CDFA’s billion dollar blunder

By Michael Marsh, CEO, Western United Dairymen

(Oct. 11, 2013 Weekly Update)

An administrative hearing held in December 2007 and the decision rendered by the California Department of Food & Agriculture (Department) as a result of that hearing placed in motion the economic catastrophe California dairy families continue to face. And, those same families will continue to see their businesses fail and their neighbors lose their businesses until that blunder is fixed. 

That fateful decision came from a hearing petitioned for by cheese makers requesting that CDFA disconnect the farmer’s milk price from the market for cheese. CDFA obliged. But, that’s only a part of the story. 

Former CDFA Secretary Bill Lyons in 2003, heard pleas made by California dairy families that the price for their milk going into the state’s cheese vats be connected to the market price for cheese. Secretary Lyons listened and added a whey value to the state’s 4b price in recognition of much broader use of whey processing technology that had been in existence for 40 years. By adding this value to the 4b formula, Lyons closely tied the California cheese price to the price reported on the Chicago Mercantile Exchange as well as the regulated minimum price for cheese found in Federal Milk Marketing Orders. 

Cheese manufacturers were outraged by Lyons’ action and protested loudly that the price paid to farmers for their milk should not be market based. They asserted that it didn’t matter whether farmers should be fairly compensated for their milk. They argued that cheese manufacturers should be allowed to pay the farmers a price not connected to the market. Lyons stood by his decision and stood with the farmers. 

The cheese makers bided their time. 

With the recall of Governor Davis, a new Secretary of Agriculture was appointed at CDFA. Cheese manufacturers pounced at the softer target. Hence, the new Secretary, A. G. Kawamura, agreed to hear whether the state’s dairy farmers should continue to receive a market based price for their milk or whether, as the cheese manufacturers hoped, Kawamura would disconnect the farmer’s milk price from the market. 

Kawamura, set aside expert testimony provided by Western United Dairymen and other farmer groups, and disconnected the farmer’s price from the market. 

Kawamura’s monumental misstep has cost the state’s dairy families dearly. Nearly a quarter of the state’s dairy families lost their businesses having been whipsawed by feed prices driven out of control by a federal ethanol mandate and a California milk price now disconnected from the market. In fact, producer milk price volatility in California was exacerbated to an extreme by this disconnect. Californians experienced extraordinary volatility not experienced in any other production area of the US due to our competitor’s price bearing some relationship to the market price for cheese. 

The only possible outcome from Kawamura’s fateful disconnection of the California producer price from the market is what we experienced…hundreds of dairy families losing their businesses. 

Since Kawamura’s decision, which unfortunately his successor has indicated she has no legal authority to correct, California dairy families have witnessed $940,192,333 transferred from their checkbooks to California cheese makers. And, if pricing trends remain relatively constant through November, that cumulative transfer from farmers to cheese plants will eclipse $1 billion. 

CDFA’s billion dollar blunder! That’s why farmers turned to the legislature and that’s why the legislature attempted, in good faith, to negotiate a compromise with the cheese plants. Farmers deserve a market price for their milk.