On September 12, I had the opportunity to testify on your behalf at USDA’s national Federal Milk Marketing Order Pricing Formula hearing being held in Carmel, Indiana. The hearing was called as the result of a petition submitted by the National Milk Producers Federation requesting changes to a number of provisions related to the milk pricing formula.
I can’t recall a time when the words I’ve written have been scrutinized so closely. After reading my seven-page testimony, I was cross examined for nearly an hour and a half by attorneys representing various parties. My cross examination was pretty tame compared to other witnesses.
If you are not familiar with the hearing process, testimony is presented before an administrative law judge and is directed to USDA staff, who have the responsibility of taking all of the information being presented and putting forth a proposal that dairy farmers will ultimately vote on.
Similar to a court hearing, the attorneys representing various interests try to build the case for their clients. In 1938, Senator Everett Dickson was famously quoted as saying “a billion here, a billion there and by and by it begins to mount up into money.” In the case of the order hearing, we are discussing “pennies” which add up to millions and billions of dollars.
My testimony focused on the critical issues concerning manufacturing costs or “make allowances.” I supported NMPF’s proposal that makes modest increases to “make allowances” as to partially alleviate problems that have led to the disorderly marketing of milk. It balances producer and processor interests.
One of the central points of my testimony was the adverse impact of outdated make allowances on FarmFirst members and our Family Dairies USA patrons. Current make allowances have compressed margins at processing plants, which in turn have been passed on to producers in the form of lower milk prices or premiums so processing plants can manage their margins. Make allowances need to be updated in the long-term interest of processor reinvestment in their plants.
I stressed the importance of accurate “make allowances” in determining milk prices since “make allowances” are an integral part of determining milk prices, and Product Price Formulas do not work as intended when “make allowances” are set below the actual cost of commodity manufacturing.
Increases may have a short-term impact on producer prices, but I emphasized the need for prudence, due to the lack of agreed-upon comprehensive, industry-wide data on costs, yields, and plant volumes and the impact on producer margins. In addition to the NMPF proposal, there are other proposals calling for significantly higher “make allowances,” which would have a devastating effect on milk prices and the orderly marketing of milk.
I emphasized that the dairy industry’s “make allowance” situation cannot be resolved overnight and that it should not fall solely on the shoulders of producers and called for a balanced approach that considers the long-term interests of all stakeholders and the industry’s need for accurate data on manufacturing costs.
Outside of the hearing process, NMPF is advocating through the legislative process to give USDA the authority and funding to have regular, mandatory “make allowance” surveys in the future. When we get to that point, the industry can decide whether to petition for a hearing.
Updating “make allowances” is just one part of the national federal order hearing. Testimony has already concluded regarding updating the milk component factors in the skim milk price, removing barrel cheese from price discovery for cheese, and “make allowances.” Other issues that will be discussed will be to return to using going the “higher of” (the Class III or Class IV price) as the Class I mover and increasing Class I price differentials.
The Federal Milk Marketing Order hearing is a tedious, long-drawn-out process. And, while the policy “wonk” in me enjoyed listening and learning from the testimony and cross examination, there were times it was “like watching paint dry.”
Still, this is an important process. NMPF is building a strong case for its proposal and positions to modernize federal milk marketing orders. It remains to be seen how USDA will interpret the information and what they come up with for a proposal.
FarmFirst will remain diligent throughout the process and work for a solution that balances dairy farmer and processor interests because word and pennies matter.
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