FRESNO, Calif., June 1, 2017 — The future of the California dairy industry is at a crossroads as producers consider joining the USDA’s proposed Federal Milk Marketing Order (FMMO). For more than 30 years, dairy producers in the Golden State have received lower prices for their milk than their counterparts, who are regulated by the federal system.
The USDA recently closed its comment period on the proposed California FMMO, and will release a final proposal later this year. If the California dairy industry votes to join the FMMO as it is currently written, the industry can expect significant implications, according to the latest RaboResearch report, “California’s Milky Future – Analyzing the Proposed FMMO.”
According to the report, milk prices paid to California producers are likely to increase, albeit less than the USDA’s estimated 48 cents/cwt annual increase through 2025.
“If dairy producers opt to join the FMMO, there will be changes through the entire supply chain, from dairy producers to consumers,” says James Williamson, an analyst with RaboResearch Food & Agribusiness, a unit of Rabobank Group. “Producers may have to reconsider where they ship their milk, processors will have to develop new marketing plans, and consumers in select regions will likely end up paying more for their fluid milk.”
The report outlines four critical industry implications associated with joining the FMMO:
- The formulas used to calculate regulated milk prices will change — potentially raising prices paid to producers.
- Processors of anything other than fluid milk will be able to avoid paying these regulated prices if they choose.
- Processors in fluid milk deficit regions — such as Southern California — will have to pay more to procure their milk, which will increase regional consumer prices.
- The California quota program will be jeopardized in the long term, even if the California Department of Food and Agriculture is able to assess all Grade A milk produced.
“Whether or not the FMMO is joined, it is imperative to the health of the industry to find ways to increase producer margins,” said Williamson. “In its current state, producers are closing their doors and total milk supply is declining.”
Rabobank’s report concludes that any increase in producer prices will be less than the USDA’s estimated 48-cents/cwt, since processors will be able to depool. Any increase in the price producers receive will also be insufficient to cause a significant increase in the amount of milk produced in California. Rather, it would help stabilize production levels, stemming some of the flow of those leaving the industry by helping to offset some of the costs associated with ongoing labor and environmental regulatory constraints.