The state's top agricultural official thinks the dairy industry needs to move beyond the "antiquated" system for setting minimum milk prices in California.
Karen Ross, secretary of food and agriculture for Gov. Jerry Brown, issued a letter about her decision last week to raise prices much less than farmers sought.
She said the pricing system dates to the 1960s, when most of the milk was sold in fluid form to California consumers, but the market now is a global one dominated by cheese, butter and other dairy products.
"Our system of regulated milk pricing is an antiquated one that impairs the ability of the dairy industry to rise to this challenge," Ross says in the letter, posted on her blog site Monday.
The California Department of Food and Agriculture each month sets minimum prices that processors must pay for milk bound for various uses, based on a complex formula that takes market conditions into account.
Farmers say that since 2009, the prices rarely have covered their production costs, mainly feed.
Milk is No. 1 in gross income among farm products in the Northern San Joaquin Valley and statewide, but net income can be scarce.
The latest decision was on a petition by farmer groups to add a $1.20 surcharge per 100 pounds to the minimum price of milk bound for cheese plants. It stood at $17.20 as of May.
The petition says prices have not reflected the value of whey, which is left over from cheese making and sold to makers of products such as infant formula and energy bars. Hilmar Cheese Co. is a major player in this global business.
Ross instead approved a six-month surcharge adding 12.5 cents per 100 pounds on average for all classes of milk. It will start July 1 and apply to milk bound for the fluid market and to plants making cheese, butter, ice cream, yogurt and dozens of other products.
One hundred pounds of milk is about 12 gallons.
The California Dairy Campaign, a farmer group based in Turlock, blasted the decision in a news release.
"Once again, CDFA has failed to respond to the plight of dairy producers around the state who continue to exit at an alarming rate largely due to the fact that our state fails to pay producers a price that is equitable," said Tulare County farmer Joe Augusto, the group's president.
The Dairy Institute of California, which represents processors, argued that the increase sought by farmers could give other dairy states an advantage. It said whey is costly to produce, and most cheese plants do not market it.
Farmer groups urge reforms that would bring the state's pricing system closer to the federal model used in other dairy regions. They hope for help from the five-year farm bill being crafted in Congress.
Ross' letter says she agreed to "modest temporary price relief" for farmers, but would like to see changes that reflect today's market.
"We must work together to create a new system to allow producers to improve margins by being responsive to market signals, to provide incentives for the construction of additional processing capacity, and to encourage the production and marketing of new innovative products that add value to milk," she wrote.
Bee staff writer John Holland can be reached at email@example.com or (209) 578-2385.