Dick Groves
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A California Federal Order And Its Nationwide Impacts

While pretty much every step in the process has been based in California, the prospect of a California federal milk marketing order certainly will have implications far beyond that state’s borders. And that makes the California federal order hearing that begins next month worth watching for everyone involved in the US dairy industry.

As reported on our front page last week, the US Department of Agriculture announced that a public hearing will be held beginning on Tuesday, September 22, 2015, in Clovis, CA, to consider and take evidence on a proposal to establish a federal order to regulate the handling of milk in California. If still ongoing (as expected), the hearing will be held on October 22 and 23 in Fresno, CA.

As noted above, everything about this hearing, up until now, has been California-based. It was more than two years ago when California’s three largest dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — announced that the findings of a five-month study they commissioned indicated that a properly written federal order for California would provide a regulatory structure that could potentially result in higher farmgate milk prices.

About a year and a half after they announced those study findings, the three co-ops petitioned USDA to conduct a hearing on a possible California federal order. Three California entities submitted alternative proposals, information meetings were held in California, and in a little over a month, this long-anticipated hearing will begin in California.

But while a California federal order would have profound and lasting implications for California’s dairy industry, its potential implications on the dairy industry beyond its borders cannot be understated. This point becomes obvious when reading through USDA’s preliminary regulatory impact analysis of the co-ops’ proposal, as well as other proposals.

Notably, the co-ops’ 2013 study findings appear to have been confirmed by USDA. Specifically, the agency’s preliminary impact analysis forecasts that adoption of the co-ops’ proposal would increase total California producer revenue by an average of $700 million per year across the 2017 to 2024 forecast period, and would also increase the California all milk price by $1.03 per hundredweight and boost California milk production by 540 million pounds per year.

So USDA’s study agrees with the study conducted two years ago on behalf of the co-ops: a properly written California federal order would provide a regulatory structure that could potentially result in higher farmgate milk prices in California. Quite a bit higher, as it turns out.

But while a California federal order (established as the co-ops have proposed) would have a positive financial impact on California dairy producers, it would have a negative financial impact on dairy producers outside the Golden State, USDA’s analysis shows.

Specifically, the increase in California’s milk production would lead to lower uniform prices, lower all-milk prices, and lower producer revenues across most of the rest of the US, with the exception being the current unregulated areas of the former Western federal order, where “modest increases” in producer revenue and increases to the all-milk price would be similar to those observed in California, USDA said.

This raises a couple of interesting points. First, because two of the three co-ops behind this California federal order proposal — DFA and LOL — are based outside California, how thrilled are the co-ops’ non-California members going to be when they find out this proposal will potentially reduce their milk prices?

And second, since USDA’s analysis indicates that milk prices in currently unregulated areas of the former Western order would increase under the co-ops’ proposal, might we see, if a California federal order becomes a reality, more producers push to terminate their orders in order to boost milk prices?

Taken to the extreme, we could see a highly improbable situation, a few years down the road, in which the federal order system includes just one order, the new California order, and all other orders have been terminated. Yes, that’s highly improbable, but many observers have said for many years that it was highly improbable that California would join the federal order system.

At the plant level, the co-ops’ proposal would, according to USDA, reduce national prices for Cheddar cheese, butter, nonfat dry milk, and dry whey for the period of 2017 through 2024, which would also reduce federal order class prices. In California, the California Class I price would decline, while other class prices would increase, including the California Class III price, which would rise by $1.84 per hundredweight.

This latter point reminds us again of the talk, at the 1989 Midwest Milk Marketing Conference, by Bill Blakeslee of Mid-America Dairymen (now part of DFA). Blakeslee talked about California’s Class 4b price being so much lower than the federal order cheesemilk price (then the M-W price) that California cheese could “go from the West Coast to the East Coast and have a competitive advantage over the Midwest.”

That “competitive advantage” that California has had for all these years would basically disappear if a California federal order becomes a reality. And at the same time, more milk would go into Class III and Class IV products in California.

And that’s a key reason why a California federal order has such enormous implications for the US dairy industry.


FDA Needs To Hear From Industry On Raw Milk Cheese

Well, that didn’t take long. Just a week after we called on the US Food and Drug Administration (FDA) to “move ahead on changing its raw milk cheese regulations,” the agency did just, sort of. It’s a small step, granted, but at least FDA is finally taking the initiative on the raw milk cheese issue.

