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IDFA Statement on Conclusion of National Federal Milk Marketing Order Pricing Formula Hearing

CARMEL, Ind., Jan. 30, 2023—The following statement can be attributed to Mike Brown, chief economist, International Dairy Foods Association (IDFA):

“The U.S. dairy industry continues to go through a period of evolution and transition that has opened new opportunities for growth and presented significant new challenges for all participants throughout the dairy value chain, namely farmers and processors. IDFA believes the dairy industry has fundamentally changed since 2008 when the previous FMMO revisions were made, and that the current FMMO pricing formulas should be amended to reflect these new market dynamics. While nutritious milk remains the foundation for dairy’s continued growth, today’s U.S. dairy industry is defined by a robust, innovative supply chain that relies more and more on products like cheese, yogurt, dairy-based health beverages and powders, frozen treats, and valued-added fluid milk to meet ever-evolving consumer demands and generate income for producers and processors alike. However, today’s pricing policies are out of step with the modern marketplace. As our industry continues to evolve and become more efficient, we must have policies in place that position U.S. dairy for the future without being hamstrung by outdated regulations. IDFA has spent nearly two years ensuring that our FMMO proposals reflect a balanced, inclusive approach that is in the best interest of the full dairy supply chain.

“Forty proposals were submitted by stakeholders to USDA for consideration. Of those, USDA accepted 21 to be included in the hearing process, including two by IDFA—one requesting that USDA update make allowances which are woefully out of date after nearly 20 years of increasing manufacturing costs, and a second proposal on Class I milk pricing that puts more dollars into the pockets of dairy farmers than they would receive under the ‘higher of’ mover while allowing dairy processors to effectively manage price risk. Throughout the process, IDFA has remained constructive, offered fact-based testimony, and has continued to encourage USDA to make necessary reforms that allow U.S. dairy producers and processors to compete and win in a global marketplace.

“After weeks of testimony and cross-examination, USDA must now follow through on its mandate to update a federal order system that serves a diversifying and integrating dairy supply chain without putting these complex issues on the shoulders of legislators, which would unnecessarily complicate efforts to pass a new Farm Bill and create significant uncertainty for dairy businesses.

“IDFA appreciates being part of the national FMMO public hearing, and we look forward to reviewing USDA’s recommended changes, USDA’s final rule, and the producer referendum on the orders as modified which will determine this industry’s future.”

Background Information

After 12 weeks of testimony and cross-examination, the National Federal Milk Marketing Order (FMMO) public hearing that began on August 23, 2023, in Carmel, Indiana, has come to a close. The purpose of the hearing was for the U.S. Department of Agriculture (USDA) to consider proposals seeking to amend the uniform pricing formulas applicable in all 11 Federal milk marketing orders (FMMOs). Forty proposals were submitted by stakeholders for consideration. Of those, USDA accepted 21 proposals for consideration during the hearing, including two by the International Dairy Foods Association (IDFA). IDFA believes that FMMO pricing formulas should be amended as significant changes in the dairy industry and milk marketing have occurred since their adoption in the early 2000s.

IDFA’s efforts related to federal order updates have been ongoing for several years. We have engaged in an extensive process with several dozen meetings and multiple streams of work internally with IDFA members across all segments of our industry, including our dairy cooperative members. In March 2023, IDFA met twice with leadership from the National Milk Producers Federation (NMPF) to seek consensus on a set of priorities for Federal Order reform; however, consensus was not achieved. IDFA then acted on the direction of our Boards and filed a petition for updates to make allowances at the end of March. In June, we submitted a second, balanced proposal on the Class I mover that allows processors to manage price risk effectively while putting more dollars into the pockets of dairy farmers over time than they would receive under the “higher of” mover proposal. It is because of our diverse membership that we can submit a balanced approach that is based on sound data and beneficial to both processors and dairy farmers.

This is not a Farm Bill discussion. The focus is on USDA and its responsibility to manage the FMMO hearing process to amend these federal regulations to accurately reflect today’s dairy markets. IDFA will continue to work in the best interest of our members and the full U.S. dairy industry to see this process through.

IDFA proposals

IDFA is proud to stand behind these proposals because they represent a balanced approach that is based on sound data and is beneficial to both processors and dairy farmers.

IDFA’s Make Allowance proposal would update the system to better reflect the cost of processing milk into dairy products – something that hasn’t been adjusted since 2008. The IDFA proposal increases the current 2008 make allowance levels to the simple average of the 2022 Scheik study results and the new Stephenson 2022 survey stepwise over time. Half of the difference would be applied when (and if) the order changes are initiated, and 1/6 of the difference would be added each year over the next three years until the full amount is reached.  If an audited mandatory cost survey conducted by USDA becomes available during this time, the make allowance numbers from the new survey would be used instead. IDFA, NMPF, AFBF and other stakeholders are all asking Congress to provide USDA with the statutory authority to conduct regular cost surveys, and IDFA members were in Washington, D.C., this summer urging Congress to include this authority in the upcoming Farm Bill.

In June, IDFA submitted a modification to the proposal at the request of USDA. The modification adds a $0.0015 adjustment to the Schiek and Stephenson studies for marketing fees, as is currently recognized by USDA. The chart below outlines the proposed make allowance changes.

IDFA’s Class I Mover proposal would provide dairy producers with milk check payments equal to or greater than what they would receive under the “Higher of” mover over time, while preserving the ability for producers, processors and their customers to hedge their costs. It would do so in a manner that:

  • Preserves the ability of Class I market participants to manage price risk;
  • Encourages increased sales of Class I products, which have been in steady decline for many years; and
  • The proposal will put more dollars into the pockets of dairy farmers over time than either the current Class I mover or the “higher of” proposal.

In June, IDFA submitted a modification to the proposal at the request of USDA, further defining the proposed language and providing examples on how the proposal would work.

Under the IDFA proposal, the Class I skim milk mover for any given year would equal the Simple Average of the Class III & Class IV Advance Skim Milk Price, plus the higher of the following:

  1. The 24-month simple average of the Advanced “Higher-Of” Skim Milk Price (rounded to two decimals) for the August-July of the two preceding years, minus the 24-month simple average of the III-IV Advanced Skim Milk Price (rounded to two decimals), or
  2. 74 cents per cwt skim milk (71 cents per cwt 3.5% Milk).

An example for 2023 follows below:

Therefore, if the proposed IDFA Class I Mover formula had been in effect for 2023, it would have paid farmers on average 41 cents more per cwt on 3.5% milk than the “Higher-Of” and 43 cents more per cwt. on Class I Skim than the “Higher-Of” Skim mover.

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