BILL ANALYSIS AB 1910 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1910 (Agriculture Committee) As Amended June 10, 2010 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |74-0 |(April 22, |SENATE: |33-0 |(August 2, | | | |2010) | | |2010) | ----------------------------------------------------------------- Original Committee Reference: AGRI. SUMMARY : Authorizes repasteurized milk to be reprocessed and sold under certain specified conditions and restrictions in accordance with the Pasteurized Milk Ordinance (PMO); automatically makes ineligible future shipments to a handler once that handler satisfies specifics; requires the Secretary of the California Department of Food and Agriculture (CDFA), regarding a defaulting milk handler, to exhaust all administrative and legal remedies before seeking payment from the Milk Producers Security Trust Fund (Trust); and, makes technical changes. The Senate amendments : 1)Establish conditions under which repasteurized milk may be sold as market milk and what milk cannot be repasteurized, providing conformity in state statute to the national PMO. 2)Remove CDFA's discretion to notify all producers, cooperative associations, and other interested parties, when a milk handler is in default or when future shipments are not covered by the fund, making notification mandatory. AS PASSED BY THE ASSEMBLY , this bill required the CDFA Secretary to exhaust all administrative and legal remedies before seeking payment from the Trust when a milk handler defaults, and made technical changes. FISCAL EFFECT : According to the Senate Committee on Appropriations, pursuant to Senate Rule 28.8, negligible costs. COMMENTS : The Grade A PMO, published by the Food and Drug Administration (FDA), outlines minimum standards and requirements for Grade A Milk production and processing. Grade AB 1910 Page 2 A standards are recommended by the National Conference on Interstate Milk Shipments, which is composed of voting representatives from state and local regulatory agencies and nonvoting representatives from the dairy industry and FDA. As a general rule, FDA accepts the conference recommendations and incorporates them into the revised PMO. Conformity to PMO is required for products to be shipped interstate. The Trust was created in 1987 in response to the bankruptcy by Knudsen Foremost, at the time, the state's largest milk processor. That bankruptcy caused California dairy farmers to lose approximately $36 million. The purpose of the Trust is to cover milk producer payments in the event of a processor payment default. While the Trust has been successful with a minimum of loss to farmers, adding increased vigilance over producers since its creation 33 years ago, it has needed some updating in recent years. California's dairy producers are paid through the Pool Equalization Fund (Pool) that the processors pay into, based upon the products they produce, i.e., fluid milk, soft cheeses and yogurts, manufactured products (ice creams and novelties), and hard cheese, powder and butter. Due to the significant increase of the Class 4 (hard cheese, powder and butter) milk processors since the creation of the Trust, legislation was put forward in 2007 to include them into the Trust, and related changes were made in order to ensure payment, should a large processor default. As of January 1, 2007, payments to the Trust were halted, until such time that the Trust falls below the statutory threshold. In 2008, further modifications were legislated to ensure that securities provided to CDFA are valid and verified. Prior to the recent bankruptcy of Humboldt Creamery, CDFA did not inform anyone of the Creamery's failure to pay the pool for shipments of milk, thereby allowing the continuation of deliveries that were not paid for. The required notification should prevent this from occurring in the future. AB 1910 is intended to continue to clarify the role and duty of CDFA regarding taking action against the Trust. The industry states their intention that the Trust be a fail-safe for producer's payments, but not a catch-all for them. A processor may not pay the Milk Pool for reasons other than bankruptcy or default. CDFA has other alternative means for seeking collection of such revenues and penalties. The creation of the AB 1910 Page 3 Trust was not intended to replace those options by CDFA. This bill is intended to clarify that intent. Related legislation : AB 2284 (Committee on Agriculture), Chapter 236, Statutes of 2008, required specific temperature for market milk at specific times; deleted specific frozen yogurt requirements; provided that any instrument used as acceptable security for the Trust be subject to revised requirements; modified the circumstances under which CDFA may release the issuer of an acceptable security from liability; and, made other technical changes. AB 2343 (Committee on Agriculture), Chapter 505, Statutes of 2006, required cheese, butter and powdered milk processors (including specified cooperatives) to remit security charges to CDFA for the Trust; established a $30 million account threshold; provided that payments be halted by January 1, 2007, until such time that the fund falls below that threshold; required the CDFA Secretary to consult with the fund board prior to transferring the fund surplus to the Dairy Marketing Branch; and, provided for enhanced security charges, to be collected from processors who conduct milk transfers that exceed the amount of the total fund balance. Analysis Prepared by : Jim Collin / AGRI. / (916) 319-2084 FN: 0005104