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Quota Sunset Proposal Submitted to California Department of Food and Agriculture

The United Dairy Families of California (UDFC), a group of California producers that formed to create a process for California dairy farmers to discover a path forward on quota, capped off their process this week by submitting a letter to California Secretary of Agriculture Karen Ross. The letter formally proposes to change the effective quota differential to $1.43 statewide and terminate the Quota program five years from now on March 1, 2025.

At an event held this past Tuesday, February 11 at the World Ag Expo, Dr. Marin Bozic and economist Matt Gould laid out the process that led them to the discovery that this proposal was the middle ground between the various opposing views on quota within the California producer community.

The process for finding this middle ground was necessitated by the emergence in late 2018 of an organized effort by California producers who own little or no quota to push for a referendum to immediately terminate the quota program. The STOP QIP group submitted a petition with apparently enough signatures to force a termination referendum back in April of 2019, but CDFA invalidated a number of signatures and determined that the petition did not meet the threshold to force a referendum. STOP QIP immediately indicated that they would be circulating another petition.

The United Dairy Families formed for the purpose of developing a process where all California producers could participate in an inclusive and transparent way to offer up their thoughts and ideas on quota in a structured manner. This effort was supported by the three major cooperatives and the three producer trade associations as well as STOP QIP. Dr. Marin Bozic, a dairy economist from the University of Minnesota and Matt Gould, a dairy industry economist, were hired to analyze and evaluate those ideas, and based on that process, ultimately provide a recommendation on a way forward to address the quota issue.

As we have reported in the past, there were four specific phases to this process. The first phase was a “think tank” phase where all ideas were solicited and compiled. The second phase organized those ideas into 11 different proposals, which the industry then had the ability to react to by way of detailed feedback surveys. Phase three narrowed the list of eleven ideas down to three approaches which were presented to producers in January. Detailed producer surveys reacting to the three proposals were received and tabulated. And from the 173 producer written responses which covered nearly 30% of California’s milk production and matched the known composition of the California producer community, a single, specific proposal emerged as the way forward with the highest probability of success.

In addition to presenting the process and rationale for the specific proposal at the World Ag Expo meeting this week, Dr. Bozic also addressed the legitimacy of the current situation. He identified the original legal justification for why there was a quota program in the first place. The original Gonsalves Milk Pooling Act said in part, “The production and distribution of fluid milk and fluid cream is hereby declared to be a business affected with a public interest. The provisions of this chapter are enacted in the exercise of the police powers of this state for the purpose of protecting the health and welfare of the people of this state. Sec. 62700”

Dr. Bozic gave his opinion that “Federal Milk Marketing Orders exist to ensure orderly marketing of fluid milk, and to provide adequate supply of fluid milk. Therefore, CA quota no longer contributes to the original purpose of the Gonsalves Milk Pooling Act.”

On the issue of Regional quota adjusters, given that the FMMO now uses location differentials explicitly in its pricing mechanism, the rationale for having different quota prices in different areas of California no longer exists.

On the other hand, Dr. Bozic reminded everyone that the “Transition to the California Federal Milk Marketing Order would not have been possible without provisions that provided continuity to the California quota program. We believe the QIP was the promise to quota holders that if quota were to be terminated, it would happen through an orderly, consensus-based process.”

So where are we in this process? On January 29, 2020 STOP QIP submitted a petition to suspend chapter 3.5 of the Food and Ag Code to CDFA. This petition, if it has the required number of valid signatures, requires that CDFA hold a hearing to consider the petition. It is likely that there are sufficient signatures on that petition to force a hearing. Now, with UDFC submitting a specific proposal, but not a formal petition for changes to the QIP which includes an ultimate termination of the quota program, CDFA will have to decide how to react to this proposal. The QIP rules do speak about a role for the Producer Review Board in a process that seeks change, but it is not exactly clear how this process will play out. It seems likely to me that there will be a hearing on the quota issue in the near future to consider the STOP QIP petition as well as consider the UDFC proposal and possibly any other proposal someone might want to bring forward. Depending on what evidence and testimony is presented at that hearing there will likely be a referendum. At that point, producers will have to decide about how to move forward. Dr. Bozic made some strong arguments for supporting a compromise based on the principles he laid out in his presentation. But since the nature of a compromise is no one is really happy with the results, time will tell if a referendum for change can garner the 65% vote threshold necessary for passage.

Meanwhile there is still a lawsuit pending where STOP QIP is alleging that CDFA did not follow proper procedure in adopting the QIP in the first place. The State Attorney General has rejected that claim and a court hearing on the merits of the suit is now calendared for May 15.

Geoff Vanden Heuvel

Director of Regulatory and Economic Affairs

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