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AN OPEN LETTER
California producer tells economists how he sees it

The graph above, while not a part of Geoffrey Vanden Heuvel’s letter, illustrates the reason he wrote the letter in the first place. The gap between California’s Class 4b price and the Federal Order Class III price has widened dramatically. The graph itself was included in a Milk Producers Council news release dated August 31, stating that California dairy farmers had filed suit in court against the California Department of Food and Agriculture.

Dear Candace, Hyrum and Amber:

Secretary Karen Ross has indicated in recent communications to the California dairy industry that department economists (I presume that would be you) are monitoring the conditions in the marketplace, apparently with the implication that if you see something that requires a course correction you will point that out to her. Since she is relying on you for this information I would like to share a few observations with you.

First I wonder from what point you are doing the monitoring. Some distance upstream from the Niagara Falls there is a sign on the river bank that marks the “point of no return.” What this sign indicates is that if someone falls into the river past this point, there is no way to rescue them because the current in the river is too strong.

Once you pass that point you are going over the Falls. I wonder if you are not monitoring the current dairy crisis from below the falls. Looking up at producers breaking over the falls, thinking that when enough of them go broke then you can change course and address the problem. But if that is your vantage point, everyone that has passed the point of no return is going over also.

California dairy producer bankruptcies are occurring every week, but let me assure you that those producers that file for bankruptcy are a small percentage of the producers that are in dire financial straits. And when producers cannot pay their bills and essentially go broke, who gets hurt? Not just the dairyman and his family but also the feed suppliers, the hoof trimmers, the veterinarians, the breeders, the soap suppliers and hundreds of other people in the allied industries. In essence the entire infrastructure of the California dairy industry begins to crumble right along with the bankrupt dairymen. This is why we have a regulated industry to begin with, to prevent this type of damage from occurring.

So the department, at your direction, has been maintaining a policy of looking at the milk supply and plant capacity and deciding, in essence, that the California dairy farmers’ economic well-being is not as important as protecting a handful of relatively small cheese plants processing a relatively small volume of California’s milk who don’t do much with their whey stream. The fact that everywhere else in the country similarly situated cheese plants do pay the higher regulated federal price seems to be ignored by you. You also ignore the fact that these small cheese plants are not making commodity cheeses. In the process, large cheese plants in California with operations in other parts of the country where they all pay federal order class III prices plus premiums, are allowed to buy milk in California at steeply discounted prices. How do you expect California dairy farmers to compete with dairy farmers in the rest of the country when our prices are so severely discounted?

Secretary Ross has now sent copies of the 2007 Mc Kinsey Report to all of California’s dairy families. This report goes into some detail (see page 21-22 of part 2) in observing that discounting California’s cheese milk to obtain market share is not a strategy that will work in the future. This was written in 2007 and yet you continue to pursue this cheap milk policy despite having the full discretion and I would say responsibility to change course.

There is nothing fundamentally wrong with the California system. What is wrong is the way the California system is being administered. Secretary Ross has the tools she needs to bring California’s regulated price into a reasonable relationship with the milk prices received by dairy farmers everywhere else in this country. She simply refuses to do it, apparently because you as her economists don’t recommend it. The tragedy is that the California producer sector and with it the allied industries are being permanently damaged, not by market forces, (if we were paid a comparable price with what producers are paid in the rest of the country and still were failing that would be different), but by your policies. I beg you to find the courage to change course.

Sincerely,
Geoffrey Vanden Heuvel
J&D Star Dairy, Chino, Calif
.

EDITOR’S NOTE: Geoffrey Vanden Heuvel has been a dairy farmer in Chino, California, since 1979. He currently serves as vice-chairman of Milk Producers Council. His open letter, printed above, was sent to dairy economists within the California Department of Food & Agriculture on September 21.