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Phase 2 Quota Meetings Stimulate Serious Contemplation

This past week, three Phase 2 Quota meetings were held in Chino, Tulare and Turlock respectively. At those meetings there was some significant clarification of what the rules are with regards to any effort to terminate the Quota Implementation Plan (QIP). What we learned is that there are TWO different ways for those who wish to change the QIP to proceed. Donald Shippelhoute, the CDFA official who manages the QIP, presented at the Phase II meetings this week and outlined the two paths.

The first path is the one, that up until recently, was understood to be the only path to make a change. In that path, according to Shippelhoute, if a valid petition (one that has the required number of signatures) is submitted asking for a termination of the plan, then according to the law, a referendum on that termination petition shall take place (Chapter 3; Section 62717). The threshold for passage of that referendum is that 51% of the eligible producers must vote for the referendum to be valid and of those who vote, 65% of the producers producing 51% of the voting milk must vote yes, or 51% of the producers producing 65% of the voting milk must vote yes for the referendum to pass.

The second path (Chapter 3.5; Section 62755(a)) which until very recently was not realized by anyone I know of, is nonetheless very definitely in the law. The legal authority for CDFA to establish the QIP comes from a piece of legislation that was passed by the legislature in 2017 and placed in the Food and Agriculture Code, Division 21, Part 3, Chapter 3.5 titled Milk Pooling as Section 62757. Chapter 3.5 was put into law in 1993 to implement the fixed $1.70 differential. At that time, the Legislature passed this law (which was supported by the producer community) that instructed CDFA to begin to implement the $1.70 fixed differential on January 1, 1994 without a producer referendum. Because the fixed differential came into being without a producer referendum, the Legislature established a different suspension mechanism, with a different vote threshold for any referendum held on Chapter 3.5. The producer petition threshold to force consideration of a petition to suspend Chapter 3.5 is the same, 25 percent of producers producing 25 percent of California’s grade A milk submitting a petition asking for suspension of Chapter 3.5 forces a public hearing. The Secretary then must make a decision after the hearing about whether or not to put the question of suspension of Chapter 3.5 to the producers for a referendum. If a referendum on suspending Chapter 3.5 is held, the law stipulates that 51% of the producers must vote for a valid referendum and of those voting, 51% of the producers producing 51% of voting milk must vote in favor of continuing Chapter 3.5 or the entire chapter is suspended. This is relevant to the QIP because the legal authority for the QIP resides in Chapter 3.5. If a referendum took place and Chapter 3.5 was suspended, then the law says that we go back to the pooling plan that was in effect on December 31, 1993. Since we are now operating under a Federal Milk Marketing Order, the State no longer operates a pool and therefore has no funds to distribute money to quota holders. And since the authority to assess California milk to generate money to fund quota payments will have been suspended if Chapter 3.5 is suspended, the practical impact of suspending Chapter 3.5 is that the quota would be essentially terminated.

In summary:

• Path A – 25% petition to amend or terminate – referendum shall be held with a 65% majority vote for passage.

• Path B- 25% petition creates a requirement to hold a public hearing - Secretary may hold a referendum to suspend Chapter 3.5. A 51% positive vote is needed to continue Chapter 3.5 and the QIP.

After Don Shippelhoute made his presentation, the remainder of the meeting focused on the various option memos that were developed by Dr. Marin Bozic and Matt Gould as a result of the input they received at the Phase 1 meetings. Producers were handed a feedback booklet that they were asked to fill out as we went through the various options. The options were grouped into three categories: proposals that would preserve or amend the QIP; proposals that would buy-out the quota and proposals that would sunset the QIP. Each one of the options was explained and there was an opportunity for questions. Producers were asked to write their thoughts and opinions in the feedback booklets which they handed in after the meeting.

The meeting went almost 3.5 hours because there was a lot of information to cover. But there were very few folks who left early. Clearly producers were seriously contemplating the situation and the potential pathways forward. I applaud the five groups that have sponsored this process. There seems to be a genuine desire to find a compromise way forward. Representatives of the STOP QIP group reported that they believed they have enough signatures to force a referendum through pathway A which would require a 65% vote but indicated that they were not submitting them at this time. They also announced that they have initiated another petition based on pathway B. But they were very clear that their preference was to work out a compromise agreement.

The United Dairy Families representative made it clear that UDF was not authorized to negotiate for anyone. But they were committed to this process which is designed to receive input from every California producer and based on that input produce a consensus plan for how to resolve this issue. There is a lot to think about. There are risks for either side of this issue.

Dr. Bozic shared a slide that captures where we need to go to be successful.

The Prerequisites to obtaining a consensus are:

• Credible leaders with power to negotiate and protocols for legitimizing a negotiated solution;

• A mutual recognized and credible deadline; and

• Substantially similar assessment of the risk of inaction.

All this is necessary to get to a consensus solution that is legally feasible and agreeable to CDFA.

The meetings were recorded and will be available here.

Also, there is a webinar with Dr. Bozic that will take place on Monday, November 4 at 8 a.m. which you can participate in. You can still send comments and reactions to the various proposals by emailing UDF also announced that they are planning regional meetings around the state during the next two weeks.

The goal of Phase 2 is to narrow down the options to two or three specific proposals. It is anticipated that the next round of meetings will take place in early January.

Geoff Vanden Heuvel

Director of Regulatory and Economic Affairs

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