Sauve qui peut
*Sauve qui peut -- French: "Save who can," a disorderly retreat.
A very fancy corporate consulting firm announced recently that Merced would lead the way out of recession in the north San Joaquin Valley because of UC Merced. As intrepid Modesto Bee business reporter J.N. Sbranti noted, the fancy new economic model unveiled by the consultants from outer space failed to include the foreclosure rate. This blip failed to live up to the big shot firm’s slogan: “Bringing you the power of perspective.”
There is another problem hovering beyond the dreams of developers, for whom UC Merced is the anchor tenant. Merced is the second largest milk-producing county in the nation. Stanislaus is ranked third. Milk prices have been in drastic decline for six months. The anecdotal figures one hears range from losses of $30,000 to $100,000 per dairy per month, depending on size. There is a report that feed suppliers cut off feed for 60 dairies in recent weeks.
Unlike most of the nation, California -- ranked #1 in milk production, producing about a third of the total national supply -- has its own milk marketing order and sets its own prices. Three components of the California milk-price formula are related to the same indices used by the feds: the prices of block cheddar, bulk butter and non-fat dry milk on the Chicago Mercantile Exchange. The fourth and highest-value component to the price is the fluid milk pool.
What has been the response to the bleeding? After McClatchy editorialists opined the best solution was to open the entire industry to the “free market,” Modesto-based dairy trade association Western United Dairymen expressed their utmost faith and trust in the character of local dairymen to continue to produce without asking for any kind of bailout, despite enormous hardship, given present prices right up to the day they pack their suitcases and leave their dairies and Pismo villas to the bankers. WUD, like McClatchy and many others, sees the problem as over-supply. Production figures, import and export data, and most obviously the drastic rise in feed and fuel costs, dispute this analysis. Nevertheless, WUD opposes a recent state Legislature bill that would make the situation worse.
Below, you will find a bill, authored by state Sen. Dean Florez, which has passed the Senate and is now in the state Assembly. This fine example of special interest legislation will benefit exactly seven vertically integrated producer/distributors in the state and, as written now, will take a quantity of milk out of the fluid-milk pool, and, through subsequent consolidation in this desperate period, may pave the way for removal of more fluid milk from the high-value pool. The seven producer/distributors that will benefit from this legislation were exempted from some pool quantity as a result of grandfathering into the current state milk-pricing system in the 1960s. The only beneficiary in Merced County could be Foster Farms, represented in the Assembly by Agricultural Committee Chair, Cathleen Galgiani.
This is special interest legislation to benefit the growth of seven dairy operations at the expense of the other 1,845 dairies that participate in the state fluid milk pool, including more or less 370 in Merced County, depending on how many are going down right now.
Florez' bill does not rise to the level of public policy. It is anti-public policy. It will work an even larger hardship on the dairies and their surrounding economies. It is one more example of the contemporary American way of government: a consortium of special interests, a little oligarchy in this instance, combining for their mutual special advantage at the expense of their industry with the immediate aim of locking in a special advantage and a longer-range aim of consolidating market share. This is the sort of legislation that rots government, the economy and society. Considering the economic damage the overall damage milk prices are doing Merced County, and the added damage Florez' bill will do, Merced County supervisors and city council members ought to all resolve to oppose the bill and to help as they can with the pricing situation. Or are they afraid to go up against the idiot McClatchy editors and the dairy oligarchs on behalf of the other 365 dairy families and the businesses that supply them with everything from feed to equipment to wrist watches?
In support of this legislation, lobbyists are muttering about the "socialistic" milk-price system that ought to be jettisoned to let the "free market" do its magic. Behind that there are legitimate calls for reform of milk pricing both in California and nationally because the indices used to establish the prices are an invitation to manipulation on the Chicago Mercantile Exchange, which has been accepted and employed. The giant cooperative, Dairy Farmers of America is facing a $12-million fine for a price-rigging scandal on the Chicago Mercantile Exchange in 2006. But, that's just the highest cube on the iceberg of price corruption in the industry.
Anyone who has ever done any farming at all will know the difference between milk production and other commodity production. Milk comes twice or more times a day, 365 days a year. This is a market that was long ago and wisely recognized to require regulation, for the sake of producers and consumers. Unregulated greed has never been any better for the dairy industry than for banks, which, if this disaster remains unchecked, may become the largest holders of dairy property in America.
To add that je ne sais quoi that raises the familiar odor to any Sacramento deal these days, Capitol lobbyist Anthony Gonsalves is supporting Florez' bill. He is the son of Joe Gonsalves, who after his career in the state Legislature, which included authoring the 1960s dairy pricing bill, founded the lobbying firm his son now heads. Joe Gonsalves started his political career as a councilman of Dairy Valley, now Cerritos but then a special Los Angeles County dairy zone. Dairy Valley eventually gave way to the developers' blade and the LA dairy industry moved to Chino in San Bernardino County. When Chino was developed, many of those dairymen moved to the San Joaquin Valley and those real estate sales are said to have accounted for a great deal of increase in milk production in California as the Southern California dairymen moved north, bought mega-dairies and expanded their herds.
