Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
The USDA Farmers to Families Food Box program started in May of 2020 as an emergency COVID-19 response program to get food to people in need. The concept was simple – pay vendors to put a certain amount of food in a box and deliver it to anyone who would take it. No need for people to qualify.
USDA administered five rounds of this program, distributing 157,544,167 boxes of food. A gallon of milk and a pound of cheese was required to be in every box, as well as 5 more pounds of dairy products, which the vendor could select. When these original contracts were made, vendors, for the most part, had not secured the required items to put in the boxes. The delivery requirements were tight and the immediate demand for cheese to fill the boxes overwhelmed the market and drove cheese prices to unprecedented levels. The same demand did not apply to butter. While butter was an optional dairy product, it had to compete in price with other dairy products like yogurt and sour cream which have a much higher moisture content and are therefore less expensive on a per pound basis.
Milk pricing for American dairy farmers is very much tied to the Federal Milk Marketing Order (FMMO) classified pricing system, which has separate milk prices for milk made into cheese as opposed to milk turned into butter and nonfat dry milk. The result of dramatically different demand for cheese compared to butter and powder caused a huge gap between Class III (cheese milk) and Class IV (butter/powder milk). This higher price for Class III incentivized cheese plants to “depool” and not share those increased revenues with the whole order. Furthermore, a 2019 change to the FMMO Class I price formula that now uses the “average of Class III and Class IV” as the base price instead of the “higher of Class III or IV” meant that Class I prices for several months were lower than the Class III price, which also contributed to a shortfall in funds in the Federal Milk Marketing Order pools. This shortfall of revenues played itself out in negative Producer Price Differentials (PPDs) on producers’ milk checks, which caused a lot of questions and concerns in the producer community.
For months, producers and their representatives have been asking USDA to take this imbalance in milk prices to farmers into account as they carry out their purchases of dairy products. The announcement that the food box program is ending is the first indication that change is coming. Hopefully, what follows will be better.
Secretary Vilsack testified and took questions at a hearing of the House Agriculture Appropriations Committee this week. The whole hearing ran three hours, and you can watch it here.
For your convenience, we have put together a short excerpt of the hearing related to questions and answers of the following:
• The Food Box program
• The Estate Tax
• The Stepped-up Tax Treatment
• Flavor Milk in the School Lunch Program
• Ag Export Dependence On China
You can view the edited video here.
The hearing also spent quite a bit of time talking about expanding broadband access in rural areas, beef marketing oversight, nutrition programs and social justice.