California milk producers, who sustained steep losses over the past year because of low milk prices and high feed costs, are pushing legislation that would change how the state sets the price of milk used in cheese production.
But their bill is causing a rift in the state's dairy industry, because it would largely take a share of the price of cheese away from milk processors and shift it to dairy operators.
Western United Dairymen, the Modesto-based trade group behind the bill, said it would give milk producers about $200 million a year in additional revenues. That's important in San Joaquin County, where milk is the No. 1 farm commodity.
The relief sought in Assembly Bill 31 is much needed, Western United Dairymen CEO Michael Marsh said.
"Even though today our price is at relatively historically high levels, feed costs have just been hammering producers," he said. "It's a vise around the livestock producers' necks."
Those high milk prices barely cover the costs of production, Marsh said. And dairy farmers could use higher returns to cover losses sustained earlier this year, when prices were much lower.
But it's not fair to shift the burden of high feed prices onto California cheese makers, said Rachel Kaldor, executive director of the Dairy Institute of California, the Sacramento-based trade group that represents processors.
"We like to see producers get a good milk price, but it has to be one that allows cheese makers to operate in a global, national and state market," she said. "We just feel that AB31 is just absolutely the wrong approach."
To assure a reliable and safe dairy supply, California regulators set minimum wholesale milk prices in the state under a complex scheme that considers milk grades, location, production rights, commodity prices and more. A similar federal system controls prices in most of the rest of the nation.
Western United said its bill would more closely align the value for whey under the California formula for milk used in cheese with federal pricing. Whey is a byproduct of cheese production that contains lactose, vitamins, protein and traces of fat. Once considered a waste product, it is increasingly valuable because of modern processing technology and new applications.
In a news release, Western United President Tom Barcellos said, "Too many of our dairy families have fallen victim to a milk pricing formula that has failed to capture for producers the true value of the milk and its components in the face of extraordinary feed costs."
However, Kaldor countered that the bill would toss a monkey wrench into a state pricing system that tries to balance all interests of the dairy industry and consumers.
Various market forces contribute to the higher milk prices paid by Midwestern cheese plants, she argued, but it makes no sense to try to impose those same prices in California, where such market conditions do not exist.
"We consider it unfortunate that Western United is moving milk pricing from the regulatory arena, where it's overseen by experts in the California Department of Food and Agriculture, over to the Legislature so that the Legislature, in effect, is setting a milk price," she said.
Western United hopes to strike fast.
The bill introduced Dec. 3, the first day of the new two-year legislative session, already has nearly 54 Assembly members as co-authors, said Marsh, who added he hopes to get half that many state Senate co-authors. That would provide two-thirds majorities in both houses.
"Then I can move it very, very quickly," he said.
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