Eventually, in the milk-price disaster of 2009, the public will become aware that dairy products are controlled by a tiny oligarchy of very powerful, perhaps over-indebted corporations and "cooperatives" (in name only) that are gouging the public and the producer in a fine old 19th-century style that raises a question growing more critical every day: has deregulation and corruption of market regulation thrown the US back into an economy best understood by Thorstein Veblen, c. 1904?
Badlands Journal editorial board
BILL NUMBER: SB 362 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 28, 2009
AMENDED IN SENATE MAY 20, 2009
INTRODUCED BY Senator Florez
FEBRUARY 25, 2009
An act to amend Sections 62708.5 and 62722 of the Food and
Agricultural Code, relating to milk.
LEGISLATIVE COUNSEL'S DIGEST
SB 362, as amended, Florez. Milk pooling: exemptions.
Existing law, the Gonsalves Milk Pooling Act (the act), provides
for equalization pools and milk pooling to govern the production and
distribution of fluid milk and fluid cream. The act authorizes the
Secretary of Food and Agriculture to develop a pooling plan, with
specified items required to be included in the pooling plan, under
which producers of milk are assigned a pool quota that determines the
amount of class 1 milk the producer can sell to handlers within the
pooling system and the prices to be paid by handlers to producers.
The act permits a producer-handler, as specified, who elects to
operate outside the pool to make certain prescribed deductions from
its class 1 sales, excluding sales to a handler, before being
required to account to the pool.
This bill would instead permit a producer-handler who elects or
has elected to operate outside the pool to make deductions for all of
its production from its class 1 sales before being required to
account to the pool. The bill would also delete certain provisions
relating to the participation of milk production of exempted
producer-handlers in either the base pool or overbase pool and to the
transfer by a producer-handler of the option to join or operate
outside the pool.
The act provides that producers of certified milk or guaranteed
raw milk have the option, at the time of the adoption of the initial
pooling plan, to be subject to the plan or to be excluded from the
plan.
This bill would also include provide that,
on or after January 1, 2010, a dairy farm that produces and
processes raw milk, as defined, within those provisions
shall have the option to be or continue to be subject
to the pooling plan or to be prospectively excluded from the pooling
plan . The bill would make conforming and technical changes.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 62708.5 of the Food and Agricultural Code is
amended to read:
62708.5. (a) A producer-handler, for purposes of this chapter,
shall also include, as a separate and distinct category of
producer-handlers, any producer and any handler who purchases or
handles fluid milk or fluid cream produced by this producer if all of
the ownership of the handler and all of the ownership of the
producer is owned by the same person or persons and their ownership
in the producer or handler is at least 95 percent identical for each
person with their ownership in the handler or producer. This
ownership shall not exceed 10 individual persons or owners of
equitable interest in a partnership, corporation, or other legally
constituted business association.
(b) The ownership required by this section may be through a
partnership, corporation, or other legally constituted business
association if the entities are owned by the same person or persons,
and there is at least 95 percent identity of ownership for each
person with their ownership in the handler or producer. For purposes
of this section, a "person" or "persons" includes the spouse, or
other persons of lineal consanguinity of the first or second degree
or collateral consanguinity to the fourth degree, and their spouses,
and includes an adopted child the same as a natural child and kindred
of the half blood equally with those of the whole blood of the owner
and ownerships by persons so related shall be considered single
ownership by one person. For purposes of this section, property
pledged or hypothecated in any manner to others shall be considered
"owned" if equitable ownership with management and control remain
with the producer-handler.
(c) Ownership as provided in this section shall have existed at
the time of the base period selected by the producer under Section
62707 and at all other times thereafter.
(d) Any such producer-distributor may, until August 6, 1969, do
either of the following:
(1) Join and operate wholly within the pool.
(2) Have its entire original production base and pool quota
determined during the base period it selected as a producer pursuant
to Section 62707, established as a part of the pooling plan, and,
nevertheless elect to operate entirely outside of the pool to the
extent authorized by this section.
(e) Any producer-handler who qualifies under this section and
elects or has elected to operate outside the pool, to the extent of
the authority granted, shall have the right to make deductions for
all of its production from its own class 1 sales before being
required to account to the pool.
(f) The deductions from class 1 sales authorized pursuant to this
section may be made irrespective of the fact that the average class 1
usage in the pool for that month may be less than 100 percent of the
pool quota in that pool.
(g) The fact that a producer-handler qualifies as to one of its
milk production operations under this section does not prevent it
from operating on an entirely separate nonqualifying basis (and,
therefore, subject to pooling) at other milk production facilities,
and with other nonqualifying persons at these other milk production
facilities. This section does not prevent a producer-handler from
purchasing or selling pool quota or production base as otherwise
provided in this chapter.
(h) If at any time ownership, as defined in this section, ceases,
the producer-handler shall no longer be eligible for the options in
this section, shall account to the pool as a separate handler, and
shall be entitled to reentry into producer participation in the pool
on the same basis as a producer-handler may under the last paragraph
of Section 62708.
