Lines forming on latest California 4b hearing request

Familiar, opposing lines are already forming regarding the latest petition for a hearing to consider changes to the California Class 4b milk pricing formula.

On Nov. 2, California Dairies, Inc. (CDI), Dairy Farmers of America Western Area (DFA) and Land O’Lakes, Inc. (LOL) submitted a petition to the California Department of Food and Agriculture (CDFA), requesting an emergency public hearing to consider a change to the Class 4b pricing formula. Signing the petition were CDI chair Andrei Mikhalevsky, DFA chief operating officer Dennis Rodenbaugh, and LOL chief administrative officer Pete Janzen.

The petition specifically requests a temporary modification to the sliding scale that translates market prices for dry whey into higher monetary contributions to the California Class 4b price. This change to the Class 4b milk pricing formula would remain in place for 12 months and would represent the full value of whey as contained in the federal order Class III pricing formula.

CDI, in coordination with DFA and LOL, requested an amendment to the sliding scale for whey value as used in the Class 4b formula. To see the scale, click here.

On Nov. 7, the producer organization, Western United Dairymen (WUD), and the state’s largest processor group, the Dairy Institute of California (DIC), submitted letters on opposite sides of the petition request.

In their letter, WUD president Tom Barcellos and CEO Michael Marsh echoed the request for a hearing. Citing the financial distress facing California dairy families, the WUD leaders said CDFA should reconsider the changes – which had been denied following a hearing last May 31-June 1 – on an emergency basis.

“As the petitioners clearly outlined in their letter, California dairy families are struggling,” they said. “A drought caused a significant hike in feed prices, leaving dairymen with a feed bill that represents an ever increasing part of their total cost of production. While dairymen across the country may have faced an increase in feed costs, California dairymen must also deal with a lower milk price, which leaves them with unsustainable margins. As we have argued in the past, the current sliding scale does not come close to the value generated by the whey factor in the federal order Class III price. 

“We still strongly believe relief is needed and changes need to be made,” they continued. “The petition submitted by CDI, DFA and LOL proposes a sliding scale that matches the value in the Class III formula for a period of 12 months. This is an appropriate short-term solution to this issue and we support their proposal.”

Meanwhile, DIC executive director Rachel Kaldor said CDFA should again deny the hearing request.

“While we are cognizant of the struggles facing many California dairy farms, the solution proposed again by the cooperatives simply cannot be the answer,” she wrote. ”The minimum price requirements that would result from their proposal would be devastating to numerous California cheesemakers and would poison the climate for any additional proprietary investment in the state’s cheese industry. For this reason, the cooperatives} proposal should be vigorously rejected.”

Kaldor said the market was already providing price relief for struggling California dairy producers, noting that wholesale dairy product prices were up 40%-50%, and that those higher prices would work their way back to dairy farmers through existing milk pricing formulas. In addition, the state's largest cheesemakers have increased premiums paid to producers in response to tightening supply conditions.

“The current high cost of feed facing California producers was brought about by an unusually severe drought amid strong demand for grains,” Kaldor continued. “Western events such as this are transitory, bringing about a temporary, albeit sometimes painful, change in market conditions. But changing the regulated pricing structure in response to temporary market challenges does not make for good dairy policy and sends the wrong signals to both producers and companies considering making investment in the state. In making efforts to position California for long-term success, it would be unfortunate if we address short-term concerns in a manner that sabotages the industry’s future by driving potential investment away, perhaps permanently.

“The fact that the state’s dairy farmer cooperatives have largely abandoned their past cheese plant investments suggests that they are unlikely to reverse course and assume the necessary market-based risks or put up the enormous capital necessary to make sustainable investments in the cheese business,” Kaldor wrote. “Therefore, driving proprietary cheese investors away from California, which will surely happen if their petition is successful, will commence a vicious cycle of disinvestment and industry decline, which will cost even the most competitive and successful dairymen their chance at a profitable future in California.”

CDFA secretary Karen Ross had 15 days to respond to the Nov. 2 hearing request. If a hearing is granted, it could be held as early as Dec. 1.

For more on the petition and comments, visit http://www.cdfa.ca.gov/dairy/uploader/postings/petitions/