By Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
Early in this full week at the Federal Milk Marketing Order (FMMO) hearing, National Milk Producers Federation witnesses wrapped up their testimony about the regional details of their proposal that seeks to update the Class I differentials in each of the 3,100 counties in the 48 contiguous states. Then mid-week, NMPF put up dairy industry economist Dr. Scott Brown from the University of Missouri to talk about his modeling of the impact of the various NMPF proposals on milk prices. My summary of Dr. Brown’s findings: some pluses, some minuses, slightly positive initially, and eventually a wash. You might wonder, if in the end this is all a wash, why change it? Fair point but remember the purpose of the regulation is to mimic what the free market would produce if a free market were possible in the dairy industry. But since milk is highly perishable and dairy farmers must sell milk every day to a processor who does not have to buy it every day, a truly free market between a willing seller and willing buyer is impeded. Because having an adequate supply of fresh and wholesome milk at affordable prices is in the national interest, Congress has authorized the government to play the role of a referee between producers and processors. In a well-constructed regulation, it is the market that determines winners and losers not the referee. But that regulation, from time to time, needs its various elements updated to reflect changes in market conditions and costs. That is why we need this hearing. That Dr. Brown’s analysis shows that over time the changes wash out is to be expected if the regulation is properly designed.
But of course, the processors have their role to play in this drama. So, they put on a number of witnesses including a well-paid economist from Purdue University (when asked in cross examination how much he was paid for his participation in the hearing by the processors, he responded $37,000). There were also various representatives of processor companies testifying that raising Class I differentials would harm them. Dr. Mark Stephenson also made another appearance to give more specifics about the economic Class I price surface model that forms the basis of the NMPF Class I differential proposal. The testimony on Friday started with a Class II processor from Wisconsin opposing Proposal 21 by American Farm Bureau to raise the Class II price. This was followed by a couple more processor rebuttal witnesses who were still on the stand when time ran out.
The hearing will resume on Tuesday, January 16, 2024, and run for the remainder of that week. It will then skip a week and resume on January 29 and hopefully wrap up by Friday, February 2, Groundhog Day. How ironic.