SEC. 2. Section 62722 of the Food and Agricultural Code is amended
to read:
62722. Pooling plans shall not apply to the production of goats
milk or producer-handlers who produce and sell less than 500 gallons
of fluid milk used for class 1 purposes per day unless they
specifically request entry into the pool at the time of the adoption
of the initial pooling plan for that area. A dairy farm that
produces and processes raw milk and a A
producer of certified milk or guaranteed raw milk shall have the
option, at the time of the adoption of the initial pooling plan under
this chapter, to be subject to the plan, and accordingly to have a
production base and pool quota established for the producer, or to be
excluded from the plan. On or after January 1, 2010, a dairy
farm that produces and processes raw milk shall have the option to be
or continue to be subject to the pooling plan or to be prospectively
excluded from the pooling plan. For purposes of this section,
"dairy farm that produces and processes raw milk" means a vertically
integrated operation that includes a dairy farm and processing plant
owned and operated by the same entity that produces guaranteed raw
milk, or grade A raw milk, to be sold to the consumer.
(a) Any such producer of less than 500 gallons of fluid milk per
day, dairy farm that produces and processes raw milk, producer of
certified milk, or producer of guaranteed raw milk, electing to be
excluded from the plan, may at any later time be admitted to the
pool, but with only the production base and pool quota to which the
producer would have originally been entitled or the producer's
existing production and average daily class 1 usage during the 12
months preceding the producer's entry into the pool, whichever is
less.
(b) Any producer claiming exemptions from the provision of any
pooling plan by reason of the provisions of Section 62708, 62708.1,
or this section, who loses his or her exemption by failure to meet
the requirements for exemptions set forth in those sections shall
automatically be deemed to have applied for and become a part of a
producer pool on September 1st following any year ended August 31st
during which the secretary determines the producer is no longer
entitled to exemption, and the producer's admittance into such a pool
shall be on the basis of the production base and pool quota
calculations as set forth in those sections.
6-11-09
Western United Dairymen
Dairy industry: Florez bill would degrade milk pool
Total exemption would be ‘very, very harmful,’...Wes Sander
Capital Press
http://westernuniteddairymen.com/content/blogcategory/3/45/
SACRAMENTO - California's dairy industry says a bill to alter the state's milk pool would degrade the pooling system and lead the industry toward consolidation.
SB362, by Sen. Dean Florez, D-Shafter, would allow the state's handful of remaining producer-handlers - those who produce and process milk - to exempt all of their own production from pooling requirements.
Opponents say that would allow vertically integrated operations to expand milk production unencumbered by the cost of pool participation. California's dairy industry once had a large number of producer-handlers, who process milk from their own dairies while also purchasing milk through the pool.
"Given the economic conditions, this is a horrible thing to be foisting on the industry," said Bill Van Dam, president of the Alliance of Western Milk Producers.
The bill passed the Senate last week on a vote of 24-12. It now awaits committee hearings in the Assembly.
While they support revising California's milk pool, dairy industry representatives say a system that requires total participation is necessary to keep markets from descending into the chaos that they say existed before the pool's implementation in 1969.
Although milk is mostly the same when it leaves the dairy, it goes to a variety of uses, divided into four classes that command a range of prices. Milk for drinking (Class 1) brings the highest price, but not all bottlers process the same amounts of it.
The pool distributes among dairies the variable revenues from the different classes. Before its creation, industry corruption dominated, as producers used underhanded practices to secure contracts for the highest-paying classes. The pooling system, supported by processor assessments, sets a minimum wholesale price based on market conditions.
When the pool was being negotiated in the 1960s, producer-processors received an exemption of their then current production and agreed to pool all future production. The exemption limit has been adjusted upward twice since then.
Opponents point out that the producer-handlers process nearly a quarter of the state's Class 1 milk. With all production exempted from the pool, that handful of producer-handlers could further increase dairy production, unencumbered by the cost of pooling their milk, opponents argue.
Allowing a total exemption "would be very, very harmful to the 1,700 producers or so we have left," said Michael Marsh, CEO of Western United Dairymen. "There's no good economic rationale for it. It creates two classes of producers within the system. One class would be pooled, and the other class would not have to be."
Anthony Gonsalves, a lobbyist for the producer-handlers and whose father, Assemblyman Joe Gonsalves, introduced the milk pooling act in 1967, argues that trends don't show the producer-handlers gaining market share.
The amount of exempt milk produced by today's handful of producer-handlers amounts to .6 percent of all milk currently pooled, Gonsalves says. Their total production - all of which would be exempted under Florez's bill - would amount to 1.1 percent of the state's milk, he says. Before the pool was created, it was 4.5 percent.
California's producer-handlers compete with milk imported from Nevada and Arizona, where bottlers enjoy the advantage of not having to buy through the pool, Gonsalves says.
"If we keep losing ground to out-of-state milk, the first people that will be hurt by it is the rest of the dairy industry, because we won't be buying as much milk from them," Gonsalves said.
Florez's office disputes the notion that the exemption would ruin the industry. http://westernuniteddairymen.com/content/blogcategory/3/45/
"It's not our intention to cause ruin and collapse," said Josh Walters, Florez's deputy chief of staff. "If that's what they're worried about, then they should come and talk to us, and we'll try to figure it out."