BY CHING LEE

AgAlert

California’s unique milk pool quota program is back on the table.

In a virtual hearing held by the California Department of Food and Agriculture last week, dairy farmers were asked to consider a proposal to modify certain aspects of the state quota implementation plan, or QIP. It comes about three years after producers rejected a proposal to phase out the QIP by March 2025.

The controversial program has divided the industry for years, with some saying it creates frictions between the haves and the have-nots, or dairy farmers who own quota and those who don’t.

In his testimony, the proposal’s author, San Diego County dairy farmer Frank Konyn, said his proposal provides a compromise and would bring quota “back in line with how it was historically designed.”

Konyn said the intent of the current proposal is not to eliminate quota but to “try to bring consensus to the industry and to take the edge off of a polarizing issue.”

His proposal would reduce the current quota payout from $1.70 per hundredweight of solids-not-fat to $1 per cwt. This would in turn lower producer assessments from about 35 cents per cwt. of pooled milk to around 21 cents per cwt.

The proposal also eliminates the so-called regional quota adjusters—adjustments made to quota premiums based on a dairy farm’s location.

Another proposed change involves clarifying what qualifies as “hardship” for producers who seek relief from having to pay the program’s assessments. Under the proposal, hardship would no longer mean challenges due to operation of the QIP but due to natural disasters such as fire, floods and storms or government eradication programs for disease control.

CDFA said it expects to make a finding within 30 days of the hearing—one that is expected to allow dairy farmers to vote in a referendum to accept or reject the proposed changes.

Craig Gordon, leader of the group Stop QIP, which has unsuccessfully sued the state for the QIP assessments and continues to petition CDFA to hold a producer referendum to discontinue quota, said he supports Konyn’s proposal because it would lower the assessments he is forced to pay each month. But he said his group will not stop its efforts to end quota, which he blames for bankrupting some dairies.

“We want this illegal tax to be terminated permanently, but anything is better than nothing,” Gordon said of Konyn’s proposal.

Established in 1969, milk pool quota, now the QIP, is exclusive to California. Despite its name, quota does not impose production limits. Rather, it is a tradable financial asset that entitles producers to a higher price for milk covered by their quota, which can be bought, sold or transferred. Quota premiums are funded by assessing all Grade A milk producers, whether they own quota or not. The money is then distributed monthly to quota holders.

“It is an asset that’s got no intrinsic value whatsoever,” said Dan Sumner, an agricultural economist at the University of California, Davis. “The government created it. The government can take it away.”

Because milk is priced according to how it is used—with fluid milk commanding the highest price—a dairy farmer who ships milk to a plant that bottles milk would fare better financially than another who sends milk to a processor that makes cheese or other dairy products.

To rectify this disparity, the state in 1967 began pooling producers’ milk so they all could share in the higher revenues of fluid milk. Quota was created to compensate producers with fluid-milk contracts who were giving up their higher income due to pooling.

The program has become entrenched in the state’s dairy industry, with some producers having built their businesses around quota. For example, some may choose to invest in quota rather than buy more cows and expand. Some see quota as a safety net that allows their business to stay afloat during tough economic times.

Those who want to end quota take issue with how they’re forced to pay into a program that redistributes their money to quota holders, who they say are given an unfair pricing advantage.

Debate about the merits of continuing quota turned particularly contentious in 2018, when the state joined the federal milk marketing order but chose to keep its quota program—which 87% of dairy farmers voted to support in a 2017 producer referendum. With the change, quota assessments became visible on producers’ milk checks, so they were able to see how much they were contributing to the program. That year, Stop QIP, whose members hold little to no quota, circulated its first petition to terminate the QIP with no compensation to quota holders.

In seeking a middle ground, the United Dairy Families of California submitted a proposal to sunset quota by 2025. After producers rejected it in a 2021 referendum, it seemed the QIP would be safe for at least a few years, with the price of quota stabilizing.

But Konyn, who serves on the CDFA Dairy Producer Review Board, noted the “continual onslaught” of petitions by Stop QIP to terminate quota and the growing number of producer hardship requests, which the board has had to table.

In his testimony, Konyn called attention to how “the current system…has strayed from the original intent of the creators,” with fluid milk sales continuing to shrink. With not enough revenue to cover quota payouts, assessments are being taken from other classes of milk to make up the difference.

“Our consuming public now eats their dairy products more than they drink their dairy products, and our pricing system needs to be adjusted to reflect this continuing change,” Konyn testified. He said his proposal to lower the payout to $1 per cwt. “provides a fair market justified compromise.”

In public forums held in July and August, Konyn and CDFA acknowledged there is no provision in the QIP or Konyn’s proposal that would guarantee quota would be safe from termination in the future.

“We cannot take away anyone’s ability to exercise their legal right to file a petition (to end quota),” Konyn said.

Gordon of Stop QIP said he doesn’t think quota holders will vote for Konyn’s proposal because it “takes money away from them.”

Stanislaus County dairy farmer Pete Verburg, who tuned in to the hearing and describes himself as a large quota holder, also doesn’t think a referendum on the proposal—should CDFA end up holding one—would pass.

“What happened to fairness for me?” Verburg said. “I bought and paid for that quota.”

Madera County dairy farmer Alex DeJager asked during the hearing if CDFA could separate the three proposals into different votes, saying he’s in favor of changing the “hardship” proposal but not the other two.

Kathy Diaz, CDFA director of the marketing services division, said the Producer Review Board did consider breaking down the items so they could be voted on individually, but the board agreed it should be “all or nothing” because the three proposals represent a compromise and should go forward as a single proposal.

Geoff Vanden Heuvel, director of regulatory and economic affairs for the Milk Producers Council, said there is another concern that could doom the referendum: lack of participation. Aside from Konyn’s main testimony, only two other producers testified during the hearing—Gordon of Stop QIP and DeJager.

“You need 51% of the producers to vote,” Vanden Heuvel said. “I’m not sure that all the producers have actually been paying much attention.”

— Courtesy of the California Farm Bureau.