By Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
After a six-week break, the Federal Milk Marketing Order hearing resumed in Carmel, Indiana this week. When the hearing had recessed on October 11, one of National Milk Producers Federation witnesses was in the middle of being cross-examined by one of the attorneys for the processors. The issue being considered is NMPF Proposal 19, which updates the Class I differentials in all 3100 counties of the continental US. Right on cue, as if no time had passed, that witness returned to the stand and the cross-examination resumed. After he finished several more NMPF witnesses testified about changes in their regions. This continued over the rest of Monday through Tuesday and into Wednesday. Each NMPF witness was questioned for hours by the processor attorney’s probing the minutia of the various specifics of the NMPF proposal. No doubt there is a method to their madness, but for the most part, the point of this massive expenditure of valuable hearing time is missed on me. What I can discern is that processors don’t want to pay more for milk. Surprise, surprise.
On Wednesday afternoon the American Farm Bureau representative testified. AFB is the author of Proposal 21 which is to increase the Class II differential from the current 70 cents per cwt. to 1.56 per cwt. Class II refers to soft dairy products like sour cream, ice cream and yogurt. These products can be made with fresh milk, but they can also be made by re-wetting nonfat dry milk. The Class II price differential needs to take that alternative source of solids into account and since the costs of drying milk have increased, necessitating an increase in the Class IV make allowance, AFB is proposing that the Class II differential should be increased as well to reflect the higher value of fresh milk that does not require the cost of re-wetting already dried nonfat solids. The rest of Wednesday was the cross-examination of Dr. Roger Cryan, the AFB witness.
I flew to Indianapolis and was present first thing Thursday morning. The USDA officials running the hearing, with the kind agreement from the other hearing participants, allowed me to give my testimony on behalf of MPC right away on Thursday. I read my testimony into the record and was cross-examined for an hour and half. After I was finished the cross-examination of Dr. Cryan resumed and that took the rest of the morning. In the afternoon Dr. Orin Capps from Texas A&M took the stand. Dr. Capps was testifying on behalf of the International Dairy Foods Association. He is an expert in price elasticity. IDFA had commissioned him to do research on Class I price elasticity. His testimony and cross-examination, this time by producer attorneys lasted the rest of Thursday and a good chunk of Friday morning. A couple of nuggets of info I didn’t know.
According to Dr. Capps 76% of the volume of fluid milk is sold through retail outlets. 15 % is sold through food service and institutions and 8% is sold through schools. Dr. Capps research takes a unique approach by using weekly retail milk sales data as well as considering other beverages that compete with milk into his analysis. He finds that plant based “milks” are definitely competitors but so is bottled water, juices and sports drinks. The analysis Dr. Capps has done is that retail milk prices are elastic when evaluated on a weekly basis. That is, increases (or decreases) in price affect milk sales. Of course, FMMO Class I prices only change monthly, so differences in weekly retail milk prices are a store’s choice and putting milk on special to stimulate sales is nothing new. Dr. Capps’ conclusion is that raising Class I differentials will reduce sales, but he admitted it will put more income into producers’ pockets.
It was good to actually attend the hearing. There are about 15 USDA employees in attendance in addition to Judge Clifton, who also did the California FMMO hearing in 2016 and the court reporter. NMPF has a full staff of folks including lead attorney Nichole Hancock, all of whom are doing terrific work on behalf of producers. Ryan Miltner is the attorney for Select Milk Producers and also contributes greatly to the producer cause as does Dr. Roger Cryan on behalf of the American Farm Bureau. The processors are ably represented as well.
This is a grinding process, but extremely important to the dairy industry. No one gets away with putting untested evidence into the record. The USDA team is incredibly thorough and perceptive. They have a huge task to wade through the evidence and make the determinations that will govern our industry for next several years. There is another full week of hearings next week and, if they do not finish, it will likely be late January before they pick it up again.