Big dairy sours on state price controls

May 25, 2012

By Joseph Perkins

A civil war has broken out within California’s dairy industry, pitting milk producers against cheesemakers.

The two sides are at odds over the state Department of Food and Agriculture’s valuation of whey, the liquid left after curds are separated from milk to make cheese.

But the real issue is the Ag Department’s anachronistic milk marketing program, which has regulated dairy prices here in California for more than three-quarters of a century.

The state’s milk producers have petitioned the Ag Department’s to revisit the decision it made this past September in which it revalued whey from a fixed 25 cents/cwt. to an adjustable 25 cents to 65 cents/cwt.

The valuation is factored into the state-regulated pricing formula for Class 4B milk, which is used in cheese (other than cottage cheese) and whey products.

Even with the Ag Department’s markedly increased valuation of whey, milk producers complain that it’s still not high enough. They say demand has driven up whey’s value above the state’s 65 cents/cwt. cap.

The state Milk Producers Council asserts that, since the Ag Department’s whey price controls took effect eight months ago, the price for Class 4B milk has been $2.54/cwt. less than the price for comparable milk produced in states operating under the federal milk marketing order.

The disparity between milk prices in California and other dairy states is “disturbing and outrageous,” said MRC spokesman Rob Vandenheuval, in a recent newsletter the group published.

Since last September, according to MRC, the state’s milk producers have sold more than 1.4 billion pounds of milk per month to the state’s cheesemakers. That means cheesemakers have received “a state-sponsored discount of $260 million,” said Vandenheuval, at the expense of the state’s milk producers.

The state’s cheesemakers see things differently. With the valuation of whey more than doubling over the past eight months, the petition by milk producers to further increase the valuation of whey is an “onerous and obscene demand,” wrote Norman Shotts II and Scott Hofferber of Farmdale Creamery, a smaller cheesemaker, in a letter to the state Ag Department.

The sentiment expressed by Shotts and Hoffberger represents that of most of the state’s cheese processors. According to the Dairy Institute of California, which has sided with cheesemakers in their civil war with milk producers, since the Ag Department ratcheted up its valuation of whey, most smaller and midsize cheese manufacturing have seen their profit margins erode, because they have been forced to pay sharply higher prices for milk.

The state Ag Department will try to broker peace between the state’s milk producers and cheesemakers when it holds three days of hearings next week, after which it will decide whether it should revalue whey yet again.

But that won’t address the real issue, which is the state continuing to regulate milk prices from the dairy farm to the dairy case.

It’s time the state abandoned such price controls. The free market — rather than Ag Department bureaucrats — should determine the value of whey as well as the price milk producers fetch for their commodity.