California Changes to Regulated Milk Price Formulas Have Broad Implications
On November 20, the California Department of Food and Agriculture (CDFA) announced significant changes to pricing formulas covering milk used in cheese processing and dry whey beginning December 1. By far the most significant change replaces the formula currently used to determine the value of whey with a fixed value of 25 cents per hundredweight of milk; other changes include increasing some make allowances and wholesale product price location-adjusters used in the minimum milk price formulas.Based on CDFA's own analysis, these changes would have reduced the minimum value of milk in California during the past year by $379 million. IDFA believes the changes will have broad implications throughout the country, especially for companies in market areas operating under Federal Milk Marketing Orders.
"This decision will create a tremendous competitive disadvantage for companies in markets that must continue to follow minimum pricing requirements set by the federal order system," said Bob Yonkers, IDFA chief economist. "Dairy products manufactured in California will be produced with lower cost milk, but the plants producing them will be allowed to recoup more of their costs of manufacturing."
Small California cheese processors petitioned the state agriculture department earlier this year, requesting a public hearing to consider eliminating the part of the minimum milk price formula that values whey. Nearly half of California's milk is used for cheese production.
The department held a public meeting on October 10 and, responding to comments made at the meeting, announced its decision in time to implement increases before the end of the year. Because California is not part of the federal order system, it often can make these changes much more quickly.
IDFA and several other industry participants have been working with the U.S. Department of Agriculture to increase the federal make allowances for Class III and Class IV milk to represent current market conditions as well as make other changes to the formulas, but USDA has been slow to act and reluctant to update the data it uses to develop pricing formulas. Recognizing this challenge, the House of Representatives included in its version of the Farm Bill a commission that would help to streamline the Federal Milk Marketing Order (FMMO) system. The House dairy title also includes a provision to expedite the FMMO hearing process, which can take as long as two years to reach a decision.
IDFA is reviewing the ramifications of this decision and considering possible action steps. For more information, contact Yonkers at byonkers@idfa.org or 202-220-3511.
To read the California announcement, click here.
Posted December 3, 2007