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Adopting Federal Order Provisions May ‘Significantly Alter’ California Price Advantage

Other Key Issues For CA Federal Order Include Quota System, Depooling; CA Producers Urged To Consider Future Of Orders


Champaign, IL—A paper by three US dairy economists examines key factors to consider with a California federal milk marketing order.

The 2014 farm bill permits California to join the federal order system, but the order must encompass the entire state, and the new order may (not shall) use a quota plan to determine individual producer payments, notes the paper, written by John Newton of the University of Illinois, Cameron Thraen of Ohio State University and Andy Novakovic of Cornell University.

USDA’s Agricultural Marketing Service would still have to receive a formal petition from California producers and conduct a promulgation hearing to collect evidence about the market and hear testimony on desired provisions.

A 2013 study commissioned by three major dairy cooperatives indicated that a properly written federal order for California would provide a regulatory structure that could potentially result in higher farmgate milk prices.

Staff from California Dairies Inc., Dairy Farmers of America and Land O’Lakes are drafting federal language to initiate the process.

The basic design of a federal order is the same across all geographic orders, but there are “numerous specific variations that are designed to serve the particular characteristics and needs of a marketing area. This would be an extensive and complex process,” the dairy economists noted.

California has long regulated its dairy industry under its own milk pricing plans and revenue pooling arrangements and has remained autonomous from the rest of the US and the federal order program, the paper explained. Over time, federal order classified milk prices and the California state order milk prices have been “rather highly correlated,” with the general feature that California prices averaged a bit lower.

This lower price gave California manufacturers a cost advantage and was justified as a way to encourage increased investment in manufacturing capacity for a state whose farmers found even these slightly lower prices to be a sufficient incentive to their own ongoing growth.

Since 2009, however, certain California and federal order milk prices have shown a “much wider divergence” that at times has resulted in the

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