BILL ANALYSIS
AB 1910
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Date of Hearing: March 24, 2010
ASSEMBLY COMMITTEE ON AGRICULTURE
Cathleen Galgiani, Chair
AB 1910 (Agriculture) - As Introduced: February 16, 2010
SUBJECT : Milk Producers Security Trust Fund: handler default.
SUMMARY : Requires the Secretary (Secretary) of the Department
of Food and Agriculture (CDFA), regarding a defaulting handler,
to exhaust all administrative and legal remedies before seeking
payment from the Milk Producers Security Trust Fund (Trust) and
makes technical changes.
EXISTING LAW creates the Trust, and also does the following:
1) Authorizes CDFA to collect a $0.05 per hundredweight
security charge from processors, until such time that the fund
is at 110% of the dollar amount of total purchases of milk being
paid for, and received in one month, by the handler with the
largest payment obligation to producers for that month, which
provides reimbursement to milk producers in the event of a
processor payment default. This number fluctuates based on the
market price for milk. (Food & Agricultural Code (FAC) 62500
et al.)
2) Provides that any instrument, such as a letter of credit,
surety bond, government security deposit, or any other form of
performance guarantee, is an acceptable security for processors
to release to the Secretary in the event that average monthly
purchases exceed the statutory fund balance of $30 million.
(FAC 62521.)
3) Creates the Milk Producers Security Trust Fund Board (Board)
and requires it to advise CDFA on the administration of the
Trust. (FAC 62542.)
FISCAL EFFECT : This bill is keyed "Fiscal" by Legislative
Counsel.
COMMENTS : 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 roughly $36 million. The purpose of the Trust is to
cover milk producer payments in the event of a processor payment
AB 1910
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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, power and butter.
Due to the significant increase of the Class 4 (hard cheese,
power 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.
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 (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 Trust was not intended to replace those options by CDFA.
This bill is intended to clarify that intent.
While AB 1910 is intended to clarify when the Trust may be drawn
upon for payments to the Pool, the committee may wish to ask if
the Trust is also responsible for the penalties to the Pool due
to a processors failed payment? The Pool does not pass
penalties along to producers under normal accounting practices,
so it does not follow that the Trust would be responsible for
such costs.
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
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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
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.
REGISTERED SUPPORT / OPPOSITION :
Support
Dairy Institute of California (Sponsor)
Western United Dairymen
Opposition
None on file
Analysis Prepared by : Jim Collin / AGRI. / (916) 319-2084