By LEE MIELKE
Mielke Market Weekly 

California’s dairy processors, through the Dairy Institute of California (DIC), dove into the Federal Milk Market Order debate last week by offering an alternative proposal to one recently introduced by three of California’s largest co-ops: California Dairies Inc., Dairy Farmers of America, and Land O’ Lakes. So have the California Producer Handlers Assoc. and Ponderosa Dairy.

The DIC charges that "There are no significant disorderly marketing conditions that would warrant either a hearing or, after any hearing, the promulgation of a California Federal Milk Marketing Order." They add that "The Cooperatives’ conclusion that there are disorderly marketing conditions is merely their assertion and rests squarely on the perceived inequity caused by differences between the regulated prices for milk used to produce cheese and whey under the FMMO and California Food & Agriculture (CDFA) programs, respectively."

I talked with DIC Executive Director Rachel Kaldor on DairyLine Friday, April 17, and my take-away is that California needs to compare oranges with oranges, not oranges with apples. She explained that the DIC proposal is structured after the other 10 existing Federal orders (FO).

The proposal introduced by the three major dairy cooperatives in California would be "an anomaly," according to Kaldor, "very unique, only to California." She said it "takes the California system that includes mandatory pooling on all classes (of milk), makes all plants pool plants under the Federal order, would take that system into the Federal order system, and basically just call the California program now a Federal order." The DIC alternative proposal is constructed like the other FOs now in existence.

I asked if the motivation behind this move to a FO was the price discrepancy between the FO Class III price and California’s Class 4b price (which regularly lags the FO price by a wide margin), and Kaldor said yes. She argues that the FO price is "a price that allows processors to pay below that price when milk is in surplus. It’s a benchmark, not a hard floor. The California 4b price is a hard floor," she said. "And unlike Wisconsin, where there’s stiff competition for milk, milk oftentimes is over that Class III price because of that competition."

"In California, milk is often long or at least close to that," she explained, "Less competition – and as a result the price has hit a bull’s eye. It has to be a market clearing price. The FO price doesn’t have to be, California price does.

"The FO price in California would raise that floor and create a surplus of milk, wouldn’t be market clearing, and plants wouldn’t be competitive. If you have Federal order price, you need to have Federal order rules," she concluded, "There’s a reason for that. Without that you’ll have imbalance, uncompetitive plants, and milk in surplus."

Read all the petitions offered at www.ams.usda.gov/AMSv1.0/CAOrder

The National Milk Producers Federation (NMPF) praised House lawmakers Thursday, April 16, for voting to repeal a tax it believes hurts dairy producers.

"It’s hard enough for new generations of dairy producers to establish their own farms without the prospect of the estate tax penalizing the transfer of farms between generations of family members," an NMPF press release stated.

"That’s why we support the action today in the House of Representatives to repeal the estate tax. H.R. 1105, the Death Tax Repeal Act, banishes the specter of the estate tax from the same business people that we should be encouraging to invest in the future of America’s food production.

"Dairy farming, like most forms of agriculture today, is a capital-intensive enterprise and has become even more so in the past decade as land values have risen. When younger farmers inherit farms, they are often asset rich and cash poor. The estate tax can hit them with a bill to the IRS that is prohibitively costly. This legislation helps address that problem and will facilitate the ability of established farmers to transfer their businesses to their offspring.

"The bill repeals the estate and generation-skipping transfer taxes and makes permanent the maximum 35 percent gift tax rate and lifetime gift tax exemption. It also provides for an inflation adjustment to such exemption amount. By repealing the death tax, it will provide more certainty to the agriculture sector and protect farms’ financial viability for future generations. We encourage the Senate to pass similar legislation to help our family farmers."