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CDFA Holds Quota Hearing

In a truly unprecedented fashion, a “virtual” hearing took place this week to consider the petition by Stop QIP to suspend Chapter 3.5 of the Food and Agriculture Code. This petition was submitted last January and contained the required number of valid producer signatures, which necessitated this hearing. The hearing was originally scheduled for March, then April, and then as a result of the pandemic, was postponed indefinitely, and then rescheduled as a “virtual hearing” for June 9 and 10.

The virtual part was only one of the unusual aspects of this hearing; the other was the usage of an Administrative Law Judge who is not part of the California Department of Food and Agriculture (CDFA). Judge Timothy Aspinwall is an Administrative Law Judge with the state Office of Administrative Hearings, a separate branch of the California state government. In his opening remarks, Judge Aspinwall said that he would be the person who would be writing up the recommendation – based on the hearing record – to California Agriculture Secretary Karen Ross for how to respond to this petition, which requested a producer referendum to suspend Chapter 3.5 of the Food and Agriculture Code. What makes this arrangement unusual is that in every other milk hearing I have witnessed, it was economists from CDFA who acted as the hearing panel, considering testimony and then providing recommendations to the Secretary. This time it is an independent judge who admitted at the end of the hearing that until he had been assigned this case, he had never heard of milk quota. So, a truly independent and unbiased judge.

The other unique feature of this hearing is that for the first time ever, no oral testimony from any cooperative or producer trade association was presented. [Due to a state regulation, most of the information submitted for this hearing is not on the CDFA website. We have obtained some of the hearing documents and have posted them on the MPC website here.] This hearing was truly a producer hearing. Other than lawyers representing three different groups of producers, of the nearly 75 witnesses who gave oral testimony, only two or three were folks who did not have an ownership stake in a California dairy farm.

The issue in this hearing is a bit complicated. While most of the producer testimony focused on each producer’s perspective on whether they supported the Quota program and why, the real question for the judge is whether to recommend holding a referendum on Chapter 3.5 of the Food and Agriculture Code. When the original California pooling plan was adopted back in the 1960s, it was contained in Chapter 3.0 of the Food and Agriculture Code. The voting procedure in Chapter 3.0 for changing or terminating a pooling plan requires a super majority (see description). Chapter 3.5 came later in 1994, and was the legislative vehicle to implement the fixed $1.70 differential in the Quota program. The fixed differential was implemented without a referendum of producers by the Legislature, but the Legislature included in Chapter 3.5 a different voting procedure that enabled producers to petition for a referendum to suspend Chapter 3.5, and with it, the fixed differential. The procedure outlined in Chapter 3.5 requires a simple majority vote to continue with the Chapter 3.5 (see description). If a simple majority does not vote yes to continue with Chapter 3.5, then the Secretary shall continue operating the pooling plan that was in effect on December 31, 1993.

Here is where things get dicey. The stand-alone Quota program, now known as QIP, was authorized by the Legislature in 2017 and put in Chapter 3.5 as Section 62757. This new section authorized the Secretary to establish a stand-alone Quota program if California became part of an FMMO. It authorized an assessment on milk production to pay for the stand alone Quota program and it required that the program be developed pursuant to a recommendation of the Producer Review Board and approved by a statewide referendum of producers conducted in accordance with the super majority voting procedure outlined in Chapter 3.0 . What the new section did not do is speak to the other voting procedures in Chapter 3.5 that enables producers to vote with a lower threshold to suspend the entire Chapter 3.5.

Stop QIP has done two things: One, is it has challenged in court the procedures that CDFA followed to adopt the QIP in the first place – mostly the fact that CDFA did not hold a formal public hearing prior to the referendum that adopted the QIP. And secondly, Stop QIP submitted sufficient signatures to force the hearing held this week seeking a referendum to suspend Chapter 3.5, and with it, Section 62757, which contains the authority of CDFA to collect an assessment to fund the stand-alone Quota program.

At the hearing, Stop QIP, as the petitioner, was given the first hour to make its case. In addition to the arguments laid out by their attorney, Chip English, they put on a presentation by an economist who outlined his conclusions about Quota, which basically said that Quota no longer serves an economic purpose in the market. Save QIP, the name adopted by 17 California producers who hired a lawyer named Niall McCarthy to represent them, laid out their case that the 3.5 petition was procedurally and legally invalid and should be set aside. They also had an economist who testified about the important role quota plays in the economics of individual dairy farm operations in California.

The third organized group that testified was the United Dairy Families of California. Their attorney Megan Oliver Thompson and leader Dino Giacomazzi testified about the process they sponsored, which included the hiring of outside experts to engage with producers from throughout California seeking to discover a consensus Quota solution that would garner support from a significant majority of California dairy farmers. They announced that on Monday, June 7 that 315 producer signatures were submitted on a petition under Chapter 3.0 that seeks to modify the effective fixed differential to $1.43 per cwt. in the interim, and terminate the Quota program effective March 1, 2025. This is significant because Chapter 3.0, Section 62717 says that if a plan for termination is submitted by a petition signed by not less than 25% of the producers producing not less than 25% of the production, then a referendum must be held on that plan. It will require the Chapter 3.0 super majority for that referendum to pass.

At this point in the hearing the Judge reminded everyone that the hearing was about was the Stop QIP petition asking for a referendum to suspend Chapter 3.5.

What followed for the rest of the hearing was individual producer testimony. It was well done from all sides. I was incredibly impressed with our industry. Everyone who participated was prepared and clearly genuine in giving their perspective. The amount of material that was submitted into the hearing record is huge, but it seems to me that the Judge’s decision will really come down to how he interprets the law. All three lawyers were top notch. The economists who participated are both well respected in their profession. The producers from all sides communicated clearly what was at stake for them individually and for their families and for the industry. It is impossible at this point to predict the outcome. No doubt it will take the Judge a couple of months to digest all the material in the record and make his recommendation. From there, the issue goes to the Secretary for her decision.

Geoff Vanden Heuvel

Director of Regulatory and Economic Affairs


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