BILL ANALYSIS
SENATE FOOD and AGRICULTURE COMMITTEE
Senator Dean Florez, Chairman
BILL NO: AB 1910 HEARING: 6/15/10
AUTHOR: Assembly Agriculture CommitteeFISCAL: Yes
VERSION: 6/10/10 CONSULTANT: John Chandler
Repasteurized milk: Milk Producers Security Trust Fund:
future shipment coverage eligibility: handler default.
BACKGROUND AND EXISTING LAW
The Milk Producers Security Trust Fund (fund) was created in
1987 to protect dairy producers from handler payment defaults.
The fund was created as a result of the bankruptcy of the
Knudson/Formost Company, one of the largest dairy processors in
the state. The bankruptcy resulted in Knudson defaulting on
millions of dollars of milk payments to dairy producers. The
losses incurred by those producers prompted state action to
ensure the security of the state's dairy industry with the
creation of the fund.
The Secretary of the California Department of Food and
Agriculture (CDFA) appoints a seven-member board of industry
representatives to administer the fund. The secretary collects
a security charge on Class 1 milk (fluid milk), Class 2 milk
(soft manufactured dairy products), Class 3 milk (frozen dairy
products), and Class 4 milk (butter, powdered milk, and cheese)
until the fund contains the needed security, based on the
current cash in the fund or $30 million, whichever is higher.
The statutory fund cap of $30 million, intended to cover
defaults on a monthly purchase basis, was put in place in order
to assure payments should a large processor default.
If CDFA determines a milk handler to be in default and future
shipments are not eligible to be covered by the fund, CDFA will
notify all producers, cooperatives, and other interested parties
of the defaulting handler. CDFA may also specify that future
shipments to a handler would not be eligible for fund money if
the handler fails to maintain a valid license, fails to pay
producers, fails to pay the amount due the pool equalization
fund, or fails to submit, when requested, executed contracts
that establish the relationship between affected parties.
Current law prohibits the sale of repasteurized milk as market
milk.
The Grade A Pasteurized Milk Ordinance (PMO), published by the
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Food and Drug Administration, outlines minimum standards and
requirements for Grade A milk production and processing. Grade A
standards are recommended by the National Conference on
Interstate Milk Shipments (NCIMS), 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.
In 2006, AB 2443 (Agriculture), Chapter 505, Statutes of 2006,
amended the fund to reflect changes in the California dairy
industry by including the growing cheese manufacturing sector,
allowed the fund to be maintained at a lower level, and required
handlers to post bonds to cover their obligations to keep the
fund solvent.
In 2008, AB 2284 (Galgiani), Chapter 236, Statutes of 2008, made
further modifications to the fund to ensure that securities
provided to CDFA are valid and verified.
PROPOSED LAW
AB 1910 would do the following:
Establish conditions under which repasteurized milk may
be sold as market milk.
Milk that may be repasteurized includes:
o If maintained at 45 degrees or less: milk
product drained from processing equipment, milk
collected from a defoamer system, and milk or milk
products rinsed from equipment, containers, or pipes.
o If maintained under 45 degrees: milk or milk
products pasteurized at another plant, handled in a
sanitary manner, and transported in a milk tank truck.
Milk that may not be repasteurized includes:
o Packaged milk that has left the premises.
o Milk and milk products from damaged,
punctured, contaminated containers, or out of code
containers.
o Milk or milk products that have overflowed,
leaked, spilled, or been handled improperly
Remove CDFA's discretion to notify all producers,
AB 1910 - Page 3
cooperative associations, and other interested parties when
a milk handler is in default or when future shipments are
not covered by the fund.
Remove CDFA's discretion t o specify that future
shipments are not eligible for the fund when a handler
fails to maintain a valid license, fails to pay producers,
fails to pay the amount due the pool equalization fund, or
fails to submit, when requested by CDFA, executed contracts
that establish the relationship between affected parties.
Require CDFA to exhaust all administrative and legal
remedies against a defaulting dairy handler and execute all
judgments resulting from those remedies prior to
recommending payment from the Milk Producers Security Trust
Fund.
COMMENTS
1.Supporters state that AB 1910 is intended to address needed
changes to California milk law. Current state law regarding
repasteurized milk is in conflict with the federal PMO. AB
1910 would bring state law in line with federal law, which
would avoid potential interstate shipping problems for
California milk handlers. AB 1910 would ensure timely
disclosure to the industry of a problem with a handler by
removing CDFA's discretion to notify producers, cooperatives,
and interested parties when a handler is in default or future
shipments of milk are not eligible for the fund. AB 1910
clarifies that the Milk Producer Security Trust Fund is a
payment of last resort for defaulting handlers rather than a
catch-all for any handlers' defaulted milk pool payments. By
requiring CDFA to exhaust all alternative means to collect
defaulted revenues and penalties from a handler before payment
from the fund, AB 1910 ensures that the fund is ready for its
intended purpose, to ensure that in the event of a handler
bankruptcy the dairy producers still receive payment.
PRIOR ACTIONS
Assembly Floor 74-0
Assembly Appropriations15-0
Assembly Agriculture 8-0
AB 1910 - Page 4
SUPPORT
Dairy Institute
Western United Dairymen
OPPOSITION
None received