Dick Groves
Editor, Cheese Reporter


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California Dreamin’ (or Nightmarin’)

There’s an old observation that trends in the US start in California and then make their way east, but the dairy industry is now witnessing a reverse version of that: California is seeking to join most of the rest of the US dairy industry in the federal milk marketing order program, which has been around since the late 1930s.

As reported on our front page last week, USDA’s public hearing to consider the creation of a federal order for California got underway on September 22 in Clovis, CA, and is expected to last for several weeks, if not months.

For long-time industry observers, the possibility that California might become the 11th federal order is a rather remarkable development, for many reasons. For example, it’s remarkable that California would scrap its state milk order, which appears to have worked fairly well for the state over the years, for the unknowns of joining the federal order system.

California has operated its own state milk order program since 1969. And how has that worked out for California?

Well, California’s milk production has grown from 8.9 billion pounds in 1969 to 42.3 billion pounds in 2014, which is pretty impressive by almost any measure.

By comparison, from 1969 through 2014, among some major dairy states that are part of the federal order program, Wisconsin’s milk production grew from 18.1 billion pounds to 27.8 billion pounds, New York’s milk output grew from 10.4 billion pounds to 13.7 billion pounds, and Minnesota’s milk production actually declined, from 9.7 billion pounds to 9.1 billion pounds.

Meanwhile, California’s cheese production has grown from just 13.7 million pounds back in 1969 to 2.444 billion pounds in 2014, an increase of some 2.43 billion pounds. For what it’s worth, Wisconsin’s cheese production during that same period increased by 2.044 billion pounds.

Also during that period, California moved up the cheese production rankings, from 22nd nationally to second only to Wisconsin.

And California’s butter production increased from 60.8 million pounds back in 1969 to almost 613 million pounds in 2014.

So with these statistics in mind, it’s safe to reach a couple of conclusions. First, since its state order was implemented, California’s dairy industry has grown tremendously. And second, most of that growth (at least in milk and cheese production) occurred before the state added a whey factor to its Class 4b pricing formula (the whey factor was first added to the 4b formula in 2003).

How would California’s dairy industry fare as part of the federal order system? Nobody knows for sure, but we might start to find out in a year or so.

In addition to the expansion that’s occurred since California’s state order was implemented, California will also, if it joins the federal order program, be giving up its relatively streamlined process for amending pricing formulas for a federal order process that’s, well, pretty much the opposite of streamlined.

A couple of points help illustrate this. First, it may be recalled that it was back in early February when California’s three main dairy cooperatives — California Dairies, Inc., Dairy Farmers of America, and Land O’Lakes — petitioned USDA to establish a federal order to regulate the handling of milk in California.
Six months later, USDA announced that it would hold a public hearing on that proposal, starting on Tuesday, September 22, and lasting until whenever.

By comparison, and in stark contrast, the California Department of Food and Agriculture announced on Friday, May 1, that a public hearing would be held to consider amendments to the Class 4b pricing formula.
That hearing took place on Wednesday, June 3 (it lasted just one day!), the CDFA announced its decision on July 17th, and changes to the whey factor value in the Class 4b formula became effective on August 1, 2015.

So California’s entire price formula amendment process, from hearing notice to those changes becoming effective, took place in less than half the time it took for USDA to just call a hearing after receiving a petition.

Those changes to the Class 4b formula are supposed to be in effect for one year, or until July 31, 2016. It’s a pretty safe bet that California’s 4b formula will revert to what it was prior to August 1, 2015, before a California federal order becomes a reality.

There is also a huge cost factor involved here. The California dairy industry has obviously never before experienced anything close to the expenses it will incur during this federal order proceeding. Indeed, California’s dairy industry will probably spend more time attending the ongoing federal order hearing then it has spent attending milk price hearings over the past 10 or 15 years combined.

That’s not to say California’s current hearing process is perfect; there’s no such thing as a perfect hearing process (a perfect pricing system would be one that didn’t include any hearings; that would be something resembling a free market). But there’s no doubt that California’s hearing process is far, far faster than the federal order process, and it’s also a heck of a lot less expensive.

California has had opportunities to join the federal order program in the past, and we know how the state’s dairy industry has fared because it opted not to do so.

What we don’t know is how California’s dairy industry will fare if it decides to join the federal order system. If nothing else, California would be giving up control over its own fate, control that has helped propel unbelievable growth over the past 46 years. DG


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