By Joseph Perkins

Dr. Richard Pan, a pediatrician, knows a thing of two about health care. That’s why it is understandable the Sacramento Democrat was appointed chairman of the Assembly Health Committee.

But Pan doesn’t know much about agriculture, particularly the vagaries of the state’s milk marketing program. That’s why it doesn’t make sense that he is the author of a measure, AB 31, which would tell the Department of Food and Agriculture, which has regulated milk prices since 1935, exactly how it should now formulate those prices.

Pan is carrying water — maybe I should say milk — for Western United Dairymen, which wrote the self-serving bill to which the lawmaker has attached his name.

Western United’s members reportedly produce 60 percent of California’s milk. The dairymen want Sacramento to take their side in the uncivil war they are waging with the state’s cheese manufacturers, who are represented by the Dairy Institute of California.

The milk producers contend that, because Food and Ag regulators have not sufficiently raised prices for Class 4B milk, which is used to make cheese, they are being underpaid by California cheese makers, which purchase 43 percent of milk produced by California dairy farms.

Yet, Food and Ag raised 4B milk prices 30 percent last year, to $17.50 per 100 pounds. And just recently Food and Ag Secretary Karen Ross granted milk producers another 25-cent price increase.

The milk producers say that’s not nearly enough. They claim they’re losing $3 per hundredweight of milk produced.

Cost increases

In fact, California dairy farmers have seen their costs increase the past year or so, mainly because of higher-priced feed for their cows. But that was factored into the 30 percent hike in 4B milk prices state regulators granted last year, and the extra two bits this year.

The dairy farmers’ real aim is to cash in on the run up in value of whey, a product of cheese making. Whey used to be considered waste, and was simply discarded in the cheese-making process. But then the food and nutrition industry figured out uses for whey and now it’s in high demand not only in the United States, but throughout the world.

California milk producers believe California cheese makers should pay for the whey they derive from making cheese. And that is why they have enlisted the aid of Pan, one of the seemingly least likely Assembly members to get mixed up in the battle between Big Milk and Big Cheese.

Pan’s bill would dictate that the whey value of 4B milk be pegged to no less than 80 percent of the value under the federal milk marketing order (which California has had nothing to do with since creating its own state milk marketing order back in 1935).

If AB 31 becomes law, Big Milk will get another $1.60 per hundredweight on the milk it produces.

California cheese makers are understandably up in arms about Pan’s legislative sop to the state’s milk producers. Yes, they say, the value of whey has increased in recent years. But they point to a Food and Ag report which acknowledged that “the investments required to process [whey] into value-added products are significant and the financial risks…are considerable.”

Of course, there’s a far, far better way — not whey — the state government can settle the uncivil war between Big Milk and Big Cheese: end all price regulations and let the free market determine milk prices rather than Food and Ag, and rather than a state Assemblyman who knows his pediatrics, but not his curds and whey.

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.