California dairy farmers have been operating under a Federal Milk Marketing Order (FMMO) as of November 1, 2018. Director of Regulatory and Economic Affairs for the California Milk Producers Council, Geoff Vanden Heuvel looked into the economics of how the federal order compares to the previous state system. Looking at 40 months of data, comparing state and federal “All-Milk” prices, Vanden Heuvel found that California dairy farmers are largely better off with the federal order.
“The national mailbox average price for those 40 months was $17.99. The average mailbox milk price for California was $17.93. So, there was a $.06 difference,” said Vanden Heuvel. “I went back to the last 40 months of the state order, an identical timeframe, and the difference between the California mailbox price and the federal mailbox price was $1.07. So, my conclusion is that the federal order has added $1/cwt to the mailbox milk price of California dairy farmers.”
Experiences will vary for producers, depending on the month and whether they are predominantly shipping to cheese plants or butter powder. However, Vanden Heuvel notes that “on balance, it has been a good thing.”
FMMO COULD USE SOME MODERNIZATION
While the FMMO has largely benefited California dairy farmers, there are still areas within the order that could be improved. Vanden Heuvel said that the U.S. Department of Agriculture could use some additional authority as it pertains to processing studies. Under the state order, the California Department of Agriculture had the power to audit manufacturers to obtain factual cost accounting for important conversion formulas. Vanden Heuvel describes the issue as being “fairly significant” in the overall administration of the FMMO.
“We’re talking about a couple of dollars per hundredweight in the case of butter powder and almost $3/cwt in the case of cheese that is the make allowance portion. So, getting that wrong either hurts the processor or hurts the producer. Either way, it creates a question about the validity of that formula,” Vanden Heuvel explained. “It’s important if we’re going to maintain a federal order program, which we think is very beneficial to producers, that USDA has the ability to manage that program in a credible fashion over the long term. So, what’s lacking there is the ability to have a credible manufacturing cost number.”
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