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California dairymen see hope in new federal milk marketing order

Dairy cows
California milk producers are pinning hopes of improved returns on a new federal milk marketing order in California.
November 1 marks start of federal milk regulation in California

The likelihood of higher milk prices for California dairy producers is giving a beleaguered industry hope as Order 51 of the Federal Milk Marketing Order (FMMO) became real on Nov. 1. For the first time in California history, milk prices to dairymen are now regulated under the US Department of Agriculture.

Economic projections suggest California milk prices could rise 30-50 cents per hundredweight for producers across the state as the federal government regulates fluid milk processing in the state. While processors of other classes of milk are not regulated by the new federal order there’s hope that the price of milk for these products will also increase for the state’s milk producers.

Dana Coale, deputy administrator for the USDA’s Agricultural Marketing Service Dairy Program, assures California milk producers that the federal process to regulate milk prices will be transparent and understandable by dairymen. The federal order regulates only the processors of fluid milk in California, according to Coale.

“We’re basically deregulating much of the industry out here,” says Cary Hunter, market administrator for the Southwest Marketing Area, which now includes California. This means cheese plants – the largest segment of milk utilization in the state goes to cheese production – can elect to not be pooled on a month-to-month basis. Coale says there is a likelihood at least some milk processors will elect to be part of the milk pool as federal rules may make it financially advantageous for them to be in the pool.

Through the new order California gets to keep its higher fluid milk fortification standard, which sets it apart from other states by augmenting fluid milk with non-fat milk solids to boost quality and flavor. Dairymen also got to keep their milk quota program, which continues to be regulated by the State of California.

“I wasn’t sure I’d ever see this day,” said Geoff Vanden Heuvel, a dairy consultant and former southern California dairy producer. “It was a big hill to climb and a lot of things had to happen over an extended period to get to this day.”

“We’ve been advocating for a federal order for 20 years now,” said Joe Augusto, president of the California Dairy Campaign.

California milk was previous regulated by the California Department of Food and Agriculture, which dairy producers argued for over a decade kept milk prices artificially low to producers when compared to federal order prices. Had California milk been regulated under the FMMO, producers argue they would have been paid $2.5 billion more since 2009 due to the discounted milk prices they were paid under the state order.

“We had a California system because back in the 1960s producers thought they were being abused by processors,” Vanden Heuvel continued. During those days dairymen reported their processors would suddenly, and with little-to-no warning, cancel milk contracts and leave them stuck without a place to sell their milk. The California order sought to change that.

“It was a strict system here in California that worked well for years,” Vanden Heuvel said.

All this changed in the 1980s, according to California Farmers Union President Joaquin Contente. That’s when the California industry came to the realization that it was being left behind under the state marketing order “and it seemed like a good thing at the time for us to have a federal order.”

Efforts to move to the federal order system came to fruition in early 2015 with the request by three milk cooperatives in California – California Dairies, Inc., Dairy Farmers of America and Land O’Lakes, Inc. – to promulgate a milk marketing order. That hearing started in September of that year and lasted about two months, during which various dairy interests argued for and against the cooperatives’ proposal. Combined the three producer-owned groups produce over 75 percent of the milk in California.

Mark Plantenga, owner of Western Sky Dairy south of Bakersfield, Calif., believes the FMMO will be good for California dairymen as milk component pricing is expected to improve, bolstering the all-milk price.

“The last few years have been a horrible time to be in the dairy business,” Plantenga said. “This isn’t going to be an overnight success story, but it does give us hope.”

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