Three hundred eighty-seven California family businesses have shut their doors in the past five years. The employees were laid off, the equipment sold and what once were hubs of frenetic commerce are now overgrown with weeds. These closed family businesses were dairy farms.
A solution ensuring the survival of the remaining 1,500 California family dairies will cost consumers nothing.
Milk prices in California and outside our state are regulated. The reasons for these regulated prices are similar. Government intervention was requested by farmers to stem abusive business practices employed against them by milk processors.
The legislative record detailing these abuses at the time would create a gleam in the eye of the most sophisticated criminal. Kickbacks, contract protection payments, bags of cash left for a field man -- extortion at its worst. All were schemes employed by processors to hold farmers hostage, and they worked well.
Milk, unlike other agricultural products, is harvested 24 hours a day, 365 days a year. Absent a home for his or her milk, the farmer is out of business. Milk processors used this to their advantage, coupling this knowledge with abusive practices to keep the farmers in servitude. The farmers were forced to compete against one another for a home in the processors' plants.
Farmers fought back against this abuse and took their fight to the state Capitol, passing legislation signed by Gov. Ronald Reagan in 1967.
The legislative deal that was struck meant that farmers would pay for the construction of the cheese plant, would pay to haul their milk to the cheese plant, would pay the plant to process their milk into cheese and provide the cheese plant owners with a return on their investment. The farmers also agreed to pay to move the finished product to market. In return, the cheese plants were to share with the farmers some of the revenues from the sale of products made from the farmers' milk.
That sharing part is the rub. After taking from the farmers to build the plants, process their milk into cheese and move it to market while paying a dividend to the plant's owners, the factories now don't want to share with the farmers. You can't blame them -- it's money.
Dairy farmers have been economically whipsawed in the nation's top dairy state by a confluence of events. There are two primary factors: feed costs driven skyward because of mandates to turn grain into fuel, and a price paid for milk made into cheese that is shockingly less than the price paid for the same use of milk in the other 49 states. Shockingly less!
For example, the March price for milk used to make cheese in Washington, Oregon, Wisconsin, Minnesota, New York, Pennsylvania, Vermont, Texas, Arizona and other states was $1.46 per gallon. California farmers were paid $1.27 for the same milk.
Nineteen cents may not sound like a lot of money but it was a matter of life or death for at least 387 family farms. And the 19 cents transferred hundreds of millions of dollars to California cheese processors.
Assembly Bill 31, sponsored by California State Assemblyman Richard Pan, D-Sacramento, is an effort to remedy this inequity to keep California dairies financially viable and dairy affordable. Farmers don't think we should be having this discussion before the state Legislature any more than cheese factories do. In fact, were it not for a trick played on the state Department of Food and Agriculture by the Dairy Institute (the processors' advocate) in 2007, we wouldn't be before the legislature today.
Farmers have been trying for years to fix this problem. In 2007, farmers asked the ag secretary to remedy this inequity. We asked that we protect the farmers and protect the cheese plants too. The Dairy Institute, protecting the processors from sharing with the farmers, hoodwinked the department with the specious claim that the secretary lacked authority to grant the solution the farmers were requesting. Once bamboozled, the bureaucrats were stuck with their error. Imagine that!
Thus, Pan's bill is asking the legislature to undo the trickery and provide the Secretary with the authority that the bureaucrats claim they lack. And the fix will not cost consumers a penny. The fix also will restore integrity to the deal signed by Reagan and supported by dairy farmers and processors.
Plants need to prosper. Farmers need to prosper too. Keeping dairy affordable is important to California consumers. AB 31 ensures that affordability.
Marsh, a CPA, is CEO of Western United Dairymen, based in Modesto.