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ISSUE: The system of milk pricing through the federal orders based on geographic areas
across the country and type of dairy products produced is complex. Several proposals
were presented at the recent FMMO hearings, and key issues need to be addressed as we
move forward.
AMERICAN AGRI-WOMEN REQUEST: We request returning to the ‘higher of’
formula as articulated in the recent farm bill that moved through the May 23, 2024 House
Ag Committee markup. This is key while awaiting USDA’s preliminary decision from
the Federal Order hearing.
BACKGROUND: The milk pricing formula had an adjustment in the 2018 Farm Bill
(moving from a “higher of” calculation to an “average of” calculation) that provided new
risk management tools for the beverage milk industry to allow them to use futures
contracts to hedge their beverage milk price risks. But this formula change created a
cascading failure for American dairy farmers through significant milk check reductions.
Farmers have suffered the effects of a shortfall of billions of dollars in FMMO
component pricing revenue sharing pools in the past several years. This milk pricing
formula change did not proceed through a formal USDA FMMO hearing process and
resulted in significant financial damages to dairy farmers across the nation through milk
price volatility and the unexpected inability to utilize risk protection tools that they had
already purchased.
AMERICAN AGRI-WOMEN REQUEST: AAW asks for no “make allowance”
increases at this time.
BACKGROUND:
Make allowances are embedded into the milk pricing formulas to subtract from the
announced class and component prices. It is the processor’s cost to make the products
that are used in the pricing formulas. This has the net effect of a deduction from the
farmers’ milk checks used to help processors offset their costs of production. Meanwhile,
farmers are expected to reduce their cost of production in order to meet cash flow needs.
National Milk Producers Federation (NMPF) and International Dairy Foods Association
(IDFA) have separate proposals under hearing consideration by USDA that would raise
make allowances by different amounts, lowering farm milk checks in the process.
AMERICAN AGRI-WOMEN REQUEST: AAW requests mandatory and audited
product processing cost surveys that must be authorized in the final version of the farm
bill, implemented and published by USDA, and then the data used to set make allowances
in a manner that would be vetted through a USDA administrative hearing before these
processor credits result in reductions to farmers’ milk checks.
AAW requests additional products to be included in the mandatory pricing survey.
Mozzarella, for example, is currently excluded from the USDA formula pricing and the
USDA pricing survey, yet processors testified in the FMMO hearing that the make
allowance on their byproduct whey is too small and the prices they pay for milk are being
set too high by USDA. On cross examination, USDA asked these processors if they build
plants to make mozzarella or to make whey, reminding them that the mozzarella is not
price-surveyed by USDA nor is it included in the formula for pricing milk, so the price
they take for that value-added Mozzarella is determined by the processor, creating
additional margin that is independent of the FMMO pricing system. We believe that the
pricing survey must be expanded for informational purposes and market transparency.
AMERICAN AGRI-WOMEN REQUEST: AAW requests long overdue reform to how
farmers vote on FMMO hearing decisions.
BACKGROUD: The processors and cooperatives continue to support bloc voting on
behalf of their farmer members. (This means the farmers do not receive a ballot, but
instead their cooperative votes on their behalf) Most farmers have no idea that a “no”
vote done by their cooperative on their behalf is equivalent to voting ‘no’ to having a
Federal Order in their region. In other words, if cooperatives and/or farmers vote ‘no’ to
any Federal Order change, they are actually voting to discontinue their Federal Order, as
amended. The only way to keep the Federal Order is to vote ‘yes’ to ALL the changes,
even if the farmers don’t want them. There is chatter in the dairy industry that some are
banking on this type of opportunity to weaken or dissolve Federal Orders in key regions
of the U.S., which would mean farmers no longer have the status quo but instead are
entering an unprecedented area of uncertainty and more price fluctuations and
inconsistency without any oversight from USDA.