The Evolution of Dairy Price Policy in California: Our Unique System for Distributing Revenue

The California dairy industry generates about $4.5 billion in gross farm revenue, more than any other agricultural industry in the state. The dairy industry is also one of the most heavily regulated and supported agricultural industries in California. This article examines how the role of government has evolved in one part of the California milk marketing and pricing system. We describe the creation of the system in the 1930s, and some key transitions, before analyzing the current methods for distributing milk revenue among producers. The system currently revolves around a policy-created asset that is tradable among producers in a market that has many of the characteristics associated with financial markets. The early history of milk market regulation in the United States parallels that for many agricultural commodities. The beginning of the Great Depression in 1929 brought a collapse of prices and market disruption. However, the milk pricing system that was created is quite different from other government-supported agricultural commodities and also quite different than the systems for horticultural commodities, most of which developed with much less direct government price and market regulation. The same forces that led to the federal milk marketing order system created the California system, but from the very early years California has had its own separate set of programs for dairy.