State dairy farmers weighing a shift to federal pricing

jsmith@mercedsunstar.comJuly 31, 2012 

California dairy farmers struggling with high feed costs are considering a push for federal intervention after a failed effort to substantially raise the minimum price paid by processors for milk.

The California Dairy Campaign, a chapter of the California Farmers Union based in Turlock, has been trying to build support for joining the federal milk marketing order.

"We need to be in reasonable relationship to what's being paid in other surrounding states," said Lynne McBride, executive director of the California Dairy Campaign. "The stakes are pretty high in terms of how the landscape for dairy farms is going to look in the state."

However, though California has one of the lowest minimum prices for milk in the country, government regulation may not tell the whole story.

Milk prices are in large part the result of supply and demand, said Bill Schiek, economist for the California Dairy Institute, a trade association representing dairy processors.

"California has always been in a situation where we push the boundaries on milk production," he said. "Usually prices are low because there's an abundance of milk."

McBride disagreed, calling California's milk pricing formula -- which is largely based on the Chicago Mercantile Exchange -- "inaccurate" in terms of the real value of milk.

"The reason why our prices are low is that it's based on a thinly traded market," she said. "Very few trades occur from a limited number of buyers."

McBride also said the limited number of processors in the state means dairy farmers have little leverage.

"If the handler chooses not to buy your milk, you have very few options," she said. "They're able to exert a certain amount of power and control over the market."

However, Schiek said raising the minimum price of milk would scare away potential dairy processors who are concerned about the state's tough environmental regulations. "It would be the nail in the coffin, saying don't come here if you want to build a plant," he said.

To be regulated under the federal milk marketing order, dairy farmers would have to petition the U.S. Department of Agriculture to hold a regional election and then get a two-thirds vote.

But many diary farmers are reluctant to back this kind of federal regulation for milk prices because it would mean discarding the state's "quota" system.

The California Dairy Campaign has been lobbying Congress to pass legislation that would allow the quota system and several state quality standards to remain in place if dairy farmers voted to be regulated under the federal milk marketing order.

Reporter Joshua Emerson Smith can be reached at (209) 385-2486 or jsmith@mercedsunstar.com.

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