Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
When California joined the Federal Milk Marketing Order (FMMO) program in November of 2018, it was widely believed that an update of the FMMO’s milk pricing formulas would soon follow. The last update had been done in 2008. Unlike the California State Order, where changes to the milk pricing formulas often happened multiple times every year, changes to the FMMO program have always happened infrequently. There is a reason for that – and it is a good reason.
The FMMO hearing process is long, and when changes are proposed and USDA grants a hearing, all sides get to give testimony. That testimony is then tested by cross examination, not just by USDA officials, but also other industry stakeholders. When USDA makes a preliminary hearing decision, there is then an opportunity for review and comment by the industry before a producer vote is taken. Then after considering that input when USDA publishes a final decision, it is producers who vote yes or no on whether the new rules take effect. Producers must weigh their vote carefully because a no vote ends the FMMO and leads to deregulation. So, getting a modernization proposal right during this lengthy process is very important, and if done right, it also leads to a more stable and long-lasting result. Building a strong consensus, particularly among producers, is critical. This is what takes time, and the National Milk Producers Federation (NMPF) has taken the time to do this right.
NMPF is the trade association of the cooperatives in the United States. Their CEO Jim Mulhern said this week in a column:
“More than 150 meetings over nearly two years, with many of the industry’s best minds, including producers of all sizes and in all regions of the country, as well as the cooperative-led processing community, has generated a strong consensus among producers that portends well for the proposal we’ve presented USDA. The Federal Milk Marketing Order system is, in the end, focused on farmers – and we’ve gained unanimity among our producer-leaders in backing this proposal.”
These meetings included sessions with state dairy associations, including Milk Producers Council, where we were able to give input and feedback into the process of developing this proposal.
It is a strong and balanced proposal from my perspective. It has five major elements that must be considered as a package. There are increases in make allowances for butter, nonfat dry milk, cheese and dry whey in the proposal. The proposal discontinues the use of barrel cheese in the protein component price formula. It returns the Class I mover to the “higher of” either the Class III value or the Class IV value. It updates the component factors in the skim milk price formula and it updates the Class I differential pricing surface throughout the U.S., which has not been comprehensively updated since 2000.
Taken as a package, the impact on producer milk checks will be small if at all. But by updating these formulas, some out of date portions of the pricing formulas will be modernized and defensible, thereby strengthening the FMMO program for the long-term.
I recently had a conversation with a producer who had attended his co-op annual meeting where the report was that the co-op’s manufacturing plants were not able to cover their costs with the current make allowances leading to losses for the co-op bottom line. While no one likes to hear that, given that particularly energy and labor costs have gone up substantially since the make allowances were last adjusted in 2008, it should not be surprising. But what I reminded my friend was that if we had remained in the California State Order, where make allowances were constantly adjusted upward to keep our manufacturing plants profitable, the milk price would be substantially lower. As I have demonstrated in prior articles, the mailbox milk prices in California are at least $1 per cwt. higher under the FMMO than they were under the California State Order. The California milk price discount that we lived under for so many decades is over. As part of the FMMO program we are now on a level playing field with producers in the rest of the country. This is an important point to keep in mind as USDA considers the NMPF proposal. Whatever changes end up being made will be applied to all FMMOs not just California.
I deeply appreciate the work and care NMPF has put into developing this proposal. We look forward to a USDA hearing where the FMMO can be successfully updated so it can continue its vital role in providing a stable marketing environment for our industry to prosper.