BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
362 (Florez)
Hearing Date: 5/26/2009 Amended: 5/20/2009
Consultant: Bob Franzoia Policy Vote: Ag 3-2
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BILL SUMMARY: SB 362 would permit a producer-handler who elects
or has elected to operate outside the pool to make deductions
for all its production from its Class 1 sales before being
required to account to the pool. (Current law permits a
producer-handler who elects to operate outside the pool to make
deductions to its Class 1 sales, excluding sales to a handler,
before being required to account to the pool.) This bill would
also delete certain provisions relating to the participation of
milk production of exempted producer-handlers. Additionally,
this bill would extend, from producers of certified milk or
guaranteed raw milk, to dairy farms that produce and process raw
milk, the option of being excluded from the milk pooling plan.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Revision of milk pooling Potentially significant loss
of fee revenue Special*
program to add exemptions ongoing without an equal
reduction in work-
load; unknown, likely offsetting impacts
to
the state as a consumer of milk and milk
products
* Department of Food and Agriculture Fund (Pool Administrative
Fee)
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STAFF COMMENTS: This bill may meet the criteria for referral to
the Suspense File.
Created in 1969 by the passage of the Gonsalves Milk Pooling
Act, the main tasks of the Milk Pooling Branch of the Department
of Food and Agriculture are regular plant audits and
redistributing revenues from milk sales to California dairy
producers. Plant audits ensure that plants are paying according
to the minimum prices announced by the Dairy Marketing Branch.
Through the statewide pooling of revenue from dairy processors
and re-distribution of those pooled revenues to dairy farmers,
gradual equalization of raw product costs is achieved. This
pooling of revenues with regulated distribution to dairy farmers
helps dairy farmers receive an equitable price for the milk they
produce.
The Milk Pooling Branch is directed by the milk pooling plan
which describes the adminstrative details of the workings of the
branch, including the transfer of quota, the allocation of new
quota, producer-handler options, regional quota adjusters,
transportation allowances, payments to producers, and duties of
a pool manager.
Minimum prices paid for milk to producer are determined through
a complex system of reference prices and formulas. The Dairy
Marketing Branch establishes minimum
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SB 362 (Florez)
prices that processors must pay for fluid grade milk received
from diary farmers base on end product use, e.g, heavy cream,
ice cream, butter, or cheese.
These prices are established within defined marketing areas
where milk production and markeing practices are similar.
The program regulates the transaction between dairy farmers and
milk processors and sets a minimum price that must be paid to
the farmers. Price regulation ends at this point; retail stores
are free to set prices as they determine to be appropriate.
That is, retail prices are not set by the state's milk pooling
and pricing system. Retail milk prices are set by the
retailers.
The Milk Pooling Program has 35 positions and a budget of
$4,650,000 for 2009-10. Of that $1,060,000 is operating
expenses, $408,000 is departmental overhead, $260,000 is
division overhead, $177,000 is state pro-rata, and $2,741,000 is
personnel cost.
This bill would reduce the volume of milk participating in the
pool by allowing growth in the volume of Class 1 milk exempt
from the pool.
It is unknown if revising the pooling program as proposed by
this bill would increase General Fund costs to the state as a
consumer of milk and milk products. It appears that allowing
producer-handlers to opt out may make drinking milk slightly
cheaper which making cheese and other milk products slightly
more expensive. Staff notes there are significant differences
of opinion as to how this bill would affect the price of milk.