Editorial Comment Publisher/Editor


California Federal Order Proceeding Continues To Drag On

Dick Groves
Cheese Reporter Publishing Co., Inc.
dgroves@cheesereporter.com 608-316-3791

February 16, 2018


Just when you think you’ve seen it all in the dairy industry, along comes USDA last week with the announcement that it will be delaying, for several months, its final decision on a California federal milk marketing order as it awaits a US Supreme Court decision on a related legal matter.

So it now appears that the California dairy industry has little choice but to sit, and wait (some more). And the same thing applies to the entire US dairy industry, albeit to a somewhat lesser extent.

That this is happening in February should probably come as no surprise to those who have been following the California federal order proceeding. It was three years ago, in February 2015, when three dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — requested that USDA call a hearing to promulgate a federal order for California.

Almost exactly two years after USDA received that petition, in February 2017, the agency released a recommended decision proposing that a California federal order be established. Comments had to be submitted by May 15, 2017, which then seemed to set USDA up for announcing a final decision this month, give or take a month or two.

Instead, California’s dairy industry is stuck in limbo. On the one hand, it seems inevitable that California’s dairy producers will vote, once a final decision is finally released, to join the federal order program, especially in light of the overwhelming support that California dairy producers gave to the proposed Quota Implementation Plan (87.2 percent of those eligible producers who voted were in favor of the QIP).
On the other hand, California’s dairy industry remains stuck, for the time being, in the state’s longstanding milk order.

The frustration of this situation is pretty obvious, especially in light of the recent petition, submitted by California Dairy Campaign and Western United Dairymen, seeking an emergency hearing to raise milk prices in the state.

As reported on our front page last week, the California Department of Food and Agriculture denied that hearing request, specifically citing the pending California federal order proceeding. Now that proceeding has been delayed.

While it was dairy producers who sought the emergency hearing in California, dairy processors also expressed dissatisfaction with current milk pricing in the state. Several cheese companies asked the CDFA to deny the hearing request, but if the agency did grant a hearing, to open that hearing up to possible changes in the Class 4b and 4a pricing formulas.

As Dairy Institute of California pointed out, the cheese make allowance in the Class 4b pricing formula hasn’t been adjusted in 10 years, while the butter and nonfat dry milk make allowances in the Class 4a formula haven’t been adjusted in seven years.

But California manufacturing costs continue to rise; as reported on our front page two weeks ago, the average cost to manufacture Cheddar cheese in California in 2016 was a record-high 24.54 cents per pound, almost a nickel a pound higher than the current 4b make allowance of 19.88 cents a pound.

Things won’t improve much for California processors if and when California joins the federal order system. The cheese make allowance in the federal order Class III formula, 20.03 cents per pound, has been in effect for almost a decade now.

And, it may be recalled, USDA’s decision to set the cheese make allowance at 20.03 cents found that the CDFA 2006 survey of average cheese manufacturing costs was the best available information representing the manufacturing cost of producing a pound of Cheddar cheese (that cost was actually 19.88 cents per pound; the 20.03 cents per pound make allowance includes a 0.15-cent per pound marketing cost adjustment).

So now, the entire US dairy industry is effectively in limbo while USDA delays the California federal order proceeding, in at least two ways.

First, there is no doubt that California joining the federal order system will have some significant impacts on the US dairy industry as a whole.
Among other things, according to USDA’s own analysis of its recommended decision, a California federal order will raise blend prices in some orders while lowering them in other orders, and will also boost milk production nationally.

Second, the problems being experienced with California milk pricing formulas are also the problems being experienced with federal order pricing formulas. One of those problems was noted earlier: inadequate make allowances that haven’t been adjusted (raised) for almost a decade.
But make allowances are going to remain unchanged for the foreseeable future.

Another problem is the continued use of the dry whey price in the Class III formula. This is impacting both California cheese makers (Farmdale Creamery, San Bernardino, CA, mentioned the “dysfunctional” whey factor that is “completely dissociated from the realities of realizable end product prices in the marketplace” when it asked the CDFA to deny the recent hearing petition) as well as cheese makers in federal orders (when USDA, three years ago this month, asked for comments in its regulatory review of federal orders, the use of the dry whey factor in the Class III formula was roundly criticized by the Wisconsin Cheese Makers Association).

Maybe the dairy industry has gotten this whole California proceeding backwards. Maybe the US dairy industry should have tried to join the California system; at least then changes could be made more quickly than they are now.

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to
dgroves @cheesereporter.com.



Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 35 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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