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The price of milk and California’s Department of Food and Ag

Ryan Miltner Published on 18 January 2013

In November, a California superior court judge refused to find that the California Department of Food and Agriculture (“CDFA”) failed to follow the law in establishing the prices for milk used in the production of cheese. The decision has many producers confused. Let’s try to look at the lawsuit and explain exactly what the court decided.

First, some background might be a little helpful. Under California’s milk marketing plan, the CDFA is obligated to establish minimum prices for milk based on its classified use. Milk used in the manufacturing of hard cheeses is classified in Class 4b. This is the same general classification as the federal Class III price.



The formulas used to establish the California 4b price (as well as all other classifications) are different from those used in the federal milk marketing orders. The difference in these formulas has resulted in quite a spread between the California 4b price and the Class III price.

Testimony and evidence presented at a CDFA hearing held in May 2012 showed a spread of $2.54 per hundredweight (cwt) for September 2011 through April 2012. The spread for the months of May 2012 through November 2012 was somewhat narrower but still exceeding $1.50 per cwt. And there, in a nutshell, is the crux of the California milk producers’ complaint.

The law applicable to agencies affords a great deal of latitude to the agency in reaching decisions on matters within its areas of expertise. In legal parlance, agencies are entitled to “deference.”

Simply put, a court that is asked to review agency actions will not substitute its policy decision for that of the agency. The logic of such a policy is rooted in the sensible idea that the personnel working within an administrative body bring a far greater level of expertise than that of a sitting judge.

Consider a federal milk marketing hearing. Testimony and evidence might take up a week of time. The briefing that follows takes up hundreds of pages of analysis and argument. The marketing specialists at the USDA will spend weeks analyzing and assessing the testimony and evidence.


Further, the witnesses at such a hearing, and the USDA officials involved in weighing all the evidence and testimony, have years of experience in milk marketing and economics. In contrast, a lawsuit over a FMMO decision is but one of dozens of cases a judge will see in any given year. Over an entire judicial career, a judge might have one or two cases involving milk marketing.

There are some exceptions to the general rule that a court will not disturb an agency decision. The first situation is where the agency failed to consider some important aspect of the problem it is faced with addressing. A second such exception is where the agency clearly ignored the law in reaching its decision. It is this second exception that was at issue in the California lawsuit.

The law establishing the California milk marketing plan states that prices must be “reasonably calculated to result in prices that are in a reasonable and sound economic relationship with the national value of manufactured milk products.” Calif. Food & Agric. Code §62062 .

The cooperatives and producers that sued CDFA argued that the spread between the federal Class III price and the California Class 4b price established that CDFA was not following the law.

The California judge assigned the case disagreed. In rejecting the dairy producers’ lawsuit, he stated, “[The dairy producers] have not demonstrated that Secretary Ross’ quasi-legislative act of determining the Class 4b milk price formula, after public hearing and full economic and technical analysis by CDFA experts, was arbitrary and capricious or entirely lacking in evidentiary support.”

From my perspective, it appears that the court may have viewed this lawsuit as one challenging the factual basis for CDFA’s Class 4b formula rather than one arguing that CDFA ignored the law in deciding how to establish the 4b prices. As explained above, there is a huge difference in these two types of cases.


The end of this issue is nowhere close to over. The matter may be alive in all three branches of California’s government. First, there is the possibility of an appeal of the superior court’s ruling to the California Court of Appeals.

Second, California State Assemblyman Richard Pan has introduced a bill in the California Legislature that would change the dry whey factor in the Class 4b formula and specifically require “that the dry whey value factor shall be no less than 80 percent of the dry whey value used in federal milk marketing orders to establish minimum producer prices.”

Third, the CDFA held a hearing on December 21, 2012, to entertain proposals to adjust the price formulas for California classes 1, 2, 3, 4a and 4b for a period not to exceed six months. The specific proposals will likely be developed and presented at the hearing. A decision would follow the conclusion of the hearing.

What is most interesting to me, as an outside observer of the process, is the way in which this most recent hearing came about.

On December 3, California Dairies, Inc. , Dairy Farmers of America and Land O’Lakes requested that CDFA hold a hearing to consider an adjustment to the Class 4b price formula. The cooperatives’ proposal would have changed the price factors for whey to more closely mirror the federal order pricing. Their petition read, “[O]ur members want the same value for whey that their producer counterparts outside of California receive for whey.”

Within three days, CDFA had rejected the proposal. In deciding to reject the proposal, CDFA explained that it felt there was insufficient economic data to determine an accurate whey value and because all cheese plants do not “transform dry whey into a marketable dry whey product.” But simultaneously, CDFA announced that it would hold its December 21 hearing to consider a short-term adjustment to prices.

To me, this sounds like a political compromise. CDFA sees dairy producers hurting badly. But simultaneously, it feels boxed in by its prior positions on the value of dry whey in its price formulas. I might be totally wrong. But that is how I see it.

The past year has been an extremely difficult one for dairy producers, and perhaps no group of producers has borne the brunt of the current economic conditions more than those in California.

The fact that CDFA has taken the course it has is certainly going to be subject to a great deal of debate and discussion. But it does provide an opportunity to provide some financial relief to a group of producers that can truly benefit from revisiting the California formulas. PD


Ryan Miltner
The Miltner Law Firm LLC