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California dairy farmers to get temporary price hike from state

Jan. 31, 2013 | 0 comments

The California Department of Food and Agriculture said last week that it will temporarily raise the price farmers are paid for their milk from Feb. 1-May 31 as dairy producers struggle under feed prices.

California has had its own state milk pricing system for decades rather than abiding by the federal order system. It is run by state regulators at the CDFA. Under their state order system there are different classifications of milk than those that are included in the federal order system.

Dairy experts explained that historically California state regulators have subsidized the profits from that state's dairy processors - cheese, butter and milk powder plants - and offered liberal make (manufacturing) allowances as an incentive for more milk plants to move to California.

The idea was to build the state's dairy processing sector and also offer California-produced dairy products at a price that could compete with Midwestern- and Eastern-produced dairy products.

Most of the nation's biggest consumer markets are in the East and the Midwest, far from California.

Golden State dairy cooperatives, which are generally major owners of dairy processing facilities, have been in favor of the system. Farmers have generally backed the system because they reasoned that if they didn't have the dairy plants there would be no place for them to ship their milk.

When grain and hay were cheap commodities, this Western dairy production model worked well. But when corn prices began their ascent in recent years, it caused problems for California dairy farmers.

As long as grain was cheap they had a competitive advantage and California's state milk order wasn't a problem.

Most California dairy producers only milk cows and don't farm land. That means they buy the grain and hay to feed their cows. That model worked well for decades, but as grain prices went higher and higher "all previous assumptions were off," says Pete Hardin, publisher and editor of "The Milkweed", a Wisconsin-based national dairy publication.

"Unhappiness on California farms has been building for several years now," he added.

California has lost a number of dairy farms in the past few years and Hardin said there are "a lot more to go. Lenders want more to go. Farmers burned through a lot of equity in 2009 and they have never recovered because of the price of grain and hay."

The pain of producing milk below cost is one of the reasons the California Department of Food and Agriculture is boosting the pay price to farmers but it is far less than the farmers asked for.

The increases will be 5 cents per hundredweight for their Class 1 (fluid use) milk; 10 cents per hundredweight for Classes 2 and 3 (products like cottage cheese, yogurt and ice cream, respectively); and approximately 30 cents per hundredweight for Class 4a and 4b milk - the classes for butter and powder and cheese, respectively.

State officials said that the increases will amount to about a 25-cent increase in the pool price for California's two marketing orders.


California Dairy Campaign president Joe Augusto said the increase is welcome, but it falls far short of the amount needed to bring California prices in line with federal order prices.

Farmers there have argued for years that their prices for manufacturing milk have not kept pace with federal Class III prices.

The California price for 4a milk in December was $17.47 and the 4b price was $16.30 while the Class III base price was $18.66.

In December dairy farmers in California had asked for a $1 per hundredweight increase in prices but that request was denied by CDFA Secretary Karen Ross.

Hardin explained that before the completion of the Interstate highway system and the ease of transportation that it brought, California dairy interests decided it was in their best interest to have their own system.

But in recent years that has led to problems - some of it brought on by market forces and others by the tweaking of various pricing formula calculations.

California has been the nation's leader in milk powder production, making up to 70 percent of that important product. (Though in recent years, as powder facilities have begun operations in the Midwest, California's production has gone backward.)

Who produces powder and how that price is reported is important, Hardin said, because of the value that powder has in underpinning the overall value of dairy products - the powder price is used in other price calculations.

A few years ago it was discovered that California's powder manufacturers were underreporting the price of their export products by $1 per pound below the normal, national milk prices indices, Hardin said.

That had a ripple effect on all dairy prices as 70 percent of the powder utilization was being underreported.

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