processing capacity, he said.
As for harming processors, that's a debatable discussion, he said.
One camp claims raising the milk price would harm processors' profits. Another discounts the amount of harm, saying cheese processors in other parts of the country are paying the higher price. In addition, two of the state's largest cheese makers have already moved to a pay price reflecting Class III, he said.
Mikhalevsky conceded it's not an apples-to-apples comparison, as cost of processing is higher in California due to a tough business environment.
A processor itself, California Dairies Inc.'s view is dairy farms are not sustainable. If producers of the raw material are not sustainable, processors are going to have difficulties as well, he said.
"The whole chain, from farm to retail, has to be sustainable," he said. "We have to look at each component."
The co-ops' proposal for the dry whey value is on a sliding scale from a value of zero to almost $4.26 per hundredweight of milk.
Ross has denied several petitions for hearings on the matter, leading a coalition of dairy groups -- which includes the three co-ops -- to file a lawsuit hoping to force the change and prompting Western United Dairymen to take the route of proposed legislation.
Ross has set up a task force to address the issue of long-term sustainability in the state's industry, saying a short-term fix would not remedy the situation.
The co-ops stated they are mindful of the secretary's efforts, but said their members need to survive in the short term first.
"Our proposal provides a reasonable method to bridge the financial gap from where California milk prices are today and where they need to be to prevent further attrition on the producer side of the industry," the letter stated.