Four years ago, the Agriculture Improvement Act of 2018, better known as the 2018 Farm Bill, was signed into law. The revamped Dairy Margin Coverage (DMC) program provisions spurred excitement among dairy farmers hopeful to better protect against heightened market volatility. One provision, however, altered the way in which milk was priced – a change historically made through a Federal Milk Marketing Order (FMMO) hearing process.
This legislative change from the “higher of” Class III and IV skim milk price to the “average of plus 74 cents” for the Class I mover later resulted in the widespread depooling of manufactured classes of milk and with it over $700 million in combined negative producer price differentials (PPDs). Many dairy farmers felt left out, their voices seemingly overridden through an act of Congress rather than an inclusive series of stakeholder meetings managed by the USDA.
This is a stark contrast from the American Farm Bureau Federation’s (AFBF’s) recent industry-wide forum on FMMO issues, where a united voice made it loud and clear a return to the higher-of pricing formula is preferred.
Dairy policy issues studied
Farm Bureau’s Dairy Working Group of 12 dairy farmers from across the country has meticulously studied and discussed dairy policy over the past three years, providing fodder for grassroots policy development.
This intense study has borne fruit. Previously, U.S. Agriculture Secretary Tom Vilsack asked that the dairy industry “get in a room” and do the hard work of developing consensus on how to improve federal orders. This led to the Dairy Working Group recommending that AFBF host the industry-wide conference in October.
In mid-October, AFBF hosted dairy leaders at a FMMO forum in Kansas City, Missouri, with dairy farmers as the majority of attendees. The meeting was the result of grassroots movements within Farm Bureau’s membership searching for an effective platform for dairy farmers to share their perspectives on FMMO issues.
Four segments featured
After months of planning, the vision of a FMMO forum came to fruition in the form of four half-day segments. Each half-day segment boasted a panel of experts including farmers and representatives of the USDA, dairy cooperatives, proprietary milk processors, and state and national dairy farmer organizations. Each addressed a specific FMMO topic, followed by an intensive session of roundtable discussions related to the same topic. The four sections covered were: 1) origins and purposes of FMMOs, 2) Class I pricing issues, 3) Class III and IV pricing issues and 4) simplifying FMMOs. All attendees were assigned to one of 23 breakout tables of eight people each, ensuring diverse organizational affiliation. These spirited discussions among all industry facets generated consensus positions incorporating meaningful expression of the dairy farmer’s voice.
For simplicity, each table was considered a “vote” toward a particular policy position, although not all tables discussed or came up with a position on every item. Many of these consensus positions overlapped with AFBF policy, including: a return of the Class I mover to a higher-of formula (consensus at 21 tables), increased Class I differentials to reflect marketplace changes (15 tables), simplify and add uniformity to milk checks (12 tables), tightened pooling provisions (12 tables) and use modified bloc voting instead of bloc voting (11 tables).
Other consensus items from the forum not currently covered in AFBF policy but recommended as new policy by the Dairy Working Group included: making processing cost surveys of plants and auditing by the USDA mandatory to ensure accurate data (13 tables) and updating make allowances routinely with those cost surveys (12 tables). The group also highlighted the importance of updating cost and yield factors together. These, and many of the group’s other findings, may return as resolutions from state Farm Bureaus for the consideration of AFBF’s voting delegates in January.
Joint statement developed
In addition to these consensus items, AFBF and the National Milk Producers Federation (NMPF) developed and shared a joint statement on the need for FMMO improvements that was endorsed by several other dairy organizations attending the event. The statement (see statement below) recognizes the challenges of an evolving milk market, including those accentuated by the disorder of 2020, and looks forward to the opportunity to update both price formulas and Class I differentials and seeks to continue a cooperative dialogue in the dairy industry to find solutions on common ground.
NMPF and the International Dairy Foods Association (IDFA) each have their own policy process, and both organizations had speakers and participants at the forum, helping to generate several of the meeting’s consensus positions.
We did the work. AFBF got dairy farmers and other industry professionals in a room, and we found meaningful consensus on what can reasonably be done to modernize federal orders. The next step will be for AFBF and the rest of the dairy industry to bring these shared ideas to the USDA for a hearing that will allow those orders to effectively serve the entire industry for years into the future.
Joint American Farm Bureau Federation/National Milk Producers Federation statement:
“We support the federal milk marketing order (FMMO) system as key to fair market-based farmer milk pricing and recognize the importance of periodically updating the program to reflect changes in the dynamic U.S. dairy industry. With the last major update to the FMMO system occurring in 2000, we believe it is time to consider improvements that better reflect today’s milk markets.
“In addition, the pandemic-related market disruptions of 2020 also highlighted the need to modernize the program so that it can better mitigate the impacts on producers of disruptions in milk pricing such as occurred then. At that time, a combination of federal order price formulas, temporary market imbalances and sudden demand disruptions created disorderly marketing of milk, to the detriment of producers.
“We anticipate the prospect of a hearing conducted by USDA in 2023 that could address FMMO price formulas, including all four Classes, as well as the Class I price surface. An amended pricing system should improve price discovery, improve the clarity of the program, continue to support timely payments to producers and reduce price incentives to de-pool milk.
“We are encouraged by the healthy discussion at this week’s Federal Milk Marketing Order Forum and look forward to continuing the discussion about promoting a healthy dairy industry through modernization of federal order pricing.”
Organizations participating in the event and endorsing the joint statement:
- American Dairy Coalition
- National Farmers Organization
- National All-Jersey
- Georgia Milk Producers
- Indiana Dairy Producers
- Kentucky Dairy Development Council
- Missouri Dairy
- Dairy Producers of New Mexico
- Ohio Dairy Producers Association
- Virginia State Dairymen’s Association