As reported on our front page last week, FDA is requesting comments and scientific data and information that will help the agency in identifying and evaluating intervention measures that might have an effect on the presence of pathogens in cheeses made from raw milk. Electronic or written comments and data may be submitted through November 2, 2015.

FDA’s Federal Register notice inviting public comments is pretty brief, but also pretty telling. The agency noted that a 2012 review of foodborne illness outbreaks that occurred between 1993 and 2006 that were attributed to dairy products determined that more than 50 percent of the outbreaks reviewed in the study involved cheese, and that 42 percent of the 65 cheese-associated outbreaks were attributable to products manufactured from raw milk.

The 60-day aging period for cheese made from raw milk was “presumed to act as a control measure to reduce the risk that pathogens would be present when the cheese was consumed,” but the “available data and information raise questions about the safety of cheese” made from raw milk, “even when aged,” FDA stated.

Also last Friday, FDA released the “Joint Food and Drug Administration/Health Canada—Sante Canada Quantitative Assessment of the Risk of Listeriosis From Soft-Ripened Cheese Consumption in the United States and Canada,” which concluded, among other things, that there is, “approximately, a 50- to 160-fold increase in the risk of listeriosis from a serving of soft-ripened cheese made from raw-milk, compared with soft-ripened cheese made from pasteurized milk” (this observation is from the 10-page “Interpretive Summary,” rather than from the 192-page report itself).

In its request for comments, FDA said it is “continuing to evaluate the safety of processes for the manufacture of cheese, particularly processes for the manufacture of cheese from unpasteurized milk,” but it’s pretty obvious that the agency has already concluded (and likely reached this conclusion back in the late 1990s) that it considers the 60-day aging period for raw milk cheese to be inadequate.

Indeed, it points out that results from the FDA-Health Canada Quantitative Risk Assessment on listeriosis “suggest that the 60-day aging period for soft-ripened cheese may increase the risk of listeriosis” by allowing more time for L. monocytogenes, if present, to multiply (rather than decrease) as the cheese ages.

So, if nothing else, FDA’s request for comments and data can realistically be considered the beginning of the end of the 60-day aging rule for raw milk cheese.

FDA said it is specifically requesting comments and scientific data and other information to, among other things, understand current practices to reduce the potential for foodborne illness during the manufacture of cheese from raw milk. For example, to what extent do raw milk cheese producers solely rely on an aging period to significantly minimize pathogens that may be present in unpasteurized cheese? And what are those other control measures?

The agency also wants to know whether, for pathogens other than Listeria monocytogenes, a 60-day aging period is effective in adequately reducing a broad spectrum of pathogens that could be in cheese made from raw milk.

And FDA wants to understand the prevalence of testing during manufacture (for example, testing for pathogens of each lot of cheese manufactured from unpasteurized milk and of bulk shipments of raw milk), how practical such testing would be, and how much it would cost.

The FDA-Health Canada risk assessment provides some interesting perspective on testing. Here’s what that report says: “For raw-milk cheeses, testing milk is less efficient than testing cheese lots.” It would appear that any future FDA regulation of raw milk cheese will include some sort of final product testing requirement.

It will be mighty interesting to see how many comments FDA receives in the next three months, and also how diverse those comments are. FDA received a total of 96 comments on its draft risk assessment of listeriosis in soft-ripened cheese; those responses came from organizations such as the International
Dairy Foods Association and American Cheese Society, as well as a number of cheese makers and others.

And that was just a draft risk assessment. Now, FDA is interested in comments and data on various issues related to the manufacture of raw milk cheese, with the obvious outcome eventually being changes to the current 60-day aging requirement.

So the clock has started ticking. FDA has established a comment deadline of November 2, 2015.

Our guess is that the agency will hear from entities around the world, not just in the US. After all the US imports more than 300 million pounds of cheese every year, and a fair amount of that cheese is made from raw milk. Any changes to FDA’s raw milk regulations could have a significant impact on cheese makers around the world who export to the US, as well as US companies that have long imported those cheeses.
No doubt some people would like the US to be able to import more raw milk cheeses.

Comments can be submitted electronically at: www.regulations.gov. The docket number is FDA-2015-N-2596.

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