Modesto, Calif., (August 15, 2017) – This week CDFA made public the edits suggested to its draft language for a stand-alone quota program. The draft was presented at the last Producer Review Board (PRB), the third in a series of meetings where the PRB diligently and passionately listened and discussed the merits of what was presented to them. Edits ranged from mere word changes to more involved language discussions. One section in particular – Article 9: Quota Revenue Assessment – triggered much back and forth, leaving CDFA staff retyping the section faster than a teenager can text message. Being that the assessment is one of the key components that will directly affect almost all producers in California, it is not surprising so much time was spent on it.
Because the amount paid to quota holders for each day’s production covered by quota is static, there has to be a way to generate enough revenues each month to cover those payments. Due to fluctuating milk production in the state (either due to seasonality or other trends), it is not an easy task to determine what is the appropriate per hundredweight amount to assess every producer in the state. Currently, quota monies are withdrawn from the total California pool. Depending on the size of the pool, the quota monies have been taking out of the California pool around $0.36 and $0.37 per hundredweight. That amount varies, but producers do not see it directly on their milk check. With the advent of a Federal Milk Marketing Order, where such monies cannot be taken out of the pool, producers must be assessed directly. While CDFA originally intended to review the assessment rate every three months based on the most recent three months of data, the board felt this would create the potential for unnecessary fluctuations. Instead, they settled on giving the Secretary discretion on when to review it, while making sure the past twelve months of data are used.
The unedited draft stated that the initial assessment rate shall not exceed $0.045 per pound of solids not fat ($0.3915 per hundredweight, assuming 8.7% SNF). After review, the board considered this number to be needlessly high and modified it to $0.0436 per pound ($0.38 per hundredweight). While the higher number originally chosen by CDFA may seem like an excuse to take more money out of producers paycheck, it is important to remember that CDFA can only pay quota holders if they have enough funds to cover it.
Having a small buffer made sense with the previously written language stating review every three months. With the Secretary’s authority widened on how frequently she can review the assessment rate, this helps prevent funds shortages.
If it seems like Article 9 was dissected like fresh meat at the butcher, it’s because it was. One more part of said article generated discussion, where the original language stating “the continuance of the Plan shall be subject to approval by Producer Referendum any time the computed rate reaches a new threshold level of $0.005 per pound” created some anxiety amongst board members. After some
discussion, it was determined that section should be chopped off entirely. If you are a quota holder, seeing a mandatory referendum in the language is understandably a risk factor to the program you probably would rather not see.
If reading this last paragraph left a bad taste in your mouth because the concept of frequent referendums sounds good to you, no need to worry: the draft language includes two other ways producers can voice their concerns with the program. The first one is a 5-year survey of the program, where the PRB will review producers opinions. The second is through a petition, signed by 25% of market milk producers. Upon receipt of such a petition, the Secretary would convene the PRB for review and to determine if a referendum is warranted.
The edited, red-lined language can be found at: https://www.cdfa.ca.gov/dairy/pdf/PRB/
QuotaImplementationPlan08072017_RedLine.pdf. In releasing this information, CDFA also postponed the deadline for comments to August 30, 2017. The next PRB meeting is still set for September 12, with expectations of a referendum start date in October. As a reminder, reaching a referendum threshold on California quota is not an easy task. First, 51% of all producers must return their ballot. Then, of those 51% that voted one of two things must happen 1) either 65% of the voters representing at least 51% of the milk produced or 2) 51% of the votes representing 65% of the milk must vote yes.
by Annie AcMoody, Director of Economic Analysis , WUD