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October 2, 2019

Farm Bureau Proposes Changes to Federal Milk Marketing Orders

 |  By: Jim Dickrell

A study group organized by the American Farm Bureau Federation (AFBF) is proposing changes to the Federal Milk Marketing Order (FMMO) system to both modernize it and make it more responsive to dairy farmer needs.

Most notably, AFBF is proposing that milk price discovery methods be expanded and modernized, the elimination of bloc voting provisions, an update in the method of calculating make allowances and specific changes to Federal Order provisions in the southeastern states.

In its 16-page summary document, AFBF notes that it has been 20 years since Federal Orders have undergone major revisions. In that time, dairy farm numbers have dropped nearly in half, fluid milk utilization has dropped by nearly 30% but consumption of other dairy products has risen nearly 10%. By 2030, U.S. milk production is expected to climb to 250 billion lb annually, up from 217 billion lb in 2018. By 2050, AFBF says dairy exports will likely exceed domestic fluid milk sales.

AFBF’s goals with Federal Order reform are three-fold:

• Improve risk sharing among dairy farmers, cooperatives and processors.

• Improve price discovery

• Simplify pricing and pooling provisions, particularly in the Southeast United States.

To start, AFBF is proposing the elimination of bloc and modified-bloc voting by cooperatives. It also wants to eliminate the provision that a “no” vote on proposed changes to a Federal Order means that the Order is terminated (rather than a return to existing provisions). Instead, to approve changes, two-thirds of voting farmers and two-thirds of the voting milk supply would be required make a proposed change.

AFBF is also proposing that make allowance be set on a percentage basis. That would spread the risk of falling prices among all parties. With a fixed make allowance of $3.17 in Class III, for example, the make allowance amounted to 14% of the average annual Class III price in 2014. But in 2018, when milk prices fell, that $3.17 make allowance averaged 22% of the Class III price. “Over the last decade, make allowances have totaled more than $30 billion in credits to processors,” notes AFBF.

Rather than a set a make allowance amount, AFBF supports make allowances equal to a percentage of the commodity needed to price each milk classification. It does not support increasing make allowances, eliminating them or indexing them to inflation, labor or energy.

AFBF’s third proposed change revolves around an expansion of price discovery. Today, USDA’s price discovery requirements cover only 13% of butter production, 10% of all cheese and 34% of cheddar production, 66% of non-fat dry milk, 50% of whey and 9.5% of milk solids.

Finally, AFBF wants simplified pricing and pooling provisions in the Southeast. “The more liberal rules in the Appalachian and Southeast Orders make it easier for out-of-area milk to ‘ride’ the pool and receive a portion of the Class I dollars in the market,” notes AFBF. “This has resulted in mailbox prices below the FMMO uniform price in some FMMOs in the Southeast.”