California milk producers and processors clash over pricing system

A fight over California’s arcane milk-pricing system, which determines how much dairy farmers are paid for milk and other products, has spilled over into the federal farm bill and the state Legislature.

On one side are farmers, who have been struggling in recent years with high feed and other costs. On the other are processors, who don’t want to pay more for raw materials.

The problem, farmers say, lies with the state’s milk-pricing system, in place since the 1930s as a way to control market volatility. It’s too stingy, they say, paying less than the federal pricing system, particularly for a class of milk destined to be made into cheese as well as for whey, a milk byproduct that also goes into cheese.

For that class of milk, California processors pay, on average, $2 less for 100 pounds, the industry’s standard measurement, than under the federal system.

Seeking to be paid more, farmers have asked state and federal lawmakers for an assist.

Rep. David Valadao (R-Hanford), a Central Valley dairyman, introduced language in the House farm bill, which passed Thursday. It could pave the way for dairy producers to petition the U.S. Department of Agriculture to be included in the federal milk-pricing system. Lawmakers still have to reconcile the House farm bill with the Senate version.

A group of dairy industry representatives is also working on a compromise to move forward a state bill, AB 31, which originally sought to raise the price paid for whey.

The effect on consumers would be negligible, experts said. If farmers were paid more, it would amount to a few additional cents tacked onto the price of cheese.

Farmers complain that California has not been receptive enough. About 290 dairies have gone out business since 2008, according to state agriculture statistics.

Mary Cameron, 83, is one of them.

Cameron operated Atsma-Cameron Dairy for 57 years, but she said high operating costs and low milk prices prompted her to sell about 800 cows recently.

The bills sitting in Congress, she said, “might be the answer that we need, but it all takes time.”

Farmers, however, face stiff opposition from cheese processors.

The Dairy Institute of California, the processor trade group, said that if farmers push through AB 31 and raise whey prices, it could force some cheese makers out of business and prevent others from expanding, which could cost the state jobs.

AB31 is stalled in committee as representatives for farmers and processors try to reach a compromise. So far, scant progress has been made, said Rachel Kaldor, executive director for the dairy institute.

On the federal level, Valadao is pushing on two fronts. The House farm bill, now in the House Agriculture Committee, has language that could bring the state under the federal milk-pricing system.

He had also introduced a separate bill in March with the same goal. If his measures are successful, it would take a couple of years before they take effect.

The California Department of Food and Agriculture hasn’t taken a position on the bills. Karen Ross, secretary of the department, wouldn’t comment on specific legislation, spokesman Jay Van Rein said. But any solution should be agreed upon by all stakeholders in the dairy industry, which include farmers and dairy processors, Van Rein said.

The haggling over prices isn’t new. Late last year, four dairy farming groups filed a lawsuit against Ross with the aim to boost prices. A San Bernardino County judge ruled against the dairy farmers, saying the suit was “arbitrary and capricious or entirely lacking in evidentiary support.”

Still, Valadao and other farmers are pressing for increases that he said “would be more beneficial” and bring California “more in line with the rest of the country.”

Even a modest boost could save dairies on the brink of bankruptcy, Cameron said.

“If California hopes to maintain a dairy industry, they’d better do something very fast,” she said.

Still, for all their wrangling over milk prices, farmers could regret their decision to join the federal pricing system, said Leslie Butler, a UC Davis dairy economist.

The state system, even with its flaws, is nimbler than its federal counterpart, he said.

“It’s understandable why dairymen are angry and desperate to take these measures, but in the end I’m not sure they really want a huge change in their system,” Butler said.

Kaldor said the dairy institute hasn’t staked out a position on Valadao’s bills, saying petitioning the USDA for inclusion in the federal pricing system is the farmers’ decision. It would put California on a level playing field with other dairy-producing states, she said.

Meanwhile, the state agriculture department has implemented an emergency price increase for milk through the end of the year.

In a letter to dairy farmers after the price increase was announced, Ross said “the testimony on the hearing record failed to provide economic data to justify the industry’s positions.” Nonetheless, uncertainty over this year’s corn crop and instability of the dairy market’s recovery justified the slight price hike, she said.

The price increase across all classes of milk is about 12.5 cents for 100 pounds of milk. For a 1,000-cow dairy, that’s an extra $2,000 a month, Butler calculated.

The farmers’ wrangling over whey prices is just a side show to the inevitable consolidation in the California dairy industry, experts say. With more than 2,100 dairies operating at its peak, the industry is shrinking and is on its way to a more sustainable equilibrium.

In the end, “there are no easy answers,” he said. “Someone’s going to get hurt here.”

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Twitter: @rljourno