BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 362|
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THIRD READING
Bill No: SB 362
Author: Florez (D)
Amended: 5/28/09
Vote: 21
SENATE FOOD AND AGRICULTURE COMMITTEE : 3-2, 4/21/09
AYES: Florez, Hancock, Pavley
NOES: Maldonado, Hollingsworth
SENATE APPROPRIATIONS COMMITTEE : 7-5, 5/28/09
AYES: Kehoe, Corbett, DeSaulnier, Hancock, Leno, Oropeza,
Yee
NOES: Cox, Denham, Runner, Walters, Wyland
NO VOTE RECORDED: Wolk
SUBJECT : Milk pooling: exemptions
SOURCE : Author
DIGEST : This bill permits 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 also deletes certain provisions relating
to the participation of milk production of exempted
producer-handlers. This bill extends from producers of
certified milk or guaranteed raw milk, to dairy farms that
CONTINUED
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produce and process raw milk, the option to be or continue
to be subject to, or excluded from the milk pooling plan.
ANALYSIS : The California Milk Pooling Program was
established in 1967 as the Gonsalves Milk Pooling Act (Act)
to address concerns within the milk industry of equitable
prices among dairymen for similar milk. The Act was put
into place to end destructive trade practices within the
industry. The practices of primary concern were those of
handlers who demanded kickbacks from dairymen in order to
obtain a contract to ship milk to their processing plant.
Essentially, the Act established a system in which dairymen
in California received a similar price for their milk
regardless of what the milk end product would be. Prior to
the Act, there was a wide variation in dairyman
compensation for Class 1 milk, fluid milk you drink, and
non Class 1 milk used for making other milk products.
While the milk from the cow was the same, the price to the
dairyman would vary based on the product into which the
processor processed their milk into. As a result there was
much competition between dairymen to sell their milk to
Class 1 processors for higher value. The Act eliminated
much of the inequity in dairyman prices by pooling dairyman
revenue across all dairymen taking all milk sold regardless
of Class and issuing a minimum price to the dairyman for
all milk in California. The minimum price or overbase
price for milk is established on a monthly basis by the
Department of Food and Agriculture (DFA), who is
responsible for administering the California Milk Pooling
Program.
In addition to the overbase price, there is also the pool
quota price. The pool quota was established to account for
those dairymen, prior to the Act's implementation, who
produced Class 1, fluid milk. As a result, the quota price
is higher than the overbase price for the same milk. As
part of the milk pooling system, dairymen are able to buy
and sell their quota to other dairymen since quota was only
established during the formation of the pool. This has
established a value and a market for pool quota within the
dairy industry. Quota was issued to dairymen again in 1978
by the Legislature and has also been issued when there has
been growth in Class 1, fluid milk, and Class 2, heavy
cream, cottage cheese, and yogurt.
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This bill:
1.Permits a producer-handler who elects or has elected to
operate outside the milk pool to make deductions for all
of its production from its Class 1 sales before being
required to account to the pool.
2.Deletes certain provisions relating to the participation
of milk production of exempted producer-handlers in
either the base pool or overbase pool and to the transfer
by a producer-handler of the option to join or operate
outside the pool.
3.Provides that, on or after January 1, 2010, a dairy farm
that produces and processes raw milk, shall have the
option to be or continue to be subject to the pooling
plan or to be prospectively excluded from the pooling
plan.
4.Makes conforming and technical changes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
Revision of milk Potentially significant loss of
fee revenue Special*
pooling program to ongoing without an equal
reduction in
add exemptions workload; 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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According to the Senate Appropriations Committee analysis,
the Milk Pooling Program has 35 positions and a budget of
$4,650,000 for 2009-10. Of that amount, $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.
SUPPORT : (Verified 5/29/09)
California Raw Milk Association
OPPOSITION : (Verified 5/29/09)
Agriculture Council of California
California Dairy Campaign
California Farmers Union
Dairy Institute of California
Western Alliance of Western Milk Producers
Western United Dairymen
ARGUMENTS IN SUPPORT : The California Producer Handler
Association (PD's), which is comprised of Foster Farms
(Crystal), Rockview Farms, Hollandia, and Producers Dairy,
states that, "SB 362 will allow the Producer Handler
Association to compete with out-of-State Milk Interests who
are shipping their milk into California and do not have to
pay into the pool. In fact, last year, 14 out of 32 class
one (drinking milk) plants in California bought exempt milk
from outside California. In 2008 the amount of milk being
imported from outside of California and processed by
California plants was 21% of production, more than 3 times
the Producer-Handler exemption.
"The original Gonsalves Milk Pooling Act exempted the PD's,
recognizing the PD's receive NO benefit from the pool.
Over the years the Legislature has increased that exemption
on 3 separate occasions.
The proponents contend that supporting the Producer Handler
Exemption will help preserve fluid milk production and
sales from California dairies. Proponents contend that
this bill will assist the rest of the dairy industry from
which the PD's purchase 60% of their milk. If the PD's are
unable to compete with out-of-state operations they will
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lose their market share and thereby have to reduce the
amount of milk they are purchasing from the dairy industry.
ARGUMENTS IN OPPOSITION : According to the Dairy
Institute of California, this bill "?would make the small
but significant inequities already present in California's
milk pricing and pooling program explode. This would have
negative impact on nearly all milk processors, but for a
favored few. SB 362, as amended, would deregulate a
handful of processors but keep the rest captive, forcing
the regulated processors, and the farmers from whom they
buy their milk, to lose valuable, local markets for their
milk. This enormous inequity would result in lost jobs,
lost investment in plant capacity, and lost local and state
revenue from businesses unable to compete on such an uneven
playing field.
"The customers for our products, the state's retailers,
move their business based upon fractions of a penny. The
impact of SB 362 will provide many dollars of advantage to
a few processors, allowing them to capture markets
that should be fair and competitive. Our members can
compete on quality and service, but the burden imposed by
SB 362 will be insurmountable."
TSM:cm 6/2/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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