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Californian Dairy Regulation Finds Success

12 March 2009

US - California milk producers and processors have testified before the California Senate to say that the existing milk pooling and stabilisation system has worked well in meeting two goals: Ensuring reasonably priced, wholesome dairy products are available to consumers, while treating all producers and processors alike by establishing raw product costs that stabilise the movement of milk to the market.

Representatives of Western United Dairymen and the Alliance of Western Milk producers testified at an informational hearing today held by the Senate Committee on Food and Agriculture on "Evaluating the Ongoing Necessity of the Milk Pool Subsidy and its Impact on Consumer Prices."

Tiffany LaMendola, WUD's Director of Economic Analysis, told the committee that the Gonsalves Milk Pooling Act was enacted in 1969 to "eliminate unfair, unjust and destructive trade practices that had become commonplace in the industry prior to its implementation. The system is not perfect but it provides benefits to all stakeholders and all stakeholders have the opportunity to request and effect changes to the programme."

The pooling programme's greatest value, testified LaMendola, is that it "regulates the timely, accurate and equal payment from processors to producers. This may sound simple but the function is vital. No new money is created by the pooling programme but it does ensure that neighboring dairies who produce milk of equal composition will receive similar prices for their milk, regardless of where they ship their milk to be processed."

Retail prices are not set by the state's milk pooling and pricing system. "Pooling simply collects the state's milk revenues and redistributes them to farmers in an equitable manner," explained LaMendola. "Farm level prices are driven by the marketplace and follow the basic laws of supply and demand. Retail prices are set by the retailers and the state does not regulate retail prices.

Bill Van Dam, CEO, Alliance of Western Milk Producers, provided historical perspective, noting that the California legislature passed the Young Act in 1935 to establish minimum prices for producers. "This legislation solved two important economic issues," said Van Dam. "It created 'equal raw product costs' among the competing fluid milk processors by establishing a mechanism to set minimum milk prices that every buyer was required to pay and it essentially eliminated the likelihood of ruinous competition among competing fluid milk processors that would drive prices paid to the farmer far below the cost of producing the milk."

Van Dam called the Gonsalves Milk Pooling Act passed by the legislature in 1969 "a remarkable piece of legislation that has successfully allocated producer revenue among producers. We believe it has served California dairy families well and we firmly support its continuation."

LaMendola pointed out that the pooling programme "does not guarantee high farm level prices. Producer prices are dictated by the marketplace. Supply and demand dictates the prices for commodities that are used in the minimum pricing formulas that set producer prices across the nation."

LaMendola noted that the California pooling system is not unique in the U.S. "Federal milk marketing orders serve a similar role across the United States with 10 different federal orders regulating the majority of milk processed," she said.

The pooling system also helps distribute locally produced and nutritious milk throughout the state. The milk pooling programme benefits consumers by "ensuring a continuous supply of locally produced milk in every area of the state," said LaMendola. "Milk is produced in 35 of California's 58 counties, ranging from Del Norte County in the north and San Diego County in the south."

The basic reasons for creating the system that existed 40 years ago have not gone away. "Pooling was designed to prevent the economic hardships created when milk from one farm competed for customers against neighboring farms. With such a perishable product, farmers saw the need to create a more stable marketing environment, allowing all dairy producers' products to reach a willing buyer," explained LaMendola. "Dairy processors were willing to give up the advantage of farmers' competition for their business in exchange for an equal raw product price for all processors of the same product."

The dismantling of the milk pooling system would have severe consequences. "Without this orderly system, California dairy families and consumers would suffer," said LaMendola. "There would be massive consolidation as smaller dairies would be forced out by larger dairies with greater bargaining power. There would be a return to the destructive trade practices that existed before this system was created. California dairy families and consumers would suffer with fewer local diaries existing to provide fresh, nutritious milk." Milk is milk, noted LaMendola, and it should all be treated the same.

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